A South Korean court on Monday ordered tax authorities to cancel 68.7 billion won ($?) of a corporate tax assessment against Netflix’s South Korean unit.
The Seoul Administrative Court’s Administrative Division 6, led by Presiding Judge Na Jin-i, ruled partly for Netflix Services Korea in its lawsuit seeking to overturn corporate tax and related assessments imposed by the head of the Jongno tax office and other officials. The court ordered the cancellation of 68.7 billion won of the roughly 76.2 billion won Netflix sought to void.
The panel said it dismissed the portion of the case challenging local corporate income tax assessments issued by the heads of Jung-gu and Jongno-gu in Seoul, finding there was no separate legal interest to contest them apart from the cancellation of the withholding tax collection and corporate tax assessments made by the Jongno tax office.
The dispute stems from a 2021 National Tax Service audit in which the agency concluded Netflix reduced its taxable profit in South Korea by shifting a significant share of revenue earned in the country to its U.S. headquarters.
The tax agency said Netflix paid more than 80% of its sales to its headquarters under items such as “management advisory fees” and “content usage fees,” inflating costs.
According to Netflix’s audit report, of last year’s South Korean sales of 823.3 billion won, about 81% — 664.4 billion won — flowed to the U.S. headquarters. As a result, operating profit booked in South Korea was low, and corporate tax paid totaled 3.6 billion won, or about 0.16% of sales.
The National Tax Service imposed about 80 billion won in additional taxes, applying suspected tax-avoidance grounds. Netflix won a partial reduction through the Tax Tribunal but still challenged the outcome, filing an administrative lawsuit in November 2023.
In earlier hearings, Netflix argued that because the service is operated by an overseas entity, its South Korean unit served only as a reseller. It said the overseas Netflix entity has the personnel and facilities and oversees content delivery, while Netflix Services Korea only managed the company’s Korean OCA, its own caching servers. On that basis, it argued money sent from Netflix Services Korea to the overseas entity was business income, not copyright royalties.
Tax authorities countered that taxation was justified because Netflix Services Korea effectively used and exercised the copyrights. The National Tax Service said Netflix Services Korea paid copyright royalties to the overseas entity and therefore had a withholding obligation.
* This article has been translated by AI.
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