Korea vs “Lux corp”, 16 January 2020, Supreme Court Case no. 2016두35854

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In this case the Korean Supreme Court held that Luxembourg SICAV and SICAF are entitled to reduced withholding tax rate on interest and dividend income under the Korea–Luxembourg Tax Treaty.

 

Meaning of “residents of Luxembourg,” which is subject to the “Convention between the Government of the Republic of Korea and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital” (held: any person who, under the laws of Luxembourg, is liable to pay tax therein), and in a case where tax is not imposed in accordance with the benefit of tax exemption, etc. for which legal requirements has been fulfilled, whether it may be considered that the tax liability does not exist (negative).

Standard for determining whether one qualifies as the “beneficial owner” as prescribed in Article 10(2) Item (b) or 11(2) of the “Convention between the Government of the Republic of Korea and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital”.

Meaning of “holding companies within the meaning of any similar law enacted by Luxembourg after the signature of the Convention” as stated in Article 28 of the “Convention between the Government of the Republic of Korea and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital,” and whether a person who acquires securities such as stocks, etc. simply for the purpose of getting his/her investment returns constitutes such holding companies (negative in principle).

Apart from appealing against the disposition imposing a corporate tax, whether it is possible to seek the revocation of disposition imposing a corporate tax on the grounds that the determination on the pertinent corporate tax amount, which becomes the standard of assessment, is illegal (affirmative).

In a case where: (a) investing in listed domestic stocks or claims, Investment Company A and others, collective investment schemes that are included in the types of company established in Luxembourg in accordance with laws and regulations regarding Undertakings for Collective Investment in Transferable Securities (UCITS), appointed Bank B and others to storing agencies and received dividends and interest relevant to the above stocks and claims from Bank B and others; (b) paying the said dividends, etc. to Investment Company A and others for six years, Bank B and others have paid the withheld corporate tax by applying 15 per cent limited tax rate stipulated in Article 10(2) Item (b), and 10 percent limited tax rate prescribed in Article 11(2), of the “Convention between the Government of the Republic of Korea and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital” each; and (c) the competent taxation authorities and others imposed corporate tax, deducted at source in the year shown, which is taxed at 20 percent in accordance with Article 98(1) Subparagraph 3 of the former Corporate Tax Act with respect to the dividends, etc., and local income tax, which is a special collection corporate tax, pursuant to Article 96 of the former Local Tax Act, each upon Bank B and others on the grounds that Investment Company A and others are not subject to the aforementioned Convention, the Court held that: (a) Investment Company A and others correspond to residents of Luxembourg who are liable to tax in Luxembourg in light of the overall circumstances; and (b) the aforementioned dividends, etc. were paid to Investment Company A and others who are residents of Luxembourg as the beneficial owner, and thus 15 per cent limited tax rate prescribed in Article 10(2) Item (b), and 10 per cent limited tax rate stated in Article 11(2), of the above Convention ought to be applied.

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2016두35854

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