Google Korea Wins 154 Billion Won Tax Case

Google (Provided by Yonhap News)  Google Korea has finally won a lawsuit filed against the taxation authorities seeking the cancellation of a corporate tax imposition amounting to 154 billion won ($118.46 million). The Second Petty Bench of the Supreme Court finalized the lower court ruling in favor of the plaintiff in the lawsuit seeking the cancellation of the collection disposition of corporate tax and other taxes, filed by Google Korea against the Head of Yeoksam District Tax Office, by dismissing the appeal without a hearing on the merits on Oct. 8. This dispute began in 2020 when the taxation authorities imposed about 154 billion won in corporate tax and local income tax on Google Korea. At the time, the authorities noted that Google Korea remitted a portion of its domestic advertising sales revenue to Google Asia Pacific, its Asia-Pacific headquarters located in Singapore. The authorities determined that the funds constituted 'royalty income' resulting from the use of copyrights and know-how, and were therefore subject to domestic taxation. On the other hand, Google Korea countered that the funds corresponded to the 'business income' of Google Asia Pacific. It filed an administrative lawsuit advancing the logic that, under the Korea-Singapore Tax Treaty, business income cannot be taxed unless there is a permanent establishment in Korea. The courts consistently ruled in favor of Google Korea from the first-instance court to the Supreme Court. The first-instance court held that it was difficult to view the amount paid by Google Korea as compensation for information regarding knowledge or experience, namely know-how. In effect, the court viewed the nature of the funds as business income rather than a royalty. The second-instance court also maintained this judgment and concluded that the tax imposition was unjust. However, it issued a decision to dismiss the claim for the cancellation of the local tax collection disposition filed by Google Korea against the Gangnam-gu Office. The rationale was that there is no separate practical benefit to the lawsuit, as the local tax is linked to and canceled along with the cancellation of the corporate tax. The Yeoksam District Tax Office appealed, dissatisfied with the second-instance ruling, but the Supreme Court issued a decision to dismiss the appeal without a hearing on the merits. Accordingly, the ruling canceling the tax imposition of around 154 billion won on Google Korea was finally confirmed.