Key Takeaways
- • The Seoul High Court ruled on October 23, 2026 in favor of the South Korean government and Seoul, rejecting Lone Star-affiliated entities' claims for 168.2 billion won ($127 million) in tax refunds in a retrial ordered by the Supreme Court.
- • The lower courts had ordered the central government to return 153 billion won in corporate taxes and two local authorities to refund 15.2 billion won in local income taxes; the retrial ruling dismisses those refund claims.
- • The dispute involves nine Lone Star-affiliated entities and taxes on dividends and capital gains from investments in Korea Exchange Bank, Kukdong Engineering & Construction and Star Lease.
- • The Supreme Court had overturned the lower-court rulings in April 2025, holding that refund rights for taxes withheld at source generally belonged to the withholding companies rather than Lone Star.
- • The central ruling leaves Lone Star's previously refunded amount of approximately 22.8 billion won unaffected by this decision, as reported in the primary source's account of the refund history.
Summary
The Seoul High Court on Thursday, October 23, 2026, rejected claims by nine Lone Star-affiliated entities, including Lone Star Funds, seeking the return of 168.2 billion won ($127 million) in taxes imposed on their investments in Korea, according to Asia News Network. The retrial was ordered by the Supreme Court, and the ruling also dismissed related claims against Gangnam-gu District Office.
The dispute centers on taxes levied on dividends and capital gains from Lone Star's investments in Korea Exchange Bank, Kukdong Engineering & Construction and Star Lease. Between 2003 and 2005, Lone Star acquired approximately 416.75 million shares in Korea Exchange Bank through holding companies in Bermuda and Belgium. In 2007, the firm received 416.75 billion won in dividends and sold 87.7 million shares for 1.19 trillion won. Lone Star argued its investments were covered by the South Korea-Belgium tax treaty and that taxes had already been withheld at source. Korean tax authorities determined that Lone Star, not its overseas holding companies, was the actual beneficiary and imposed corporate taxes accordingly.
The Supreme Court in October 2017 ruled the taxes unlawfully imposed because Lone Star had no permanent establishment in Korea. The government later limited refund eligibility to taxes paid directly by Lone Star, excluding withholding-based amounts, and refunded approximately 22.8 billion won. Lone Star sued for the remainder and brought claims against Seoul Metropolitan Government and Gangnam-gu for local income taxes. The lower courts initially sided with Lone Star, ordering 153 billion won in corporate tax refunds from the central government and 15.2 billion won in local income tax refunds from the two local authorities.
The Supreme Court overturned those rulings in April 2025, finding that refund rights for taxes withheld at source generally belonged to the withholding companies, and remanded the case to determine whether special circumstances nonetheless entitled Lone Star to refunds. At the retrial, Lone Star argued that agreements with the companies had transferred those refund rights to it. The government countered that the agreements only determined who would ultimately receive the economic benefit, not the legal right to claim refunds. The Seoul High Court accepted the government's position and rejected Lone Star's claims.
The dispute centers on taxes levied on dividends and capital gains from Lone Star's investments in Korea Exchange Bank, Kukdong Engineering & Construction and Star Lease. Between 2003 and 2005, Lone Star acquired approximately 416.75 million shares in Korea Exchange Bank through holding companies in Bermuda and Belgium. In 2007, the firm received 416.75 billion won in dividends and sold 87.7 million shares for 1.19 trillion won. Lone Star argued its investments were covered by the South Korea-Belgium tax treaty and that taxes had already been withheld at source. Korean tax authorities determined that Lone Star, not its overseas holding companies, was the actual beneficiary and imposed corporate taxes accordingly.
The Supreme Court in October 2017 ruled the taxes unlawfully imposed because Lone Star had no permanent establishment in Korea. The government later limited refund eligibility to taxes paid directly by Lone Star, excluding withholding-based amounts, and refunded approximately 22.8 billion won. Lone Star sued for the remainder and brought claims against Seoul Metropolitan Government and Gangnam-gu for local income taxes. The lower courts initially sided with Lone Star, ordering 153 billion won in corporate tax refunds from the central government and 15.2 billion won in local income tax refunds from the two local authorities.
The Supreme Court overturned those rulings in April 2025, finding that refund rights for taxes withheld at source generally belonged to the withholding companies, and remanded the case to determine whether special circumstances nonetheless entitled Lone Star to refunds. At the retrial, Lone Star argued that agreements with the companies had transferred those refund rights to it. The government countered that the agreements only determined who would ultimately receive the economic benefit, not the legal right to claim refunds. The Seoul High Court accepted the government's position and rejected Lone Star's claims.
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