By: Lee Kyung-min
An appeals court ruled Wednesday that Lone Star Funds should pay some 64.8 billion won ($58 million) in a corporate tax refund suit filed by the U.S. buyout fund against a regional tax office.
The Yeoksam Tax Office levied some 104 billion won in corporate tax on Lone Star over about 245 billion won in gains it made in 2004 from the sale of the Star Tower building near Yeoksam Subway Station in southern Seoul.
But the firm filed a suit to nullify the tax, claiming that the deal was made through a firm based in Belgium, with which South Korea has a double-taxation avoidance deal.
A district court ordered Lone Star to pay the full amount of tax levied by the tax office, dismissingthe company’s claim that it should be exempt from any taxation here.
The Seoul High Court, however, partially upheld the ruling, saying Lone Star should pay 64.8 billion won of the 104 billion won levied on it.
“The imposition of part of the corporate tax lacked no legal grounds,” the court said in its ruling. “However, we believe that Lone Star used an overseas paper company to avoid paying tax here.
“The Belgium-based shell company served no purpose other than tax evasion.”
Lone Star is expected to appeal Wednesday’s ruling.
In 2001, Lone Star purchased the Star Tower building. Three years later, the firm sold the building at 350 billion won, about three times the original price.
The regional tax office withheld 50 percent of the sale proceeds and levied 100 billion won in income tax, against which Lone Star filed a suit.
The Supreme Court, upholding two lower courts’ decisions, ruled in 2012 that the office’s levying of the income tax was against local tax law and ordered the refund.
Challenging the ruling, the tax office levied the 104 billion won in the form of corporate tax, not income tax.
Wednesday’s ruling came amid an intensifying legal dispute between Lone Star and the Korean government with the International Center for Settlement of Investment Disputes (ICSID).
The U.S. buyout fund has claimed the Korean government should pay $4.7 billion in compensation for delaying approval of its sale of the Korea Exchange Bank (KEB) to HSBC in 2007.