SEOUL, April 28 (AJP) - A South Korean court ruled in favor of Netflix, ordering tax authorities to refund most of the roughly 80 billion won ($58 million) it had imposed on the global streaming giant, in a decision that underscores the limits of taxing cross-border digital services.
The Seoul Administrative Court sided with Netflix Services Korea in a lawsuit filed in November 2023 seeking to cancel 76.2 billion won of the total tax assessment following a probe into its income.
At issue was whether payments made by the Korean unit to its Netherlands-based affiliate, Netflix International B.V., should be treated as royalty income — subject to domestic taxation — or business income, which is exempt under the South Korea–Netherlands tax treaty if the foreign entity lacks a permanent establishment in Korea.
Tax authorities argued the payments were royalties tied to the use of intellectual property. Netflix maintained they were business income derived from services provided overseas.
The court ruled that the payments were not compensation for copyrights but service fees related to streaming services, noting that key functions such as content storage and transmission were performed by the overseas entity.
The ruling comes as Netflix continues to expand its presence in Korea’s over-the-top (OTT) market.
According to its disclosure last week, Netflix Services Korea posted revenue of 1.05 trillion won last year, up 17 percent from a year earlier, marking its highest level since launching in the country in 2016. Operating profit rose to 20.3 billion won.
Netflix’s monthly active users reached 15.6 million in December, up 20 percent on year and nearly double that of second-ranked Coupang Play.
Despite strong top-line growth, profitability remains limited. The company’s operating margin has hovered around 2 percent for several years, as more than 80 percent of its local revenue is paid to its headquarters under “membership purchase” costs.
Last year, about 8.5 trillion won — roughly 81 percent of domestic revenue — was remitted overseas.
As a result, Netflix paid 6.6 billion won in corporate tax in Korea, equivalent to 0.6 percent of revenue, below the 1.1 percent average for foreign firms, according to CEO Score.
The tax authority has not yet indicated whether it will appeal the ruling.
However, Netflix Korea said "Netflix complies with tax laws and regulations in all countries where it operates and will continue to invest in Korean content and its broader ecosystem while cooperating with local authorities, regardless of the court’s decision."
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