Open Decision Ledger · Tax & international taxation
Liquidated damages limited to real loss as outside other income
Supreme Court, Apr. 25, 2019, 2018Du35131 (judgment)
No holding summary · checked against points at issue. The official text publishes no summary of the holding for this decision. The quotation and factors in this record are copied verbatim from the points at issue; the evidence for each axis is taken from the points at issue, the order and the reasons.
Case name: 법인세원천징수처분등취소
Official text on the National Law Information Center
Question
Where money a foreign corporation receives in Korea as liquidated damages or compensation for the breach or rescission of a contract stays within the compensation for a real loss that reduces its net assets in connection with the contract, is it 'money compensated in excess of the damage to the payment itself which forms part of the original contract' under Article 93(xi)(b) of the former Corporation Tax Act and Article 132(10) of its Enforcement Decree?
Holding
No. The provision is meant to reach money that goes beyond compensation for the actual reduction of property, because such money creates new income and is therefore domestic-source other income of a foreign corporation, while money staying within compensation for a real loss that reduces net assets is not. The Supreme Court held that the disputed advance-payment interest could not be seen as domestic-source income of a foreign corporation under Article 93(xi)(b) of the former Corporation Tax Act, found no error in the court below's treatment of liquidated damages or of the proof of special damages, and dismissed the defendant's appeal.
Points at issue, verbatim
외국법인이 계약의 위약 또는 해약으로 인하여 국내에서 위약금 또는 배상금 명목으로 지급받은 돈이 계약과 관련하여 순자산의 감소를 일으키는 현실적인 손해에 대한 전보 범위 내인 경우, 위 규정에서 말하는 ‘본래의 계약내용이 되는 지급 자체에 대한 손해를 넘어 배상받는 금전’에 해당하는지 여부(소극)
Unofficial English translation
Whether money that a foreign corporation receives in Korea in the name of a penalty or damages by reason of a default on or cancellation of a contract, where it falls within the scope of compensation for actual damage that causes a decrease in net assets in connection with the contract, falls under the 'money compensated for damage beyond the payment itself that constitutes the original content of the contract' as referred to in the above provisions (negative)
Disposition
Dismissed Stated in the decision
상고를 기각한다. 상고비용은 피고가 부담한다.
Unofficial English translation
The appeal is dismissed. The costs of the final appeal shall be borne by the defendant.
Form of the test
Elements stated Stated in the decision
그것이 계약과 관련하여 순자산의 감소를 일으키는 현실적인 손해에 대한 전보 범위 내라면, 이는 이 사건 조항에서 말하는 ‘본래의 계약내용이 되는 지급 자체에 대한 손해를 넘어 배상받는 금전’에 해당하지 않는다.
Unofficial English translation
if it falls within the scope of compensation for actual damage that causes a decrease in net assets in connection with the contract, it does not fall under the 'money compensated for damage beyond the payment itself that constitutes the original content of the contract' as referred to in the provision in question in this case.
Factors
- 외국법인이 계약의 위약 또는 해약으로 인하여 국내에서 위약금 또는 배상금 명목으로 지급받은 돈이
- 계약과 관련하여 순자산의 감소를 일으키는 현실적인 손해에 대한 전보 범위 내인 경우
- 위 규정에서 말하는 ‘본래의 계약내용이 되는 지급 자체에 대한 손해를 넘어 배상받는 금전’에 해당하는지 여부
Unofficial English translation
• Money that a foreign corporation receives in Korea in the name of a penalty or damages by reason of a default on or cancellation of a contract
• Where it falls within the scope of compensation for actual damage that causes a decrease in net assets in connection with the contract
• Whether it falls under the 'money compensated for damage beyond the payment itself that constitutes the original content of the contract' as referred to in the above provisions
Relation to precedent
Cannot be determined Not in the decision
Decisions referred to
해당 본문 참조
Burden of proof
Not addressed Not in the decision
Open question and revisit condition
What record is needed to show that interest on an advance payment, here at 7% per annum from the date of receipt to the date of repayment, stays within compensation for the real loss the rescinded contract caused?
A later Supreme Court decision treating interest on an advance payment as excess compensation would change this reading, as would an amendment to Article 93 of the Corporation Tax Act or to Article 132(10) of its Enforcement Decree. Findings in the record that the repayment left the plaintiff with a net gain would also call for the entry to be read again.
Cross-family AI independent reading & axis check
7 of 8 axes matched GPT-6 Astra (OpenAI, codex CLI) · 2026-10-25
A reader from another model family (GPT-6 Astra), given the official text but not the primary reading, agreed on 7 of the 8 axes; the readings differed on axis 8 (open question and revisit condition).
