Fund Taxation Alert 2020-01

Fund Taxation Alert 2020-01



Related content

WHT reclaims — Supreme Court in South Korea rules in favor of Luxembourg SICAVs

On 16 January 2020, the South Korean Supreme Court ruled that Luxembourg SICAVs are entitled to a reduced withholding tax rate on interest and dividend income under the Korea-Luxembourg tax treaty.


In the past, Luxembourg SICAVs could claim Korea-Luxembourg tax treaty benefits on interest and dividend income from Korean bond and equity stock investments.

On 6 May 2011 however, the Ministry of Strategy and Finance ruled that SICAVs should be treated as 1929 holding companies under Article 28 of the Luxembourg-Korea tax treaty, and are therefore excluded from the treaty’s benefits.

Based on this ruling, standard WHT rates were applied to Korean income distributed to Luxembourg SICAVs — i.e. 22% on dividends and 15.4% on interest derived from bonds — instead of reduced rates — i.e. 15% on dividends and 10% on interest. In early 2012, the Korean tax authority (KTA) issued tax assessments covering June 2006 to May 2011 to several local custodians claiming the payment of under-withheld tax. The local custodians appealed against the tax assessments, which the KTA rejected. Subsequently, the custodian banks filed a court appeal against the KTA decision — and legal proceedings at different court instances have been ongoing ever since.

Moreover, the revised Luxembourg-Korea tax treaty entered into force on 4 September 2013. Its main amendment was the removal of the previous Article 28, which excluded specific 1929 holding companies from the treaty’s benefits. Therefore, SICAVs should have been able to claim the treaty’s benefits from this point forward, provided they were the income’s beneficial owner.

However, regarding Korean source income paid to an overseas investment vehicle (OIV), debate continued in Korea as to whether the overseas investment vehicle or the investors thereof (the so-called “OIV regime”) should be treated as the beneficial owner of the income — and at which level the applicable tax treaty should be applied. The OIV regime was introduced in 2012.

The Supreme Court ruling

On 16 January 2020, the Supreme Court in South Korea issued its long-awaited decision regarding Luxembourg SICAVs. It stated that Luxembourg SICAVs, as collective investment vehicles, are not 1929 holding companies under Article 28 of the Korea-Luxembourg tax treaty. And, as they are Luxembourg tax residents and beneficial owners of Korean source income, they are therefore entitled to a reduced withholding tax rate under the tax treaty.

The Supreme Court’s ruling also confirmed that an overseas public collective investment vehicle can be recognized as a resident under the tax treaty and a beneficial owner of Korean source income.

KPMG’s comments

It is to be seen how the KTA will apply the Supreme Court’s ruling. Reimbursements can be expected for the period before the OIV was introduced.

For the period after the OIV regime was introduced, the Supreme Court’s ruling is also positive because double tax treaties should prevail over domestic law. It is to be seen whether the tax authorities will apply the ruling without further comments or entering into further discussions.

Nevertheless, the ruling certainly increases the chance of success for SICAVs filing excess WHT reimbursement claims — i.e. the difference between the regular WHT rate and the treaty reduced rate — due to paying withholding tax at the standard rate.

Therefore, we would recommend that you or your clients file WHT reclaims.

KPMG has experience in filing WHT reclaims in South Korea. If you require support with these reclaims or have any further questions, please do not hesitate to contact us.

© 2021 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today