법무법인(유한) 율촌 | Yulchon LLC

Yulchon successfully represented the Export-Import Bank of Korea ("Korea Eximbank") in a court proceeding seeking cancellation of corporate income withholding tax assessments.

Korea Eximbank guaranteed a Korean shipyards' liability to refund advance and interest payments. When the shipbuilding contracts were terminated, Korea Eximbank paid out advance and interest payments to the foreign shipbuilding contractors. The Korean tax authorities considered the interest to be Korean-sourced income of the foreign shipbuilding contractors and assessed and collected corporate income withholding tax against Korea Eximbank.

The issue in this case was whether the interest constituted "payments received in excess of the actual incurred losses" within the meaning of the Corporate Income Tax Act and whether they constituted Korean-sourced income of the foreign shipbuilding contractors. The Korean Supreme Court held that, since the interest payments on the advance payment are payments that are meant to compensate the foreign shipbuilding contractors for their losses, the interest payments did not constitute Korean-sourced income.

This decision is the first Supreme Court decision on this issue and it is particularly significant in that it clarified the meaning of compensation payments constituting Korean-sourced income of a foreign company. The decision also recognized the transaction structure and customs surrounding shipyard financing as customary rules and further eliminated the risk that Korean shipyard businesses might suffer from the reluctance of financial institutions to provide guarantee refunds.