Axis 8 (Open question and revisit condition): Primary “What record is needed to show that interest on an advance payment, here at 7% per annum from the date of receipt to the date of repayment, stays within compensation for the real loss the rescinded contract caused?” vs Independent “How should actual loss reducing net assets be quantified when a contractual interest payment includes both compensation and an additional economic gain?”
One reading asks what record proves the interest stays within real loss, while the other asks how to quantify net-asset loss when interest mixes compensation and extra gain.
외국법인이 계약의 위약 또는 해약으로 인하여 국내에서 위약금 또는 배상금 명목으로 지급받은 돈이 계약과 관련하여 순자산의 감소를 일으키는 현실적인 손해에 대한 전보 범위 내인 경우, 위 규정에서 말하는 ‘본래의 계약내용이 되는 지급 자체에 대한 손해를 넘어 배상받는 금전’에 해당하는지 여부(소극)Raw responses and comparison record: Protocol · Blind readings (JSONL) · Axis comparison (JSONL) · SHA-256 (JSON)
Lower-court contrast & scope of application
Lower-court reading vs. Supreme Court holding
Lower-court context: The Seoul High Court, in its judgment of 17 January 2018 (2017Nu46365), held on the circumstances it found that the advance-payment interest could not be seen as domestic-source income of a foreign corporation under Article 93(xi)(b) of the former Corporation Tax Act, and so set aside the withholding corporation tax and the related late-payment surcharge imposed on the plaintiff.
Supreme Court standard: The Supreme Court found no error. Reading the appellate reasons against the content and purpose of the provision and the record, it held that the court below had not misread the law on liquidated damages or compensation or on the burden of proving special damages, and, the Justices being unanimous, dismissed the defendant's appeal and placed the costs of the appeal on the defendant.
Distinguishing conditions
- Money that exceeds compensation for the actual reduction of property, because the Court treated such an excess as new income and therefore as taxable other income.
- A contract that is not a contract concerning property rights, since Article 93(xi)(b) of the former Corporation Tax Act and Article 132(10) of its Enforcement Decree reach only damages from the breach or rescission of a contract concerning property rights.
- Money not paid in Korea to a foreign corporation, which is outside the domestic-source income the provision defines.
Record verification notes
Set the payment against the actual loss the contract caused, as the Court did not decide an abstract category but accepted the court below's findings on these accounts. Confirm that the contract is one concerning property rights, that the money was paid in Korea to a foreign corporation, and which version of the Act governs, since the current provision is Article 93(x)(b). Note that the shipbuilding contracts were governed by English law.
From the official text
Points at issue
구 법인세법 제93조 제11호 (나)목 및 구 법인세법 시행령 제132조 제10항 규정의 취지 / 외국법인이 계약의 위약 또는 해약으로 인하여 국내에서 위약금 또는 배상금 명목으로 지급받은 돈이 계약과 관련하여 순자산의 감소를 일으키는 현실적인 손해에 대한 전보 범위 내인 경우, 위 규정에서 말하는 ‘본래의 계약내용이 되는 지급 자체에 대한 손해를 넘어 배상받는 금전’에 해당하는지 여부(소극)
Unofficial English translation
The purpose of the provisions of Article 93, subparagraph 11, item (b) of the former Corporate Tax Act and Article 132, paragraph (10) of the former Enforcement Decree of the Corporate Tax Act / Whether money that a foreign corporation receives in Korea in the name of a penalty or damages by reason of a default on or cancellation of a contract, where it falls within the scope of compensation for actual damage that causes a decrease in net assets in connection with the contract, falls under the 'money compensated for damage beyond the payment itself that constitutes the original content of the contract' as referred to in the above provisions (negative)
Summary of the holding
The official text publishes no summary of the holding for this decision. The quotation and factors in this record are copied verbatim from the points at issue; the evidence for each axis is taken from the points at issue, the order and the reasons.
Order
상고를 기각한다. 상고비용은 피고가 부담한다.
Unofficial English translation
The appeal is dismissed. The costs of the final appeal shall be borne by the defendant.
Provisions referred to
구 법인세법(2010. 12. 30. 법률 제10423호로 개정되기 전의 것) 제93조 제11호 (나)목[현행 제93조 제10호 (나)목 참조], 법인세법 제93조 제10호 (나)목, 구 법인세법 시행령(2010. 12. 30. 대통령령 제22577호로 개정되기 전의 것) 제132조 제10항
Read 2026-10-25 · Cross-read 2026-10-25. All quotes matched against the official text. The Chinese-character placeholders the court used for anonymised parties are given in their Korean readings, and parenthetical Chinese-character glosses are omitted.
Every entry is published only after all quotes have been matched character by character against the official text, and audited by an independent second reading from a different model family across all eight axes. Both agreed axes and text-grounded interpretive divergences are recorded openly. The ledger is a research record, not an assessment of the court or advice on any matter.
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