South Korea’s top court has upheld a decision to rule in favor of subsidiaries of U.S. private equity firm Lone Star Funds in a suit filed by South Korean tax authorities.

In its verdict on Tuesday, the Supreme Court demanded the National Tax Service’s Yeoksam District Office cancel around 170-billion won worth of corporate tax it had imposed on nine subsidiaries of Lone Star Funds, saying it was an unfair taxation.

The Supreme Court upheld the lower courts' rulings, saying it is difficult to judge those companies had a fixed business establishment in South Korea, thus they are not subject to local taxation duties.

The nine subsidiaries, all belonging to Lone Star IV, established holding firms in countries such as Belgium, Bermuda and Luxembourg and purchased 416-million shares of Korea Exchange Bank(KEB) and 26 million shares of Kukdong Engineering and Construction between 2002 and 2005.

They made several trillion won in profits by reselling the stocks in 2007, but avoided paying a huge amount of tax for holding or selling them by partly taking advantage of a double-taxation avoidance agreement between South Korea and Belgium. They did pay income tax on 400 billion won worth of dividend payouts from KEB in 2006, and some other smaller taxes.

The Seoul Regional Office of the National Tax Service(NTS), however, decided in 2008 that those companies are paper companies established to avoid paying taxes in South Korea. 

The NTS’ Yeoksam District Office then levied around 340 million won worth income tax and corporate tax on them. In 2012, the office canceled the income tax, but maintained imposing the corporate tax, increasing it to 173-point-three billion won.