Netflix effectively wins corporate tax lawsuit... court orders cancellation of 68.7 billion won out of 76.2 billion won

Netflix Korea effectively won its lawsuit seeking to overturn a corporate tax assessment imposed by the tax authorities. The court found that fees Netflix paid to overseas affiliates were not "copyright royalties" but rather payment for services, making the large tax bill unjustified. The ruling is expected to serve as a precedent for the domestic revenue structures and corporate tax calculations of global platform companies.
The Seoul Administrative Court Administrative Division 6, presided over by Chief Judge Na Jin-yi, ruled on the 28th in a case filed by Netflix against the Jongno District Tax Office and others, partially siding with the plaintiff and ordering the cancellation of 68.7 billion won out of 76.2 billion won in corporate tax and related levies.
The key issue in the case was the nature of the fees paid by Netflix's Korean entity to its Dutch affiliate, Netflix International B.V. The National Tax Service (NTS) had concluded in a 2021 tax audit that Netflix paid the fees in exchange for the right to reproduce and transmit domestic content, classifying them as "copyright royalties" and imposing about 80 billion won in taxes, including withholding taxes. Netflix, however, argued that the payments were business income, which is not subject to taxation in Korea, and filed suit to challenge the assessment.
The court accepted Netflix's argument and described the Korean entity as both a "platform operator that enables access to content" and a "mere reseller."
The court said that the core functions, including content storage and transmission, are managed and carried out by the overseas affiliate, while the Korean entity performs only ancillary activities such as advertising. It therefore ruled that the fees were payment for streaming services, not royalties.
On Netflix Korea's revenue structure, the court also said it was "a structure in which a certain operating profit is guaranteed after cost deductions, making it difficult to view the company as an independent profit-generating entity." It added that, given contract terms in which the overseas affiliate covers losses, the payments cannot be definitively treated as consideration for the use of copyrights.
Regarding the possibility of tax avoidance, the court explained that "even if the result is unreasonable because domestic taxable income is low, that alone cannot be taken to mean the assessment was lawful on the ground that it constituted tax avoidance."
However, the court found that 74 cache devices installed by Netflix, known as Open Connect Appliances (OCA), were under the control of the Korean entity, and upheld the related corporate tax assessment. It also dismissed the claim seeking cancellation of the Corporate Local Income Tax, saying there was no practical benefit to the lawsuit.
The ruling is expected to affect the tax strategies of global big tech companies such as Google LLC, Meta Platforms, and Apple Inc., which generate substantial sales in Korea but have long faced persistent allegations of tax avoidance.
These companies are also known to structure their Korean entities in a manner similar to Netflix, using them mainly for marketing support or as intermediaries for services, while attributing core revenue streams such as advertising fees and app store commissions to overseas affiliates.
Google Korea and Meta Korea, in particular, have long argued that a large share of their revenue generated in Korea is payment for the technology and content provided by their overseas headquarters, thereby minimizing corporate tax liabilities. Legal experts said the ruling gives global platform companies with similar business structures legal grounds to defend against challenges from tax authorities.
theknight@fnnews.com Jung Kyung-soo Reporter