The Supreme Court on Wednesday ruled against plaintiff Samsung Electronics, ending the five-year litigation filed by the tech giant in 2013 challenging tax authorities’ decision to hold it responsible for 70.6 billion won in corporate tax.
“Of the total amount, (the company) should pay 1.5 billion won in corporate tax,” the court said in its ruling, only partly upholding the decision of an appeals court that said Samsung Electronics was liable for the full 70.6 billion won.
But taxes on overseas patents should be excluded, the Supreme Court ruled.
When the registered name and actual ownership of a given company remain at odds for reasons that give rise to suspicions of tax evasion, the incomes should be seen as belonging to the practical manager of the corresponding assets, who should be viewed as the taxpayer, according to the latest ruling.
Samsung Electronics in 2010 paid $370 million to global IP management company Intellectual Ventures in a package patent-licensing contract.
The US-based company claimed that its Irish subsidiary, IV IL, was the contracting party and that the deal was subject to the corporate tax exemption clause in the Korea-Ireland tax treaty. Under the Korea-US tax system, a licensee must pay 15 percent of the license fees as corporate tax.
Korea’s tax officials, however, argued that the Irish company was but a conduit company established for the purpose of tax evasion and imposed a 70.6 billion won tax bill on Samsung Electronics. While the lower court accepted Samsung’s arguments to the contrary, the appeals court reversed that judgment, holding the company responsible for the full amount.
By Bae Hyun-jung (firstname.lastname@example.org)