Government Wins Appeal in Lone Star's $1.6 Billion Tax Refund Case

The U.S.-based private equity firm Lone Star has lost its appeal for a tax refund of 168.2 billion won ($1.6 billion) in a case against the South Korean government and Seoul city.

The Seoul High Court's Civil Division 16-1, led by Judges Jeong Jae-oh, Kim Sun-hee, and Lee Won-seok, ruled on October 22 that the plaintiffs, including Lone Star Fund and eight other companies, lost their claim for unjust enrichment against the South Korean government and Seoul city.

Lone Star acquired Korea Exchange Bank in 2003 and sold it in 2010, realizing a profit of approximately 4.6 trillion won.

Claiming that the Korea-Belgium tax treaty should apply, Lone Star paid less tax than domestic companies. However, the National Tax Service imposed income and corporate taxes amounting to over 800 billion won, citing that Lone Star had a fixed place of business in South Korea. Lone Star contested this decision and filed a lawsuit.

In 2017, the Supreme Court ruled that Lone Star was a foreign corporation without a fixed place of business in South Korea, deeming the corporate tax assessment invalid.

Lone Star subsequently filed a lawsuit in December 2017 against the National Tax Service, seeking the return of approximately 153 billion won in canceled taxes, and in January 2018, it sought about 15.2 billion won in local income tax refunds from Seoul and Gangnam District.

Both the first and second trials partially ruled in favor of Lone Star, stating that the corporate tax should be refunded as it was deducted from the withholding tax amount. The government was ordered to pay 153 billion won, while Seoul was ordered to pay 15.2 billion won to Lone Star.

However, the Supreme Court overturned this decision in April of last year, stating that, barring special circumstances, the financial institutions that paid the taxes, not Lone Star, hold the right to claim refunds for the withheld taxes. The case was then sent back to the Seoul High Court.