The court ruled that of the 76.2 billion won in taxes imposed by tax authorities on the Korean subsidiary of global video streaming giant Netflix, 68.7 billion won must be canceled.
This means that Netflix has practically won the tax dispute lawsuit that has lasted for five years following the 2021 tax assessment.
On April 28, the 6th Administrative Division of the Seoul Administrative Court (Presiding Judge Na Jini) ruled partially in favor of the plaintiff in the lawsuit filed by NETFLIX SERVICES KOREA (Netflix Korea) against the director of the Jongno Tax Office and others, seeking the cancellation of corporate tax imposition.
This lawsuit was triggered by the National Tax Service’s imposition of approximately 80 billion won in taxes on NETFLIX SERVICES KOREA following a tax audit in 2021. Although the tax amount was partially reduced via the Tax Tribunal, Netflix refused to comply and filed a lawsuit in November 2023 to seek the cancellation of 76.2 billion won in taxes.
The point of contention in the lawsuit was whether the nature of the sums paid by Netflix‘s Korean subsidiary to the Dutch subsidiary could be considered royalties for copyrights.
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Tax Authorities: Argued that since NETFLIX SERVICES KOREA holds the domestic transmission rights for Netflix video content, these sums should be considered royalties, allowing authorities to levy them at the source.
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Netflix Korea: Argued the funds correspond to “business income.” According to tax treaties between Korea and the Netherlands, there is no domestic taxation right on business income.
The court accepted Netflix‘s position, stating:
“It is difficult to consider the money paid by the plaintiff as consideration for the use of copyrights of video content; rather, it appears to be consideration for the provision of content streaming services to domestic consumers.”
The judgment estimates that while the foreign subsidiary performs essential functions such as the storage and transmission of Netflix content, the Korean subsidiary is limited to incidental activities such as operating the platform allowing access to domestic service and advertising.
The method of calculating the sums was also cited as evidence. NETFLIX SERVICES KOREA adopted a method of deducting costs from domestic subscription fee revenues to guarantee a certain operating profit, then paying the remaining amount to the Dutch subsidiary. The court ruled this structure corresponds to platform operation and marketing rather than an independent exercise of copyrights to generate profit.
The court concluded by clarifying: “The fact that Netflix sells services using the plaintiff as an intermediary cannot be legally considered an act of tax evasion,” adding that “even if the taxable income realized is low and leads to an unreasonable result, it is difficult to consider the provision in this case as legal.”
After the verdict, NETFLIX SERVICES KOREA stated: “Netflix respects Korean tax laws and regulations, continues its long-term investments in Korean content and the associated ecosystem, and cooperates with the authorities,” also specifying that “regardless of today’s decision, Netflix will continue to contribute to Korea and Korean content in the future.”
Journalist: Shawn
Translator: Shawn
Source: Netflix
