Lone Star loses 168.2 billion won tax refund suit on remand at Seoul High Court

Yonhap, Newsis and Maeil Business reported on 22 October that Lone Star lost the remanded lawsuit over a 168.2 billion won tax refund. Newsis headlined its flash as a government win. The flashes are headline-only and give no reasoning for the verdict. [ 2 , 3 , 6 ]

According to Newsis, the Seoul High Court's Civil Division 16-1, headed by presiding judge Jeong Jae-o (정재오), was due to hold the ruling on 22 October. Nine Lone Star-related entities including Lone Star Fund had sued the government and Seoul city for return of unjust enrichment of 168.2 billion won. The sum is 153.0 billion won in corporate tax from the government and 15.2 billion won in local income tax from Seoul city. [ 1 ]

Newsis said Lone Star and related entities set up holding companies in Bermuda and then Belgium to invest in Korea Exchange Bank, Keukdong Construction and Starlease. It said they did not pay separate tax on dividends and sale gains, citing the Korea-Belgium tax treaty, which caused a major controversy at the time. Tax authorities then imposed corporate tax, saying Lone Star, not the holding companies, was the real recipient of the income. Lone Star challenged this, and in October 2017 the Supreme Court finalised a ruling cancelling the tax, on the grounds that Lone Star had no fixed place of business in Korea. [ 1 ]

Lone Star then sued the government for the part of the cancelled corporate tax it said it had not got back, and sued Seoul city and others over the cancelled local income tax. Newsis said the first and second trials held that, because the corporate tax had been offset by withholding tax, the government and Seoul city had to return a combined 168.2 billion won. Last April the Supreme Court took the opposite view, saying the right to a refund of withheld tax belongs to the withholding agents that paid it, and sent the case back. [ 1 ]

On remand the issue was whether special circumstances justified recognising a refund right for Lone Star. Newsis said Lone Star argued it had been assigned the refund right by agreement between the parties. The government replied that the agreement only concerned who economically benefited from the refund, not a transfer of the right itself. [ 1 ]

Newsis also noted that last November the government won a case seeking to annul an arbitral award in Lone Star's investor-state dispute over the Korea Exchange Bank sale. That ended an obligation to pay about 400 billion won in principal and interest at the time. [ 1 ]