 |
Photo courtesy of Yonhap News |
[Alpha Biz= Kim Jisun] Netflix Korea has filed an appeal despite securing a partial victory in a first-instance administrative lawsuit challenging tax authorities over a roughly KRW 70 billion tax assessment.
According to legal sources on May 19, Netflix Korea submitted its appeal to the Seoul Administrative Court following a ruling that partially sided with the company. South Korea’s tax authorities also filed an appeal a day earlier, signaling a prolonged legal battle.
In its April 28 ruling, the court ordered the cancellation of approximately KRW 68.7 billion out of the KRW 76.2 billion in disputed corporate tax assessments imposed by the head of the Jongno District Tax Office.
However, the court dismissed claims related to local corporate income taxes imposed by district authorities, stating there was no separate legal interest in challenging those measures independently.
The court found that key functions of Netflix’s streaming service—such as content storage and transmission—are carried out by overseas entities under a globally controlled service architecture. It concluded that Netflix Korea primarily performs auxiliary roles, including facilitating user access and handling marketing-related activities.
The ruling also stated that payments made by Netflix Korea to overseas affiliates were not best characterized as royalties for content usage, but rather as fees for the provision of streaming services to domestic users. It further noted that the fee structure ensured a certain level of profit for the Korean entity, making it difficult to view the arrangement as an independent copyright revenue model.
At the same time, the court upheld part of the tax assessment, determining that cache servers installed within Korea’s telecommunications networks constituted assets effectively controlled by Netflix Korea, thereby justifying certain corporate tax liabilities.
The dispute dates back to a 2021 tax audit, when authorities imposed roughly KRW 80 billion in additional taxes on the company. While Netflix Korea reported revenue of KRW 415.4 billion in 2020, it paid only about KRW 2.1 billion in corporate taxes.
Following a ruling by the Tax Tribunal that upheld most of the assessment, Netflix Korea filed the administrative lawsuit, arguing that its role is limited to intermediary sales and that the underlying revenue is generated by overseas entities, and therefore not subject to Korean taxation.
Tax authorities, however, maintain that the use of domestic network infrastructure constitutes a form of local income generation, making the tax assessment valid.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
