Korea: Royalties for use of unregistered patents subject to tax under U.S. treaty (Tax Tribunal decision)
Royalties for the use of patents in Korea are considered domestic-source income, regardless of whether the patents are registered domestically or not.
The Tax Tribunal on July 22, 2024, held (2023 Joong 2673) that royalties for the use of patents unregistered in Korea were subject to tax as Korea-sourced income under the Korea-U.S. income tax treaty.
Summary
The taxpayer, a U.S. company specializing in solid state storage drives (SSD), entered into license agreements with two Korean companies for the use of its SSD technology patents, which are unregistered patents in Korea. The companies withheld tax on royalties paid to the taxpayer under the license agreements, applying the limited 15% tax rate provided in Article 14, Paragraph 1 of the Korea-U.S. income tax treaty. The taxpayer filed a refund claim, arguing that the royalty income was not Korea-sourced income subject to tax in Korea because the royalties were for the use of patents unregistered in Korea.
The Tax Tribunal held that royalties for the use of patents and similar rights in Korea are considered domestic-source income, regardless of whether the patents are registered domestically or not.
Read a October 2024 report prepared by the KPMG member firm in Korea