Key Takeaways
- • The Seoul High Court's 16th Civil Division ruled against Lone Star Funds and eight other plaintiffs on October 22 in a remand trial over a claimed tax refund of roughly 160 billion won (about W168.2 billion per the headline).
- • The court followed the Supreme Court's April ruling, which held that the withheld tax refund deducted from cancelled corporate taxes belongs to the withholding entity, such as Korea Exchange Bank (KEB), not Lone Star.
- • The Seoul High Court rejected Lone Star's argument that an agreement existed under which Lone Star was the substantive taxpayer for the deducted amounts.
- • The ruling reverses the earlier first- and second-instance judgments that had ordered refunds of 153 billion won in corporate taxes and 15.2 billion won in local income taxes to Lone Star.
Summary
The Seoul High Court's 16th Civil Division (Presiding Judges Jeong Jae-o, Kim Sun-hee and Lee Won-seok) ruled against the plaintiffs on October 22, 2026, in an unjust enrichment return lawsuit brought by nine companies, including Lone Star Funds, against the South Korean government and the City of Seoul. The claim concerns a tax refund of approximately 160 billion won, according to the source report. The ruling follows legal principles set by the Supreme Court in April of the previous year.
The dispute traces to Lone Star's investments between 2002 and 2005 in institutions including Korea Exchange Bank (KEB), Kukdong Engineering & Construction and Staris. The fund earned hundreds of billions of won in dividends and trillions of won in capital gains when it sold some stakes in 2007. Under the South Korea-Belgium tax treaty, KEB and other entities withheld national taxes on dividends paid to Lone Star. The Seoul Regional Tax Office then imposed additional corporate and other taxes of about 800 billion won, arguing that the fund had a permanent establishment in South Korea, and the withheld taxes were deducted and appropriated against that amount.
In 2017 the Supreme Court cancelled the corporate tax imposition, finding that the investments were made by the U.S. headquarters and no permanent establishment existed in South Korea. Lone Star then sued the government in December 2017 for the return of the 153.5 billion won withholding tax amount and sued Seoul and Gangnam District in January 2018 for canceled local taxes. The first and second-instance courts ordered refunds of 153 billion won in corporate taxes and 15.2 billion won in local income taxes.
The Supreme Court reversed that outcome, holding that once the corporate tax disposition was cancelled, the deduction and appropriation of the withholding refund also ceased to have effect, so the refund belongs to the withholding obligor such as KEB as the nominal taxpayer. It described the deduction and appropriation as an arbitrary process with a high possibility of being invalid from the outset, and ordered a retrial. Lone Star argued during the remand trial that the parties had agreed it was the substantive payer of the deducted taxes, but the court did not accept that argument. Barring special circumstances, the refund therefore belongs to the withholding entities rather than Lone Star. The source notes the article was translated by AI and may contain errors.
The dispute traces to Lone Star's investments between 2002 and 2005 in institutions including Korea Exchange Bank (KEB), Kukdong Engineering & Construction and Staris. The fund earned hundreds of billions of won in dividends and trillions of won in capital gains when it sold some stakes in 2007. Under the South Korea-Belgium tax treaty, KEB and other entities withheld national taxes on dividends paid to Lone Star. The Seoul Regional Tax Office then imposed additional corporate and other taxes of about 800 billion won, arguing that the fund had a permanent establishment in South Korea, and the withheld taxes were deducted and appropriated against that amount.
In 2017 the Supreme Court cancelled the corporate tax imposition, finding that the investments were made by the U.S. headquarters and no permanent establishment existed in South Korea. Lone Star then sued the government in December 2017 for the return of the 153.5 billion won withholding tax amount and sued Seoul and Gangnam District in January 2018 for canceled local taxes. The first and second-instance courts ordered refunds of 153 billion won in corporate taxes and 15.2 billion won in local income taxes.
The Supreme Court reversed that outcome, holding that once the corporate tax disposition was cancelled, the deduction and appropriation of the withholding refund also ceased to have effect, so the refund belongs to the withholding obligor such as KEB as the nominal taxpayer. It described the deduction and appropriation as an arbitrary process with a high possibility of being invalid from the outset, and ordered a retrial. Lone Star argued during the remand trial that the parties had agreed it was the substantive payer of the deducted taxes, but the court did not accept that argument. Barring special circumstances, the refund therefore belongs to the withholding entities rather than Lone Star. The source notes the article was translated by AI and may contain errors.
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