CJ CheilJedang received an 80 million won corporate tax bill and filed a lawsuit against the tax authorities, arguing that "charging taxes again domestically after having already paid taxes overseas is double taxation," but was reported to have lost in the first trial.
The Seoul Administrative Court's 6th Administrative Division, under the presiding Judge General Na Jin-yi, ruled against CJ CheilJedang in its corporate tax cancellation lawsuit against the head of the Central Tax Office on the 13th of last month.
According to the judgment, CJ CheilJedang provided guarantees while its subsidiaries established in Vietnam and Germany took out loans from overseas financial institutions and received guarantee fees in return. The overseas subsidiaries paid taxes on this fee through withholding tax in the respective countries.
However, the Central Tax Office levied an 81 million won corporate tax on CJ CheilJedang for the guarantee fees. CJ CheilJedang requested the tax office to refund 73,823,300 won already paid and cancel the remaining 7,503,800 won yet to be paid. The tax office did not accept this request, leading to the lawsuit.
During the trial, CJ CheilJedang argued that "according to the Korea-Vietnam tax treaty and the Korea-Germany tax treaty, double taxation on guarantee fees should not occur."
However, the Seoul Administrative Court, which conducted the first trial, found no issues with the corporate tax levied by the Central Tax Office.
The court stated, "The guarantee fee is merely compensation for the guarantee provided by CJ CheilJedang to the overseas corporation and is not compensation for providing funds. Therefore, it falls under 'other income,' which is not defined as 'interest' as stipulated in the Korea-Vietnam and Korea-Germany tax treaties, where double taxation should not occur."
The court added, "Only Korea, the country of residence, has the taxing authority over other income," and noted that "the withholding tax paid by CJ CheilJedang's overseas entities in Vietnam and Germany is considered tax paid to foreign governments and does not qualify for tax deductions domestically."