법무법인(유한) 율촌 | Yulchon LLC

In September 2021, Yulchon succeeded in receiving a Supreme Court Decision on the calculation of foreign exchange trading gains in favor of the taxpayers, 3 foreign financial institutions including JP Morgan Chase.

There has been a heated dispute between the tax authorities and 12 foreign financial institutions which operate businesses in Korea as to the method of how to calculate the “foreign exchange trading gains,” a constituent of the tax base for education tax, starting from the first half of FY 2010. The tax authorities argued that valuation gains/losses from currency forward/swap should not be included in “foreign exchange trading gains” but separately recognized as “other business profits” when reporting the tax base for education tax. The taxpayers, on the other hand, were of the position that valuation gains/losses from currency forward/swap are a component for calculating foreign exchange trading gains, and therefore included therein. As a result of this dispute, more than 20 cases of administrative litigations were raised starting around 2015. Based on its thorough analysis of the amendment history of the Education Tax Act, the relationship between foreign exchange equivalents and currency forward/swap, the relationship between valuation gains/losses and trading gains/losses, etc., Yulchon asserted that starting from the first half of FY 2010, valuation gains/losses from currency forward/swap do constitute a component of “foreign exchange trading gains” which is required to be aggregated with transaction gains/losses from foreign exchange equivalents and currency forward/swap. While the Seoul High Court rejected Yulchon’s argument, the Supreme Court upheld Yulchon’s position, cancelling the Seoul High Court’s decision in entirety and remanding the case to the Seoul High Court.

Yulchon is currently representing 12 foreign financial institution on the same issue in 24 cases. The total revenue at stake exceeds KRW 50 billion. The current case is particularly significant in that Yulchon succeeded in establishing, on the basis of close legal review of the Education Tax Act, that foreign exchange equivalents, currency forward/swap, valuation gains/losses and transaction gains/losses are related items, thereby rectifying the tax authorities’ erroneous tax assessment.