Top court backs taxation of overseas-registered patents used in Korea

The Supreme Court has ruled that income derived from patents used in Korea is subject to Korean taxation, even if the patents are not registered domestically, reaffirming its position that actual use in local industrial activity is sufficient to establish taxation jurisdiction.

In a recent ruling on a case filed by Optodot Corp., a US-based patent holding company, the court overturned a lower court decision that had favored the company.

Optodot had sought a revision of about 500 million won ($341,000) in taxes imposed on licensing income it received from Korean battery-maker Samsung SDI.

Of the 20 licensing agreements signed in 2017, 19 involved patents registered abroad and not filed with Korea’s intellectual property authorities. Optodot argued that royalties from patents not registered in Korea do not constitute Korea-source income under the US-Republic of Korea Income Tax Convention.

Lower courts accepted that view, ruling that the income was sourced in the United States, where the patents were registered.

The Supreme Court disagreed, holding that “patents registered overseas but used in manufacturing and sales activities in Korea constitute domestic-source income.” It said the term “use” under the tax treaty should be interpreted in line with Korean law, as the convention does not define the concept. In that context, “use” refers to where the technology is actually applied in practice.

The case will now return to the Suwon High Court, which will rehear Optodot’s challenge to the tax authorities’ rejection of its refund request, applying the Supreme Court’s guidance.

The decision follows a similar ruling issued in September 2025, when the court departed from its long-standing interpretation of overseas-registered patents. In a case brought by SK hynix, the court upheld the tax authorities’ right to levy income tax on royalties for patents registered only in the United States but used in domestic operations.

Since 1992, the Supreme Court had held that patent-related income belonged to the country where the patent was registered. In the latest ruling, the court said that while patent rights are territorial in nature, this does not make the use of technology in Korea irrelevant for tax purposes.

Territoriality, it added, merely means that such use does not amount to patent infringement under Korean law when the patent is registered abroad.