Netflix's South Korean unit effectively won a corporate tax lawsuit against tax authorities involving about 70 billion won. The court ruled that money paid by the South Korean unit to a Dutch unit was compensation for services, not copyright royalties, and ordered the cancellation of 68.7 billion won of the 76.2 billion won assessed.

The Seoul Administrative Court's Administrative Division 6, presided over by Chief Judge Na Jin-yi, ruled on April 28 that Netflix Services Korea (Netflix Korea) partially won its lawsuit seeking to overturn corporate tax and other assessments against the head of the Jongno Tax Office and others.

The case began when the National Tax Service imposed about 80 billion won in taxes on Netflix Korea after a 2021 tax audit. The Tax Tribunal later reduced part of the amount, but Netflix objected and filed an administrative lawsuit in November 2023 seeking cancellation of all of the remaining 76.2 billion won.

The key issue was whether the money Netflix Korea had paid to the Dutch entity could be considered copyright royalties. Tax authorities argued Netflix Korea held domestic transmission rights, making the payments royalty income. That would allow withholding tax in South Korea.

Netflix Korea argued the payments were business income and that South Korea had no taxing rights under the Korea-Netherlands tax treaty.

The court accepted Netflix's argument. It found the overseas entity performed core functions such as storing and transmitting content, while Netflix Korea played only ancillary roles such as platform operations and advertising. It also viewed the calculation method, under which Netflix Korea guaranteed a certain operating profit from domestic subscription revenue and paid the remaining amount to the Dutch entity, as closer to compensation for services than copyright royalties.

The court said, "It is difficult to view the structure itself, in which Netflix sells services through the plaintiff as an intermediary, as a tax avoidance act," and added, "Even if an unreasonable result is produced because the taxable income realised is low, it is difficult to view this disposition as lawful."

Netflix Korea said shortly after the ruling, "We comply with Korea's tax laws and related regulations, and we continue long-term investment in Korea's content ecosystem and cooperation with the authorities," and added, "Regardless of this decision, we will continue to contribute to Korea and Korean content."