Supreme Court sends tax case back over foreign law application

The Supreme Court overturned a lower court ruling in a corporate tax dispute, determining that Indonesian law rather than British law must apply to assess the validity of an overseas oil stake transfer. The high court remanded the case to the Seoul High Court, citing errors in how the lower bench handled foreign legal elements and the burden of proof regarding a tax adjustment refusal.

The dispute centered on a company operating an oil development project in Indonesia's West Madura offshore block. The firm contracted to transfer economic interests and risks equivalent to 10 percent of its 20 percent participation stake to a foreign entity established under Seychelles law. While the transfer agreement designated British law as governing, the Supreme Court found that the validity of such a partial assignment depends on the law governing the original production sharing contract.

Since the original contract involved Indonesian state entities and regulators, the court held that Indonesian law applies to the transfer's feasibility and effect. The justices emphasized that courts have an ex officio duty to investigate applicable foreign law regardless of whether parties raise the issue, an obligation the lower court failed to fulfill.

The Supreme Court noted that valid transfer of the stake required prior conditions, including additional agreements between the parties and written approval from the Indonesian government. The record contained no evidence that these conditions were met, yet the lower court ruled otherwise. The case, identified as 2022Du34425, was decided on May 29.

The ruling also clarified procedural standards for lawsuits seeking cancellation of a refusal to reduce tax assessments. Tax authorities generally bear the burden of proving the legality of their refusal when a taxpayer claims their declared amount exceeds what is objectively due. While taxpayers must prove exceptional circumstances if the authority provides reasonable initial evidence, the primary responsibility for validating the administrative disposition remains with the agency.