Lone Star-tax case

▲ This composite file photo shows Lone Star (top) and Korea Exchange Bank. (Yonhap)

SEOUL, Oct. 22 (Yonhap) -- An appeals court on Thursday ruled against U.S. private equity firm Lone Star Funds in its suit against the South Korean and Seoul city governments to return a combined 168.2 billion won (US$125.9 million) in taxes.

The Seoul High Court handed down the ruling against Lone Star after the Supreme Court returned the case to the appeals court for review in April last year.

The Texas-based firm had earlier filed the suit against the state and the municipality, seeking the return of withheld taxes in connection with profits from its investments in South Korea.

Lone Star and affiliate firms purchased large shares of Korea Exchange Bank, Kukdong Engineering Construction and Starlease between 2002 and 2005, and made huge profits by selling some of the shares in 2007.

They paid smaller taxes than local companies would have, citing the tax treaty that South Korea has with Belgium where the company that made the investment was based.

The National Tax Service (NTS) levied additional corporate taxes against Lone Star and its entities, offsetting them with withheld taxes.

Lone Star then filed a suit seeking cancellation of the corporate taxes and the Supreme Court ruled in favor of Lone Star in 2017, rejecting the NTS' argument the company had a fixed footing in South Korea.

After tax authorities refunded the taxes, excluding the amount from the withheld taxes, Lone Star sued the government and the municipality, seeking 153 billion won and 15.2 billion won, respectively.

While a lower court and the Seoul High Court ruled in favor of Lone Star, the Supreme Court remanded the case, ruling the refund of the withheld taxes belongs to Korea Exchange Bank and other withholding agents, not Lone Star.

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