Netflix Earned Nearly 1 Trillion KRW in Korea, but Paid Only 5 Billion KRW in Corporate Taxes

Despite raking in nearly 1 trillion KRW (approx. 703 million USD) in revenue from South Korea last year, largely thanks to high-profile content like Squid Game 2 and Culinary Class Wars, Netflix paid just 5 billion KRW (approx. 3.52 million USD) in corporate taxes a revelation that is once again raising concerns over tax avoidance by global tech giants.

According to disclosures from Korea’s Financial Supervisory Service on April 16, Netflix’s Korean entity, Netflix Services Korea, reported 899.7 billion KRW in revenue for 2023, up 76.3 billion KRW (9.27%) from the previous year. Its operating profit jumped by 44% to 17.4 billion KRW.

Another Netflix subsidiary, Netflix Entertainment Korea, posted 49.9 billion KRW in revenue. Combined, the two entities earned nearly 950 billion KRW in total revenue from the Korean market in 2023.

How Netflix Minimizes Its Tax Burden

Despite these soaring revenues, Netflix’s tax payments in Korea were surprisingly low, Netflix Services Korea paid just 3.9 billion KRW, while Netflix Entertainment Korea paid 1.3 billion KRW in corporate taxes.

The reason? Netflix’s Korean branches reportedly record extremely high cost of goods sold, transferring much of their revenue to the U.S. headquarters. For instance, Netflix Services Korea listed operating costs of 767.4 billion KRW, accounting for 85.3% of its total revenue. A staggering 732.4 billion KRW or 95.4% of those costs, was labeled as “subscription membership purchase costs,” suggesting that most revenue was remitted to its parent company.

Additionally, the Korean branch sent back 95 billion KRW in dividends to the U.S. headquarters in 2023, further reducing its taxable income. Netflix maintains that its accounting and profit margins follow “arm’s length” principles in accordance with global transfer pricing policies.

Korean Tax Authorities Disagree

However, South Korea’s National Tax Service (NTS) takes a different view. It considers these practices a form of tax avoidance, and in 2021, it imposed a 780 billion KRW tax bill on Netflix. The company contested the decision in court, lost the initial trial, and has since appealed.

Netflix is far from alone in this practice. Google Korea, for instance, posted 386.9 billion KRW in revenue last year but listed 351.3 billion KRW in costs, leaving just 35.6 billion KRW in profit. It paid 17.3 billion KRW in corporate taxes. Much of Google’s revenue is said to be redirected to its Singapore-based Asia Pacific branch.

Other global tech companies show similar patterns:

• Apple Korea: 7.83 trillion KRW in revenue, 82.5 billion KRW in tax
• Microsoft Korea: 1.49 trillion KRW in revenue, 19.2 billion KRW in tax
• Facebook Korea: 73.8 billion KRW in revenue, 5.4 billion KRW in tax (2023)

These figures are prompting renewed scrutiny over whether current regulations can adequately ensure that global tech firms contribute fairly to the local economies where they generate significant profits.