Supreme Court overturns Lone Star's $117 million tax compensation ruling

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Lone Star Korea logo [YONHAP] The Korean Supreme Court has overturned a lower court ruling that ordered the Korean government and the Seoul Metropolitan Government to refund 168.2 billion won ($117 million) in taxes to U.S.-based private equity firm Lone Star, ending an eight-year legal battle in the state's favor. The ruling spares the Korean government from paying a total of approximately 200 billion won, including principal and delay damages. Related ArticleGov't seeks cancellation of tribunal's Lone Star Funds rulingKorea appeals World Bank ruling on Lone Star disputeLone Star seeks to cancel $217 million order against KoreaFormer Lone Star Funds official arrested in New Jersey The Supreme Court on Thursday accepted the government's appeal and overturned the appellate court’s ruling in a lawsuit filed by nine Lone Star-related entities seeking the return of unjust enrichment. The case was remanded to the Seoul High Court for retrial. The decision reverses the Seoul High Court’s order for the government to return 153 billion won in corporate taxes and for the Seoul city government to return 15.2 billion won in local income taxes to Lone Star. In the early 2000s, Lone Star acquired shares in Korea Exchange Bank, Kukdong Construction and Star Lease, earning 491.6 billion won in dividends between 2006 and 2007 and realizing multitrillion-won capital gains upon selling those shares. The dividends were paid to a Lone Star entity based in Belgium and taxed at roughly 15 percent under the Korea-Belgium tax treaty. The sale of Korea Exchange Bank shares was subject to an 11 percent withholding tax, while the sales of Kukdong and Star Lease shares were exempted under the same treaty. The Seoul Regional Tax Office launched an investigation, asserting that Lone Star operated a “permanent establishment in Korea” and should be subject to domestic corporate and income taxes. It imposed more than 800 billion won in taxes. Police raid the Lone Star Korea offices in Yeoksam-dong, Gangnam District, southern Seoul, on Aug. 31, 2022. [YONHAP] Lone Star challenged the assessment, and in 2017, the Supreme Court ruled that the firm “did not have a permanent establishment in Korea,” effectively nullifying about 176 billion won in corporate tax liability. However, the government refunded only around 22.8 billion won, arguing that there was still legal room for dispute. Lone Star then filed the current unjust enrichment lawsuit, claiming “the Korean government failed to refund the proper amount.” In January 2018, Lone Star filed a similar lawsuit including against the Seoul Metropolitan Government, demanding the return of local taxes canceled under the same ruling. In June 2023, the trial court ruled in favor of Lone Star, ordering that “Korea should pay the plaintiffs the 153.4 billion won of taxes already paid that were not returned, as well as the refund surcharge, and the delay damages from January 2018 when the complaint was delivered.” The appellate court upheld the decision in September last year, but the Supreme Court has now reversed those judgments. Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.BY KIM JUN-YOUNG [[email protected]]

Supreme Court overturns Lone Star's $117 million tax compensation ruling Published: 25 Apr. 2025, 17:03 Audio report: written by reporters, read by AI Lone Star Korea logo [YONHAP] The Korean Supreme Court has overturned a lower court ruling that ordered the Korean government and the Seoul Metropolitan Government to refund 168.2 billion won ($117 million) in taxes to U.

S.-based private equity firm Lone Star, ending an eight-year legal battle in the state's favor. The ruling spares the Korean government from paying a total of approximately 200 billion won, including principal and delay damages.



Related Article Gov't seeks cancellation of tribunal's Lone Star Funds ruling Korea appeals World Bank ruling on Lone Star dispute Lone Star seeks to cancel $217 million order against Korea Former Lone Star Funds official arrested in New Jersey The Supreme Court on Thursday accepted the government's appeal and overturned the appellate court’s ruling in a lawsuit filed by nine Lone Star-related entities seeking the return of unjust enrichment. The case was remanded to the Seoul High Court for retrial. The decision reverses the Seoul High Court’s order for the government to return 153 billion won in corporate taxes and for the Seoul city government to return 15.

2 billion won in local income taxes to Lone Star. In the early 2000s, Lone Star acquired shares in Korea Exchange Bank, Kukdong Construction and Star Lease, earning 491.6 billion won in dividends between 2006 and 2007 and realizing multitrillion-won capital gains upon selling those shares.

The dividends were paid to a Lone Star entity based in Belgium and taxed at roughly 15 percent under the Korea-Belgium tax treaty. The sale of Korea Exchange Bank shares was subject to an 11 percent withholding tax, while the sales of Kukdong and Star Lease shares were exempted under the same treaty. The Seoul Regional Tax Office launched an investigation, asserting that Lone Star operated a “permanent establishment in Korea” and should be subject to domestic corporate and income taxes.

It imposed more than 800 billion won in taxes. Police raid the Lone Star Korea offices in Yeoksam-dong, Gangnam District, southern Seoul, on Aug. 31, 2022.

[YONHAP] Lone Star challenged the assessment, and in 2017, the Supreme Court ruled that the firm “did not have a permanent establishment in Korea,” effectively nullifying about 176 billion won in corporate tax liability. However, the government refunded only around 22.8 billion won, arguing that there was still legal room for dispute.

Lone Star then filed the current unjust enrichment lawsuit, claiming “the Korean government failed to refund the proper amount.” In January 2018, Lone Star filed a similar lawsuit including against the Seoul Metropolitan Government, demanding the return of local taxes canceled under the same ruling. In June 2023, the trial court ruled in favor of Lone Star, ordering that “Korea should pay the plaintiffs the 153.

4 billion won of taxes already paid that were not returned, as well as the refund surcharge, and the delay damages from January 2018 when the complaint was delivered.” The appellate court upheld the decision in September last year, but the Supreme Court has now reversed those judgments. Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

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