[Alpha Biz= Paul Lee] A South Korean court has ruled that most of the corporate tax imposed on Netflix by local tax authorities should be canceled.

On the 28th, the Seoul Administrative Court partially ruled in favor of Netflix Services Korea, ordering that KRW 68.7 billion out of the total KRW 76.2 billion tax assessment be revoked. The lawsuit was filed against district tax offices in Seoul following a tax audit by the National Tax Service, which initially imposed approximately KRW 80 billion in taxes in 2021.

At the core of the dispute was whether payments made by Netflix Korea to its Netherlands-based affiliate should be classified as royalty income or business income. If deemed royalties, they would be subject to withholding tax in Korea; if business income, Korea would have limited taxation rights.

The court rejected the tax authority’s argument that the payments constituted royalties for the use of content copyrights. It found that key functions such as content storage and transmission were managed and controlled by the Dutch entity, while the Korean subsidiary performed auxiliary activities, including platform operations and advertising.

The court also noted that Netflix Korea’s profit structure—where it retains a fixed margin and transfers remaining revenue to the overseas entity—does not support the view that it independently generates income through copyright use.

Regarding concerns over tax avoidance, the court said it is difficult to conclusively determine intent, adding that even if the outcome appears imbalanced in terms of taxable income generated domestically, that alone does not justify the tax imposition.

The ruling marks another setback for the National Tax Service in disputes with global tech firms, following its recent loss in a similar case involving Google Korea.

 

 

 

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