Netflix Korea accused of tax evasion by a lawmaker

Netflix Korea has been accused of possible tax evasion after it reported earnings of KRW1.23 trillion or around $836 million in sales for the last three years. The suspicion arose as the streaming service company only paid 0.5% of tax from its total revenue.

As per The Korea Herald, a local lawmaker, Rep. Kim Seung Su of the People Power Party, said earlier this week that the low percentage that Netflix Korea paid in tax definitely raised the suspicion that it may have been evading payments of taxes in the country.

Rep. Kim reportedly released Netflix Korea’s audit report from 2019 to 2021, and based on the documents, the Korean unit of the US-based streaming firm earned KRW$1.23 trillion and moved KRW959.1 billion which is equivalent to 77.8% of the total sales to its headquarters in California. The amount was said to have been transferred as commission fees.

The official said that the “commission fees” that were handed over to the HQ in the United States was one reason why Netflix Korea’s net income was lower, thus, its corporate tax was low as well.

In any case, it is common for the company’s HQ to take a certain portion of its subsidiaries’ total sales as commission fees, but while this is quite a normal process, and the amount of fees also goes up each year, Rep. Kim said that Netflix Korea seemed to have only been paying an average of 0.3 to 0.5% of taxes in the mentioned 3-year period.

“Netflix's corporate value is soaring with the success of K-content, but it continues to ignore its responsibilities in Korea,” the lawmaker said in a statement. “We need to prepare policies to stop the outflow of national wealth and prevent foreign tech industries from avoiding taxes in the country.”

He added, "If it was not transferring Netflix Korea's income overseas in the form of commission fees, Netflix Korea would have had to pay a total of 50 billion won over the last three years."

Meanwhile, Netflix Korea’s executive director, Jung Kyo Hwa, explained that they have paid proper taxes in line with the country’s tax laws and tax treaties. They are also said to be seeking information from the local Tax Tribunal as there may have been differences in the translation of the taxation policies that are causing issues.

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