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An appeals court in Seoul on Thursday upheld a lower court ruling siding with Google Korea in a corporate tax cancellation case worth over 150 billion won (US$103 million), according to Yonhap News. The Seoul High Court ruled in favor of the company, which had requested the cancellation of corporate taxes levied in 2020.

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Yonhap News reported that tax authorities had imposed corporate and local income taxes totaling around 154 billion won on Google Korea at the time, taking issue with its transfer of some of its income to Google Asia Pacific based in Singapore. Google Korea argued that the funds in question were part of Google Asia Pacific's business income and therefore not subject to taxation in South Korea.

The lower court had rejected the tax authorities' argument, and the appellate court upheld that decision. However, the appellate court dismissed a request for the cancellation of local income taxes, ruling that there was no practical benefit as local income taxes are linked to corporate taxes.

The case is the latest in a series of tax disputes involving major global tech companies in South Korea. Last week, the Seoul Administrative Court ruled partly in favor of Netflix Services Korea Ltd., ordering authorities to cancel 68.7 billion won (US$46.6 million) in taxes, as reported by Yonhap.

Key Claims

  • An appeals court upheld a lower court ruling siding with Google Korea in a corporate tax cancellation case worth over 150 billion won (US$103 million).
  • Google Korea argued that the funds in question were part of Google Asia Pacific's business income and not subject to taxation in South Korea.
  • The appellate court dismissed a request for the cancellation of local income taxes, ruling that there was no practical benefit as local income taxes are linked to corporate taxes.
  • A Seoul court ordered authorities to cancel 68.7 billion won in taxes levied on Netflix Services Korea Ltd.
  • The court ruled that payments made by Netflix's Korean unit to a Dutch affiliate should be treated as business profits, not copyright royalties.
  • Tax authorities argued that the payments should be regarded as copyright royalties, subject to taxation.

Context: Netflix Tax Case

In the Netflix case, the Seoul Administrative Court ruled partly in favor of the streaming service's local unit, which had filed a lawsuit seeking to nullify corporate tax and other levies imposed by local tax authorities in November 2023. In 2021, the National Tax Service slapped approximately 80 billion won in taxes on Netflix following an audit amid controversy that the company was paying relatively low corporate tax compared to the volume of its sales. The streaming service firm challenged the measure, seeking a cancellation of around 76.2 billion won of the levied taxes.

At the center of the controversy is whether the payments made by Netflix's Korean unit to a Dutch affiliate should be treated as "copyright royalties" or "business profits." Tax authorities argued that the money transferred to the Dutch affiliate should be regarded as copyright royalties, which are subject to taxation. The local unit of Netflix, however, claimed that payments under such arrangements constitute business profits, which are not taxable under a tax treaty between South Korea and the Netherlands designed to prevent double taxation. The court ruled that the payments made by the plaintiff cannot be considered copyright royalties for video content and should be regarded as profits from providing streaming services to Korean consumers.