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Supreme Court Decision: “Luxembourg SICAV Is Entitled to Korea-Luxembourg Tax Treaty Benefit on Its Interest and Dividend Income”


On January 16, 2020, the Supreme Court ruled that the Luxembourg SICAV1 and SICAF2 (collectively “Lux SICAVs”) are entitled to reduced withholding tax rate on interest and dividend income under the Korea-Luxembourg Tax Treaty.

Background and Decision

Over the years, Lux SICAVs enjoyed the Korea-Luxembourg Tax Treaty’s benefits on its interest and dividend income arising from Korean bonds and equity stock investments.  However, in May 2011, the Korean Ministry of Economy and Finance issued an authoritative tax ruling which provided that Lux SICAVs are not entitled to the treaty benefit pursuant to Article 28 (Exclusion of Certain Companies) of the Korea-Luxembourg Tax Treaty, resulting in taxation of several Korean sub-custodian banks (legal withholding obligor) by the Korean tax authority.

The Supreme Court held that the Lux SICAVs, which are collective investment vehicles, (i) are Luxembourg tax residents; (ii) are beneficial owners of the Korean source income; and (iii) do not constitute a “holding company” stipulated under Article 28 of the Korea-Luxembourg Tax Treaty.  As such, the Court determined that the Lux SICAVs were entitled to reduced withholding tax rate under the tax treaty.

Kim & Chang, as legal counsel of Lux SICAVs, successfully (i) explained the differences between Lux SICAVs and holding companies under the 1929 Act mentioned in Article 28 of the Korea-Luxembourg Tax Treaty; (ii) illustrated that Lux SICAVs cannot be seen as abusing the tax treaty given the structure; and (iii) argued that Lux SICAVs constitute a Luxembourg resident given its comprehensive tax liability.  As a result, the court ruled in favor of our client at all three stages of the litigation in the Seoul Administrative Court, the Seoul High Court and the Supreme Court.


Where Korean source income is paid through an overseas investment vehicle (“OIV”) to its investors, there is an ongoing debate in Korea as to whether the OIV or the investors should be treated as the beneficial owner of the income and at which level the applicable tax treaty should be applied.  The latest ruling by the Supreme Court is significant in that it confirmed that Lux SICAVs as an Overseas Public Collective Investment Vehicle (public fund) will be recognized as a resident under the tax treaty and beneficial owner of Korean source income. 

1  Société d'Investissement à Capital Variable
2  Société d'Investissement à Capital Fixe


Related Topics

#SICAV #OPCIV #Luxembourg #Tax