[비즈한국] In a dispute over approximately 70 billion won in corporate tax between Netflix Services Korea (Netflix Korea) and the National Tax Service (NTS), the court has ruled in favor of Netflix. The court determined that the domestic entity acts as a service intermediary rather than the holder of content copyrights, and therefore, the fees paid to the overseas parent company cannot be classified as royalties for the use of copyrights. As controversy continues regarding the profit structures and tax standards of global platforms, attention is now turning to whether tax authorities will appeal and how potential appellate court rulings will impact the taxation of global OTT companies.
On April 28, the 6th Administrative Division of the Seoul Administrative Court ruled partially in favor of the plaintiff in the first trial of a lawsuit filed by Netflix Korea against the chiefs of the Jongno District Tax Office, the Seoul Jung-gu Office, and the Jongno-gu Office to cancel the imposition of corporate taxes. The court ruled that 68.7 billion won of the 76.2 billion won in corporate taxes imposed by the authorities on Netflix Korea must be canceled.
The conflict between Netflix Korea and the tax authorities over corporate tax dates back to 2021. After Netflix Korea recorded 415.4 billion won in domestic revenue in 2020 but paid only 2.2 billion won in corporate tax—about 0.5% of its revenue—the NTS imposed an additional 80 billion won in corporate taxes in 2021. Netflix Korea attempted to recover the taxes by filing a tax appeal, but the Tax Tribunal upheld most of the NTS's assessment. Subsequently, in November 2023, Netflix Korea filed a lawsuit with the Administrative Court to cancel 76.2 billion won of the tax assessment.
The core of the dispute was the identity of the copyright holder and the nature of the fees. The NTS argued that Netflix Korea is the entity that exercises rights within Korea after receiving them from its Dutch entity, thus making it subject to withholding tax. Conversely, Netflix Korea argued that the overseas entity is the primary provider of content, and the domestic entity acts merely as a distributor reselling subscription services; thus, it claimed that since the revenue is generated overseas, there is no obligation for withholding tax. It further argued that fees paid to the overseas entity were not royalties for copyright usage.
In the dispute that lasted over five years, the court sided with Netflix Korea, judging that it acts as a service intermediary providing support and ancillary roles such as platform operation and advertising, rather than being the copyright holder. The court stated, "It is difficult to view the expenses paid by Netflix Korea as payment for the use of content copyrights," adding, "It appears to be compensation for the streaming services provided by the overseas entity to domestic users."
However, the court ruled that the imposition of corporate tax regarding the cache servers (transmission networks copying overseas servers) installed by Netflix Korea within domestic Internet Service Provider (ISP) networks was appropriate. Although Netflix Korea argued that the cache servers were not their assets because they were transferred to ISPs, the court determined that, considering their intended use, they are assets over which Netflix exercises control.
The court also did not accept the tax avoidance allegations raised by the tax authorities. The NTS argued that it was tax avoidance for Netflix Korea to recognize most of its revenue as compensation for subscription membership purchases and then transfer it to the overseas entity. However, the court ruled, "It is difficult to conclude that the overseas entity selling services through Netflix Korea constitutes tax avoidance," adding, "Even if the low taxable income realized domestically leads to an unreasonable result, it is difficult to see this administrative action as lawful."
The NTS had conducted a high-intensity tax audit on Netflix Korea from August 2020 to May 2021 due to suspicions of tax avoidance. During the audit, the Jongno District Tax Office and others imposed fines for violations of the Framework Act on National Taxes, claiming that Netflix Korea refused to submit documents. However, the fines imposed by the NTS were all canceled by October 2025 following a Supreme Court ruling (Related article: Netflix fine dismissed in its entirety... NTS goes 'all-in' on 78 billion won corporate tax case).
Meanwhile, as controversy over tax avoidance by global companies operating in Korea continues, the market is closely watching whether the tax authorities will appeal and the impact of the final verdict. In 2025, Netflix Korea achieved its highest-ever revenue of 1.0542 trillion won in the Korean market, with an operating profit of 20.3 billion won. However, it paid only 6.6 billion won in corporate tax, which is merely 0.6% of its revenue. This is because its operating profit margin is significantly low compared to its revenue, as 81% (853.9 billion won) of its revenue is transferred to the overseas entity as compensation for subscription membership purchases.
Following the ruling, Netflix Korea stated to the domestic media, "Netflix complies with Korean tax laws and related regulations, continues long-term investments in Korean content and its ecosystem, and cooperates with the authorities. Regardless of the ruling, we will continue our contributions to Korea and Korean content."