Lone Star's 168.2 Billion Won Tax Refund Lawsuit Enters Retrial Phase

A tax refund lawsuit worth 168.2 billion won, filed by US private equity firm Lone Star against the government and Seoul City, has returned to court, marking the beginning of the final trial to determine whether the taxes will be repaid. This lawsuit was initiated by Lone Star seeking the return of approximately 168.2 billion won in corporate and local income taxes incurred during its acquisition and sale of domestic companies such as Korea Exchange Bank and Kukdong Engineering & Construction.

In 2017, the Supreme Court ruled that Lone Star, as a foreign entity without a permanent establishment in Korea, should have its corporate tax assessment of 173.3 billion won by the National Tax Service canceled. The government refunded 22.8 billion won directly paid by Lone Star but refused to refund taxes paid by Korean financial institutions, which were the withholding agents. While the first and second trials recognized Lone Star as the de facto payer and ordered the government to pay 153 billion won and Seoul City 15.2 billion won, the Supreme Court in April 2023 ruled that the right to claim refunds for withheld taxes belonged to the Korean financial institutions, not Lone Star. Consequently, it overturned the lower court rulings and remanded the case to the Seoul High Court.

In the first hearing of the remanded trial, Lone Star's side argued that they were the actual payer based on an agreement between the parties. The government's side countered, stating that Lone Star's claims were against tax justice and that the procedures for assigning refund rights were not followed.

The court is scheduled to conclude arguments and announce its verdict on July 9, 2024.