간주세액공제에 관한 一考察 - Matching Credit을 중심으로 -

Abstract

In 2014 the Korean Supreme Court rendered a ruling acknowledging a lower court's decision allowing the foreign tax credit at the rate of the notional 10% of withholding with respect to the China-sourced dividends(instead of the lower 5% of withholding actually paid by the taxpayer) irrespective of the tax incentives for the promotion of the economic development in China based upon the para. (3) of Article 23("Issued Clause") of the tax treaty between Korea and Republic of China("Issued Case"). The Issued Case has eventually aroused big controversy in the area of international taxation in Korea. The purpose of this paper is to seek for the reasonable interpretation of the Issued Clause in the context of the international taxation. The result of the study is as follow: From the very outset of the TSC system in 1950, there has been a couple of types of TSC, the one of which is dependent of the tax incentives in the source country(largely developing countries), and the other of which is independent of such incentives. The former is called tax sparing and the latter is called matching credit. Unfortunately, however, the OECD and the mainstream view in the area of the international taxation could not shed any light on the exact meanings and the relationship of them. In spite of some controversy, the main characteristics of the matching credit (in comparison with the tax sparing) are: ① there should be a predetermined notional credit rate in a tax treaty; ② it should be independent of the tax incentives for the promotion of the economic development in the source country; and ③ the applicable income items should be limited comparing to the tax sparing. The Issued Clause in the tax treaty between Korea and China seems to be a kind of matching credit at first glance. However the Issued Clause should be interpreted as dependent of the tax incentives for the promotion of the economic development in China because the latter sentence of the Issued Clause expressly stipulates the same purpose as the tax sparing in the former sentence thereof. Such interpretation is also well harmonized with the real intention of the contracting state, Korea. As a corollary, the ruling in the Issued Case should be reconsidered because it inadvertently allows the TSC only based on the latter sentence of the Issued Clause even after the abolishment of the tax incentives for the promotion of the economic development in China which is the prerequisite of the TSC under the former sentence thereof. It’s expected that a new decision of the Supreme Court will make it clear soon.