(An experimental feature of this blog.)
The Supreme Court of Korea issued three “major” decisions on July 7, 2016. One dealt with corporate penalty taxes, one with VAT, and one with the recurring issue of the success fee in Korean legal practice.
- Korean caption of case: 외국법인의 국내사업장이 있다고 보아 그 거래상대방인 원고에게 증빙미수취가산세를 부과한 사건
- Translation: Case in which penalty tax for non-receipt of documentary evidence was assessed against plaintiff who had transacted with a foreign corporation having a domestic place of business
- Topic: Corporate taxation
- Appeal from: Seoul High Court
- Applicable statute: Corporate Tax Act (법인세법)
- Case number: 2015du44936
In this case, the court articulated the criteria for determining when a foreign corporation was considered to have a domestic place of business for purposes of the Corporate Tax Act. The plaintiff-appellant was a Korean casino business that had hired a foreign corporation to recruit foreign customers.
The distinction was important for the plaintiff because the plaintiff was subject to a penalty tax under Article 76 of Korea’s Corporate Tax Act if and only if the foreign corporation with which it transacted had a domestic place of business. The local tax office imposed the penalty, and the plaintiff appealed.
The court clarified that a foreign corporation has a domestic place of business when the in-country actions of its employees or agents are fundamental and important (본질적이고 중요한) rather than merely preparatory or ancillary (예비적이거나 보조적인). Factors to be considered in determining whether business activities are fundamental and important include the character and scale of those activities and their proportion and role relative to the foreign corporation’s activities as a whole.
In this case, where the plaintiff had given its foreign contractor an office free of charge and the foreign contractor conducted activities there (such as exchanging customers’ chips) that were fundamental to its business, the court held that the foreign contractor did indeed have a Korean place of business. Therefore, the penalty was appropriate.
- Korean caption of case: 임직원 업무용 차량이 자가공급 의제대상에 해당하는지 여부
- Translation: Whether a vehicle for employee’s business use constitutes self-supply
- Appeal from: Seoul High Court
- Applicable statute: Value-Added Tax Act (부가가치세법)
- Case number: 2014du1956
This case presented the problem of the value-added tax (VAT) treatment of a company car when an officer or employee used that car for non-business purposes for a substantial period of time (more than six months), reducing the price for which it could be sold.
Upholding the lower court, the Supreme Court of Korea held that the provision of the car to the employee was subject to VAT, and that the car’s subsequent sale at a discount was also independently subject to VAT.
- Korean caption of case: 법무법인의 의뢰인에 대한 성공보수금 청구 사건
- Loose translation: Case of legal services firm demanding success fee from client
- Topic: Attorney’s fees
- Appeal from: Seoul Central District Court
- Applicable statute: Civil Act (민법), Article 686
- Case number: 2014da1447
Success fees (성공보수금) are a regular fixture of Korean legal practice. As a general matter, fees for services performed by agents are governed by Article 686 of the Civil Act, which provides that such fees are only due when the service is complete. Thus, ordinarily, if the client prevails on appeal, the agreed success fee would be due at once.
But in this case, the client’s “victory” on appeal consisted of having the case vacated and remanded to the trial court. And under Supreme Court precedent (91da18132), a vacatur revives the lawyer’s duties to the client in the original case. Accordingly, the court held that a success fee is not due under these circumstances, because the service is not yet complete.