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(Sejong=Yonhap Infomax) Jun Hyung Park = The National Tax Service (NTS) announced that the South Korean government has secured a final victory in its 13-year international investment dispute (ISDS) with Lone Star Funds, fully absolving the state of approximately 400 billion won ($300 million) in compensation liabilities. The NTS emphasized that the legitimacy of its tax assessment has been reaffirmed internationally, underscoring the protection of South Korea’s “tax sovereignty.”
On the 24th, the NTS stated, “On the 18th, the International Centre for Settlement of Investment Disputes (ICSID) dismissed all of Lone Star’s annulment requests and upheld all of the government’s applications. As a result, the government’s victory on tax issues has been finalized with res judicata effect, and Lone Star can no longer file any appeals.”
In the 2022 arbitration ruling, the tribunal recognized government liability only on certain financial issues, while dismissing all of Lone Star’s tax-related claims. The latest annulment proceedings also saw all of Lone Star’s applications rejected.
The tax dispute centered on Lone Star’s claim that Korean tax authorities had denied tax treaty exemptions and applied arbitrary standards in determining the beneficial owner of income. However, ICSID, both in the original ruling and the annulment process, concluded that “the tax authorities’ assessments, based on the substance-over-form principle, were consistent with international tax standards and did not constitute arbitrary or discriminatory treatment,” dismissing Lone Star’s arguments.
Throughout the process, the NTS established a dedicated task force comprising departments specializing in tax audits and tax litigation, and actively participated in inter-ministerial task forces to ensure a systematic response.
The NTS noted, “This marks the first time the South Korean government has prevailed in an ISDS annulment proceeding, which is highly significant for the NTS as the agency responsible for enforcing international tax law. The NTS has made every effort to defend the nation’s tax sovereignty.”
Commissioner Lim Kwang-hyun of the NTS expressed gratitude to the staff for their dedication amid the complexity and intensity of international tax disputes, stating, “This has been a valuable opportunity to safeguard South Korea’s taxing rights. The NTS will continue to uphold legitimate tax assessments against aggressive tax avoidance by both domestic and foreign investors, in accordance with internationally recognized standards.”
jhpark6@yna.co.kr
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