S. Korean tax agency ordered to refund ₩11.3 billion to Samsung over Microsoft patent deal

South Korea’s Supreme Court has ordered tax authorities to refund Samsung Electronics Co. 11.3 billion won in undue corporate taxes from a former patent deal with Microsoft Corp.

South Korean tax officials purported that Samsung avoided paying corporate taxes for using US software giant Microsoft’s patents in its smartphones following a July 2011 deal.

Two lower courts have ruled in Samsung’s favor.

In compliance with Korean tax rules and a treaty between South Korea and the US, Samsung paid South Korean tax authorities 15 percent of the annual patent fee in corporate taxes on behalf of Microsoft. The fee was paid from the royalty that was due to Microsoft.

In 2016, tax authorities collected 113 billion won more in undue taxes after learning through a probe from Samsung paid some 69 billion won less in its patent royalty to Microsoft.

Samsung objected to the tax collection since the use of Microsoft’s patents, which are unregistered in South Korea, should not be subject to domestic withholding taxation.