A court has ruled that a corporate tax of approximately 9 billion won imposed on the overseas entities of BlueRun Ventures (BRV), headed by the eldest son-in-law of the LG family, is unlawful.

The ruling indicates that the tax cannot be imposed by treating them as domestic places of business.

On Thursday (June 25), the Administrative Division 5 of the Seoul Administrative Court (presiding judge Lee Jung-won) ruled in favor of the plaintiffs, BRV Lotus One and Power Empire, in a lawsuit filed against the head of the Gangnam Tax Office to cancel the corporate tax assessment.

BRV Lotus One and Power Empire are overseas entities established in Hong Kong and the Republic of Seychelles, respectively, by the BRV fund group to invest in Korean companies.

CEO Yoon is the largest shareholder and an executive holding a 99.9% stake in the top-tier entity of the BRV fund group (BRV Partners Ltd.) to which the two companies belong, effectively controlling BRV Lotus One and Power Empire.

The lawsuit was triggered when tax authorities imposed corporate taxes on the capital gains that BRV Lotus One and Power Empire earned after acquiring and transferring domestic stocks and convertible bonds.

BRV Lotus One earned 22.6 billion won in capital gains from domestic stocks, and Power Empire earned 19.4 billion won from domestic stocks and convertible bonds. In October 2021, the authorities imposed corporate taxes of approximately 8 billion won and 980 million won, respectively.

The authorities viewed that CEO Yoon was the actual decision-maker of these plaintiff entities and that their capital gains were subject to taxation because Yoon performed business activities using the Korean entity 'BRV Korea' as a permanent establishment.

According to the Corporate Tax Act, if a foreign corporation has a fixed physical location and that place of business performs essential business activities rather than preparatory or auxiliary activities, the corresponding income can be taxed.

However, the court ruled in favor of the plaintiffs on this day.

The court did not accept the plaintiffs' argument that these entities were merely conduit companies (companies without actual control or management rights over assets or income) and thus not the actual beneficiaries of the capital gains. However, it pointed out that the tax authorities' claim viewing BRV Korea as the plaintiffs' domestic permanent establishment could not be accepted.

The tax authorities' decision was based on the premise that "the activities of BRV Korea or CEO Yoon are the business activities of the plaintiffs," but the court stated there is no ground to ignore the fact that the legal entity of the corporation where Yoon is the largest shareholder and those of the plaintiffs are strictly distinct.

It added, "Rather, BRV Korea is a domestic corporation with a legal entity separate from the plaintiffs and has no shareholding relationship with them," and "The work performed by BRV Korea's employees falls under their own unique scope of work under an advisory service agreement."

In addition, the court judged that if CEO Yoon led the investment and divestment decisions of the plaintiff corporations, it should be viewed as activities carried out in his capacity as a director of BRV Partners Ltd., the ultimate general partner (the member responsible for repaying debts) of the corporations, making it difficult to "deem" it a domestic place of business under Article 94, Paragraph 3 of the Corporate Tax Act.

The provision stipulates that if a foreign corporation does not have a domestic permanent establishment but conducts business through an agent, it can be deemed to have a domestic place of business.

The court concluded that although "it is recognized that the plaintiffs had no separate human or physical facilities, so BRV Korea's employees handled practical matters related to the plaintiffs' business activities, and Yoon Kwan appears to have exerted powerful influence over major decisions of the plaintiffs and BRV Korea," the plaintiffs cannot be considered to have established a domestic place of business.

Meanwhile, separate from this lawsuit, CEO Yoon has filed a lawsuit seeking the cancellation of a comprehensive income tax imposition of about 12.3 billion won, which is currently in the appellate stage.

In February, the first-instance court ruled against Yoon.
 

(Photo: Yonhap News)