South Korean government wins tax refund lawsuit against Lone Star

The Seoul High Court has ruled in favor of the South Korean government and the Seoul Metropolitan Government in a retrial regarding a tax refund claim filed by the U.S. private equity firm Lone Star. The lawsuit sought the return of approximately 168.2 billion won in withheld taxes.

The dispute originated from Lone Star's investments in Korea during the early 2000s, including interests in Korea Exchange Bank and Kukdong Construction. While a 2017 Supreme Court ruling had previously canceled corporate tax assessments on the grounds that Lone Star lacked a permanent establishment in Korea, the current legal battle focused on whether the withheld taxes used to offset those canceled assessments should be returned to Lone Star.

While lower courts initially sided with Lone Star, the Supreme Court overturned those decisions last year, stating that the right to claim a refund for withheld taxes belongs to the withholding agents (the companies that paid the tax) rather than the recipient of the dividends. The High Court's recent ruling rejected Lone Star's argument that it had acquired these refund rights through a private agreement, concluding that the government and local authorities are not obligated to return the funds.