Korea’s Supreme Court reaffirms withholding tax does not apply to royalties for certain payments

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April 2019

Overview

Korea’s Supreme Court has reaffirmed its earlier position (Daebeop2012du18356, November 27, 2014) that payments made for the use of patents registered outside Korea do not constitute Korean-source income under the Korea-US tax treaty. Royalty payments made by Korean licensees to US residents for the use of patents in manufacturing, distribution, or other activities within Korea are not subject to withholding tax in Korea.

The takeaway

US taxpayers licensing the use of patents to Korean licensees should confirm whether the patents are actually registered in Korea. Since Korea’s Supreme Court has reaffirmed that royalty payments associated with the license of patents not registered in Korea do not constitute Korean-source income and should not be subject to withholding tax in Korea, US taxpayers that have received royalty payments that were subject to withholding tax (or received consideration from Korea for the transfer of patents registered outside Korea and treated such payment as royalty income subject to withholding tax) should consider reviewing the feasibility of claiming a refund of Korean tax.

Contact us

Bernard Moens

US Inbound International Tax Services Leader, PwC US

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