A South Korean court ordered tax authorities to cancel 68.7 billion won (about $50 million) of a corporate tax assessment against Netflix’s Korean unit.
The Seoul Administrative Court’s Administrative Division 6, led by Presiding Judge Na Jin-i, ruled Tuesday that Netflix Services Korea partly won its lawsuit seeking to overturn corporate tax and other assessments imposed by the head of the Jongno Tax Office and others. Of the roughly 76.2 billion won Netflix sought to cancel, the court ordered 68.7 billion won — about 90% — to be revoked.
The court said the local corporate income tax assessments issued by the heads of Jung-gu and Jongno-gu in Seoul were dismissed because there was no legal interest in separately challenging them once the underlying withholding tax collection and corporate tax assessments by the Jongno Tax Office were canceled.
The dispute stems from a 2021 tax audit in which the National Tax Service concluded Netflix reduced its taxable profit in South Korea by shifting a significant share of revenue to its U.S. headquarters.
The tax agency said Netflix paid more than 80% of 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 revenue 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 Netflix paid 3.6 billion won in corporate tax, or about 0.16% of revenue.
The National Tax Service imposed about 80 billion won in additional taxes, citing suspected tax avoidance. Netflix received a partial reduction through the Tax Tribunal but filed an administrative lawsuit in November 2023, continuing to contest the remaining amount.
In earlier hearings, Netflix argued the service is operated by an overseas entity and that its Korean unit plays only a simple resale role. 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, or in-house cache servers. Under that view, money sent from the Korean unit to the overseas entity was business income, not copyright royalties.
Tax authorities countered that Netflix Services Korea effectively used and exercised the copyrights, making the taxation proper. The National Tax Service said Netflix Services Korea paid copyright royalties to the overseas entity and therefore had a duty to withhold taxes.
* This article has been translated by AI.
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