Korea: Fee paid to foreign parent company was royalty subject to withholding tax (Tax Tribunal decision)

A Tax Tribunal decision concerning a fee paid to a foreign parent company was royalty subject to withholding tax.

Fee paid to foreign parent company was royalty subject to withholding tax

The Tax Tribunal held (2021 Suh 5598, 9 August 2023) that a “distribution fee” paid by the taxpayer, a Korean company, to its foreign parent company, was a royalty payment subject to withholding tax. 


The taxpayer provided distribution services in Korea and paid a “distribution fee” to its foreign parent company in accordance with subscription fees paid by local subscribers, which the taxpayer treated as business income of the parent not subject to withholding tax.  

The tax authority took the position that the taxpayer received a license for a right to use the copyright to video content provided by the parent and thus the fee was a royalty for use of the copyright subject to withholding tax. Although the taxpayer claimed to be a limited risk distributor, the tax authority argued that the taxpayer was the main provider of services in that it directly contracted with subscribers, allowed access to the parent’s contents, received subscription fees, and performed maintenance for the website. Moreover, in order to provide streaming services for contents, the taxpayer was required to have the right to transmit and reproduce such contents.

The tribunal agreed with the tax authority, finding that based on the way the taxpayer provided services, the right to reproduce, transmit, and distribute the parent’s content was essentially licensed to the taxpayer. Accordingly, the tribunal held that the fee paid by the taxpayer to the parent was a royalty payment subject to withholding tax.

Read a September 2023 report [PDF 912 KB] prepared by the KPMG member firm in Korea


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