Netflix tax win in Korea highlights gaps in digital tax rules

A South Korean court’s recent ruling in favor of Netflix has brought renewed attention to how global digital platforms structure their operations to minimize local tax liabilities — a practice that, while legal, continues to raise questions about fairness and the limits of existing tax systems.

On April 28, the Seoul Administrative Court largely sided with Netflix Services Korea, canceling 68.7 billion won ($46.7 million) of the 76.2 billion won in taxes imposed by Korean authorities in a 2023 dispute. The decision effectively upheld most of the company’s appeal.

At the heart of the case was how Netflix’s Korean unit should be defined. The court determined that Netflix Services Korea functions not as a “copyright user,” but as a “service intermediary,” primarily facilitating user access to the platform. It also found that overseas affiliates perform the key functions of storing and delivering content to Korean users.

Based on this interpretation, the court concluded that payments made by the Korean entity are not for the use of content copyrights, but rather compensation for streaming services provided from abroad. As a result, much of Netflix’s business activity in Korea falls outside the scope of domestic taxation.

Experts say the structure is far from unique. Instead, it reflects a widely used model among multinational tech and media companies, in which revenue, intellectual property and core operations are distributed across jurisdictions in ways that limit how much profit is recorded — and taxed — in any single country.

Kim Yoon-zi, chief researcher at the Export-Import Bank of Korea, said that while such arrangements may be legally valid, they often run counter to what people intuitively expect as fair or reasonable.

“There is a growing perception that global platforms generate significant revenue in Korea without paying a proportionate level of tax. In that sense, this case brings renewed attention to a long-established practice," said Kim.

Some argue that imposing heavier taxes on global firms could deter investment in the Korean content and technology sectors. Kim, however, downplayed those concerns. “If the Korean market remains profitable, it is unlikely that companies would scale back investment solely due to higher taxes,” she said.

In Korea, the issue extends beyond Netflix. Google, for instance, has long operated under a similar framework.

In 2025, the combined corporate tax paid by its local entities reportedly stood at around 28 billion won, much less than the corporate taxes paid by domestic platform companies such as Naver, which paid 601 billion won during the same period. Much of Google's income from advertising, cloud services and app marketplaces is attributed to overseas affiliates, often in jurisdictions such as Singapore.

Experts caution that traditional taxation models are struggling to keep pace with the realities of the digital economy.

“I think the idea of taxing income earned within a country in that same country is a trend that is emerging in a similar way around the world. We also cannot simply continue to observe this issue, so I believe it is ultimately the government’s role to improve the system so that taxation can be carried out more fairly and appropriately," said Kim.