외국법인의 거주지국에서 발생하여 국내 고정사업장에 귀속된 소득에 대하여 해당 거주지국에 납부한 세액에 관한 외국납부세액공제의 가부

Abstract

In the subject case, the Plaintiff, a bank incorporated in China, filed a corporate tax return with the Republic of Korea after deducting the amount of tax withheld by the Chinese government on the part of the interest on money raised by the Seoul branch (the Plaintiff’s permanent establishment in the Republic of Korea) of the Plaintiff bank and were subsequently loaned to businesses in China as a foreign tax credit. The Defendant, a competent tax office, imposed a corporate tax on the Plaintiff based on the premise that the aforesaid withheld tax amount was a tax paid to China, the country where the Plaintiff bank resides, not a third country, and therefore, that the Plaintiff is not eligible for tax credits on tax paid overseas. The Plaintiff sought revocation of the aforesaid imposition of corporate tax. The gist of the subject case, accordingly, pertained to whether the amount of tax paid to China on the income, which arose in China and was attributed to the permanent establishment owned by a Chinese corporation in the Republic of Korea, is eligible for a foreign tax credit. Regarding this gist of the case, whether the Republic of Korea has the primary taxing right on the Plaintiff’s interest income and China simply bears a duty to provide relief from double taxation under the Agreement Between the Government of the Republic of Korea and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter “ROK-China Tax Treaty”) was at dispute, and two conflicting views persisted: one that the Republic of Korea has such a primary taxing right and the other one that argues to the contrary. Yet the OECD’s Commentaries on Articles of the Model Tax Convention, based on which the ROK-China Tax Treaty was concluded, states that, when a resident of the contracting state (“State A”) derives income from the same State A through a permanent establishment which he has in the other contracting state (“State B”), State A has the primary taxing right and State B must give relief to eliminate double taxation. This could be understood as an intention to consistently maintain the stance that emphasizes the existence of a permanent establishment as a way to achieve the avoidance of double taxation even in cases where the state of residence is also the state of source. Therefore, insofar as the above Commentaries seem to be based on its own rationale grounds, it is difficult to disregard the Commentaries by readily concluding that the Commentaries which contain recommendatory views from the OECD are unfair. In the meantime, it appears to be systematically unaccommodating to understand that the result in accordance with a tax treaty per se could constitute a violation of the non-discrimination principle under the pertinent tax treaty. Furthermore, there were conflicting views regarding whether foreign tax credits under the former Korean Corporate Income Tax Act could be ultimately granted in cases like the subject case, but considering that the intention of allowing the mutatis mutandis application of the provision on offering foreign tax credits to a foreign corporation having a permanent establishment in the Republic of Korea is essentially about granting a tax credit on taxes paid to a third State as it is available to domestic corporations, offering a foreign tax credit appears to be unfeasible in a case like the instant case. In the subject case, the court determined that “Under the interpretation of the ROK-China Tax Treaty, the Republic of Korea can exercise the first taxing right over the pertinent interest income, which arose in China, the Plaintiff’s state of residence, and attributed to a permanent establishment in the Republic of Korea, and the relief of double taxation would be provided later when China, the state of residence, gives tax credits on the amount of tax paid to the Republic of Korea upon the imposition of a tax on the Plaintiff.” and in a case involving an interest income like the subject case, “the amount of tax on the interest income that has already been paid to the state of residence may not be considered to be eligible for foreign tax credits pursuant to Articles 97(1) and 57(1)1 of the former Corporate Income Tax Act.” The significance of the subject case is found in the fact that it clarified, for the first time, the standards for determination of whether the tax paid with the state of residence on income from the pertinent state of residence that is attributed to a permanent establishment in the Republic of Korea is eligible for foreign tax credits pursuant to the Korean Corporate Income Tax Act.