Google Korea won its appeal in a lawsuit seeking to overturn a 154 billion won ($113 million) corporate tax assessment filed against the tax authorities.
The Seoul High Court's Administrative Division 9-1 (Judges Hong Ji-young, Kim Dong-wan, and Kim Hyung-bae) on Monday upheld the ruling in favor of Google Korea in its lawsuit against the Yeoksam Tax Office and others seeking to cancel the corporate tax collection.
However, the appellate court dismissed the portion of the suit filed against Gangnam District Office. The court determined that since local taxes linked to the corporate tax assessment would also be eliminated or separately remedied if the Yeoksam Tax Office chief's corporate tax imposition were canceled, there was no practical benefit in pursuing the case against the district office head.
From September 2016 to December 2018, Google Korea signed an advertising resale contract with its Asia-Pacific headquarters, a Singapore-based entity, generating approximately 1.51 trillion won in revenue. Of this amount, about 975.1 billion won was sent to the Singapore entity as resale commissions.
At the time, Google Korea did not withhold taxes on the grounds that the income qualified as "business income" of the Singapore entity and was therefore not subject to domestic taxation. The National Tax Service, however, classified the amount as royalty income and imposed 154 billion won in corporate tax on Google Korea in 2020. Google Korea challenged the assessment and filed a lawsuit seeking its cancellation.
The lower court ruled that the 154 billion won corporate tax collected from Google Korea by the authorities should be canceled. The court found that the amount Google Korea paid to its Asia-Pacific headquarters did not constitute royalty income as compensation for the use of computer programs or know-how. The court also ruled that Google Korea could not be held liable for corporate tax withholding obligations, citing that it does not own physical facilities for advertising services such as data centers and that the entity providing the services was the Asia-Pacific headquarters.
Meanwhile, U.S. tech companies including Netflix and Meta have recently prevailed in corporate tax cancellation lawsuits filed against Korean tax authorities.
