“Return 168.2 billion won in taxes,” Lone Star loses retrial after remand

Lone Star Funds, a U.S.-based private equity fund, ultimately lost in the retrial after remand in its lawsuit seeking the return of around 168.2 billion won in unjust enrichment from the South Korean government, the Seoul Metropolitan Government and others. The government, Seoul and others have now finally escaped the threat of a massive outflow of public funds—nearly 200 billion won including interest for delay—after a legal battle lasting more than eight years. In line with the Supreme Court’s decision to overturn the first- and second-instance rulings in Lone Star’s favor and remand the case, the court ultimately sided with the South Korean government and local governments.
The Seoul High Court’s Civil Panel 16-1, presided over by Judge Jae-Oh Jeong, held a hearing on the 22nd to deliver its ruling in the retrial after remand of a lawsuit seeking the return of unjust enrichment. The suit was brought by nine entities affiliated with Lone Star, including Lone Star Fund (US), against the South Korean government, the Seoul Metropolitan Government, Gangnam District in Seoul and others. The court said, “The part of the judgment against the defendants is reversed.”
After acquiring a stake in Korea Exchange Bank (KEB) in 2003, Lone Star made a substantial profit when it sold the stake to Hana Financial Group Inc. (now Hana Bank) in 2012. As it paid the purchase price, the buyer, Hana Bank, withheld 391.5 billion won in capital gains tax at source and paid it to the National Tax Service (NTS).
After receiving the sale proceeds with the tax deducted, Lone Star filed a claim for reassessment with the tax authorities, arguing that it was exempt under the tax treaty between South Korea and Belgium for the avoidance of double taxation. When the authorities rejected the claim, Lone Star filed an administrative lawsuit. In 2017, the Supreme Court ruled that the tax authorities’ corporate tax assessment should be canceled, citing, among other things, the absence of a permanent establishment for a special-purpose entity Lone Star had established in Belgium.
The tax authorities did not refund some of the canceled tax, after excluding amounts applied to other tax claims and the like. In 2017 and 2018, Lone Star filed successive civil lawsuits against the government, Seoul and Gangnam District, among others, seeking the return of unjust enrichment and demanding, “Return the 168.2 billion won in taxes we are rightfully owed, along with damages for delay.”
[email protected] Chang-hun Lee Reporter