주요 목적 기준(Principal Purpose Test)의 회고와 전망

Abstract

Recently, the OECD has presented the principal purpose test (“PPT”) as one of responses to treaty shopping in BEPS Action 6, and developed the multilateral instrument (“MLI”) so that countries participating in the BEPS Project can adopt the PPT. Korea has officially agreed to apply the PPT when signing the MLI in 2017. As a result, when the MLI will take effect, the PPT will be reflected in 45 tax treaties concluded by Korea. In this article, the history and the recent trends of the PPT have been examined first and thereafter several issues relating to the PPT have been reviewed. The substance-over-form rule and the PPT are similar in that both of them are anti-avoidance rules based on a taxpayer’s intent. However, Korea’s Supreme Court has already interpreted tax treaties in accordance with the substance-over-form rule. Also, the substance-over-form rule is very broadly applied in Korea. Accordingly, it is necessary to discuss the relationship between the PPT and the substance-over-form rule, and whether the PPT can perform its own role distinctively from the substance-over-form rule in the future. According to the PPT, a treaty benefit shall not be granted if the purpose of obtaining that benefit is one of the principal purposes of a transaction and granting that benefit in these circumstances would not be in accordance with the object and purpose of tax treaties. Also, the PPT examples presented by the OECD show that a treaty benefit should be granted if a transaction at issue is in accordance with encouraging cross-border investment, which is an objective of tax treaties as well as another expression of business purposes. Thus, in order to determine whether to grant a treaty benefit, tax purposes should be compared with business purposes. In light of the above, the PPT examples presented by the OECD are not only the guidelines for applying the PPT but also the starting points for further discussion. Generally, foreign investors’ domestic source income is taxed through withholding made by a withholding agent. Therefore, when applying the PPT, the withholding agent should first determine whether obtaining a treaty benefit is one of the principal purposes of a transaction at issue or compare tax purposes and business purposes. If the withholding agent applies a reduced rate of a tax treaty, which is different from the tax authority’s position, the tax authority may impose a withholding assessment on the withholding agent. However, according to the Supreme Court Decision 2011Du3159 dated April 11, 2013, in case the withholding agent cannot know the existence of the substantive owner of Korean source income even through faithful examination, the withholding agent has no liability to withhold tax based on the substantive owner. Such limit on the withholding agent’s liability to withhold tax should also be applied to the case where the PPT is at issue. With respect to dispute resolution methods for the PPT, a mutual agreement procedure (“MAP”) has some demerits which cannot be taken lightly. In addition, evaluating taxpayers’ intent is an issue which cannot be easily led to conclusion even through so-called “compromise”. In light of the above, at least at the present time, it is not clear whether the MAP proceedings can be broadly used as the dispute resolution method for the PPT. However, in case Korea adopts binding MAP arbitration in the future, the MAP proceedings may be used as an efficient dispute resolution method for the PPT. In order to properly resolve the PPT issues through court proceedings, the court should be equipped with in-depth understanding of the relevant industry. Also, the court should not only faithfully analyze the arguments of the tax authority as well as the taxpayer but also clearly present specific grounds for court decisions. This is because the establishment of standards through accumulation of specific cases is most important in applying the PPT. The PPT applies not only to foreign investors’ Korean investment but also to Korean investors’ foreign investment. Therefore, in case Korean investors make foreign investment, they should pay attention to the source country’s taxation trends and court decisions relating to the PPT. Also, it is highly possible that the source country’s tax authority and court may review Korea’s taxation cases and court decisions relating to the PPT as a reference, when applying the PPT to Korean investors. If the Korean tax authority imposes tax and the Korean courts render decisions in the direction of strengthening the source country’s taxing jurisdiction, the same logic may apply to Korean investors’ foreign source income. Accordingly, when applying the PPT, the Korean tax authority and courts should not excessively lean toward strengthening of the source country’s taxing jurisdiction, and at the same time should pay much attention to other countries’ taxation trends and court decisions relating to the PPT.