2014년도 국제조세 판례회고

This Article analyzes five Korean Supreme Court Decisions and one Seoul High Court Decision rendered in 2014, all of which have significance as precedents in the field of international taxation. Supreme Court Decision 2012Du11836, dated June 26, 2014, held that if a U.S. entity was fiscally transparent for the purpose of taxation in U.S., it was entitled to tax benefits under the Korea-U.S. tax treaty as a resident only to the extent its members were subject to U.S. tax, even though the entity itself was treated as a foreign corporation under Korean tax law. The Supreme Court is known to maintain a view that is different from the entity classification stated in the OECD Partnership Report, but as shown in the recent decision, the Supreme Court’s analysis reaches the same outcome as that in the OECD Partnership Report. In Supreme Court Decision 2012Du18356, dated November 27, 2014, the Supreme Court concluded that the royalty paid for the use of patents from a Korean company to a U.S. corporation was not Korean source income in the context of the Korea-U.S. tax treaty, if the patent had not been registered in Korea. However, the author disagrees with the conclusion, because this decision disregards Article 93 (9) of the Corporation Income Tax Law, newly inserted in December 26, 2008, establishing the place of source rule for royalty income. Supreme Court Decision 2012Du1747, 1757, dated September 4, 2014 and 2012Du23341, dated August 20, 2014, ruled that NTS had the burden to prove that the arm’s length price was calculated reasonably following the transactional net margin method. This decision appears to maintain the position held by previous decisions that the burden of proof for showing the tax assessment’s legality lays upon the NTS. Supreme Court Decision 2012Du16466, dated July 10, 2014, is in accordance with the precedent decisions that substance-over-form doctrine can be applied in the interpretation of a tax treaty. Also, this decision points out some significant factors when applying substance-over-form doctrine. For example, a parent company which owns the entire shares of its subsidiary can control the subsidiary’s business management or decision making as a shareholder, but this does not directly mean that the parent is a substantial owner of the subsidiary’s income only for that reason, and the nature of holding company should be considered when applying the doctrine. Seoul High Court Decision 2013Nu534026, dated May 28, 2014, ruled that a taxpayer is eligible for tax sparing credit if he/she was exempted from dividend income tax in China based on the differential limited tax rate of Korea-China tax treaty. However, this conclusion is questionable, because the purpose and intent of tax sparing credit and differential limited tax rate system are wholly different. Regarding this issue, further Supreme Court decisions may be necessary to clarify the problem.