Korea: Royalties from patents not registered in Korea may be subject to tax in Korea under U.S. treaty (Supreme Court decision); other tax developments
Recent tax developments in Korea, including transfer pricing related court decisions
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September 30, 2025
The Supreme Court on September 18, 2025, reversed its prior position and held (2021Du59908) that royalties derived from patents not registered in Korea may be subject to tax in Korea under the Korea-U.S. income tax treaty.
The court determined that the decisive factor is whether the patented technology is substantially used in Korea, and not whether the patented technology is registered in Korea.
As a result, several decisions issued over the past 33 years have been overturned, including:
- Supreme Court, May 12, 1992 (91Nu6887)
- Supreme Court, September 7, 2007 (2005 Du8641)
- Supreme Court, November 27, 2014 (2012 Du18356)
- Supreme Court, December 11, 2014 (2013 Du9670)
- Supreme Court, December 27, 2018 (2016 Du42883)
- Supreme Court, February 10, 2022 (2018 Du36592)
- Supreme Court, February 10, 2022 (2019 Du50946)
- Supreme Court, February 24, 2022 (2019 Du47100)
Read a September 2025 report prepared by the KPMG member firm in Korea
Other recent tax developments in Korea include:
- Payments treated as consideration for the purchase of software and therefore constituted business income, rather than royalties (Suwon District Court, 2023GuHap76700)
- “Market-penetration” adjustments and the practice of selecting comparables based on “five consecutive years of selection” in calculating arm’s length price rejected (Tax Tribunal decision Josim2023Seo9158)
- Sales volume or reasonable adjustments must be considered when selecting comparables to compute arm’s length prices (Supreme Court decision 2025Du33231)