The Supreme Court has upheld a ruling that tax authorities must cancel about 154 billion won ($107 million) in corporate and local income taxes imposed on Google Korea over money it sent to an overseas affiliate from income earned through domestic advertising sales.
The court's second division, with Justice Oh Kyung-mi as presiding justice, dismissed the appeal without review on the 8th and finalized the lower court ruling that partly favored Google Korea in its suit against the head of the Yeoksam District Tax Office and others, legal sources said on the 12th. A dismissal without review means the top court rejects an appeal without examining the merits when the case lacks the specific grounds required by law.
Tax authorities in 2020 levied about 154 billion won in corporate tax and local income tax on Google Korea. They based the assessment on the fact that Google Korea had remitted part of the income it earned from domestic advertising sales to Google Asia Pacific, its Singapore-based affiliate. Google Korea contested the decision and filed an administrative suit in May 2023.
At issue was whether the income qualified as royalty income subject to taxation in South Korea. Google Korea argued that the money paid to Google Asia Pacific was business income and therefore not taxable in the country. Tax authorities countered that the amount was royalty income paid for the use of copyrights and know-how, making it taxable domestically.
A lower court sided with Google Korea in January last year. The court found that the money Google Korea paid to Google Asia Pacific could not be treated as royalty income paid for the use of computer programs or know-how. It also cited the fact that Google Korea does not own the physical facilities needed to provide advertising services, such as data centers, and that the overseas affiliate is the entity actually providing the services, as grounds for rejecting any withholding tax obligation.
An appeals court in May found the first ruling justified. It dismissed the portion of the claim filed against the head of Gangnam District Office, however, reasoning that the cancellation of the corporate tax assessment by the Yeoksam District Tax Office also eliminated the linked local income tax, leaving no legal interest to be gained through litigation.