Law & Numbers - News Tax

Belgian Holding companies versus substance over form

05.03.2013 (Belgium)

Two decisions of the Supreme Court of Korea: 20-1-2012 and 26-4-2012

Two decisions of the Supreme Court of Korea: 20-1-2012 and 26-4-2012

 The facts were similar : Investors had been investing in a Korean real property holding company through a Belgian Holding Company. In 2004, the Belgian Company transferred the shares of the Korean Co to a third party and claimed a capital gains tax exemption under the Korea-Belgium tax treaty.

 The Supreme Court of Korea denied the Korean-Belgium treaty benefit, disregarding the Belgian company for lack of substance. The Korean tax was assessed on the beneficial owners of the Belgian Holding Co (i.e. the shareholders of the Belgian holding : in the first case, two Bermuda LP and a US LP; in the 2d case : two British LP).

 The Supreme Court applied the “substance over form” rule in determining which tax treaty should be applied.

These rulings are important since the Korean Supreme Court applied the Korean “substance over form” rule where a tax treaty is involved (this being conform to the 2003 version of the OCED Commentary while the tax treaty was signed in 1977).






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