Court Orders Cancellation of 68.7 Billion Won Tax Imposed on Netflix Korea

Lawsuits Against the Heads of Jung-gu and Jongno-gu Districts Dismissed

The Korean subsidiary of global OTT (over-the-top) service provider Netflix has effectively won a tax appeal lawsuit worth tens of billions of won against the tax authorities.

On April 28, the Seoul Administrative Court's Administrative Division 6 (Presiding Judge Na Jin-yi) ruled partially in favor of the plaintiff in a lawsuit filed by Netflix Services Korea (Netflix Korea) seeking the cancellation of corporate tax and other tax assessments imposed by the Jongno Tax Office and other tax authorities.

The amount Netflix Korea sought to have canceled totaled 76.2 billion won, and the court ordered the cancellation of tax assessments for 68.7 billion won—about 90% of the total amount in dispute.

This case originated from a tax investigation conducted by the National Tax Service in 2021 against Netflix Korea. At the time, the National Tax Service determined that Netflix Korea had avoided taxes by paying a significant portion of its domestic revenue to its overseas headquarters under the pretext of “management consulting fees.” As a result, the tax authorities imposed about 80 billion won in taxes. They argued that even though the headquarters had not provided any substantial management consulting services, the Korean subsidiary paid large consulting fees, reported a deficit, and thus evaded corporate tax by transferring domestic profits to the U.S. headquarters.

Netflix Korea objected and filed a petition with the Tax Tribunal. However, when only a portion of the tax was reduced, the company filed an administrative lawsuit in November 2023.

On this day, the court ruled that of the 69.2 billion won Netflix Korea claimed against the head of the Jongno Tax Office, approximately 99%—amounting to 68.7 billion won—should be canceled. In effect, the court accepted most of Netflix's arguments that the tax authorities' assessment was not legally justified.

However, the court dismissed lawsuits against the heads of Jung-gu Office and Jongno-gu Office in Seoul, who were also named as defendants along with the head of the Jongno Tax Office. The court found that if the corporate tax assessment by the tax office is canceled, the related local taxes would either be extinguished or could be separately remedied, making lawsuits against the district heads unnecessary.

This ruling comes amid ongoing controversy over the so-called “Google tax (digital tax),” which centers on allegations that global big tech companies like Netflix are shifting domestic profits overseas to reduce their tax burden. As the court sided with Netflix Korea, it is expected to have a significant impact on the tax enforcement and taxation strategies of the authorities regarding global IT companies with similar revenue structures going forward.

This content was produced with the assistance of AI translation services.