In the appeal of a lawsuit filed by SK hynix seeking a refund of a little over 300 million won in corporate tax, the Supreme Court en banc on the 18th quashed and remanded the case with a ruling unfavorable to SK hynix. It overturned the rulings that had favored the company in the first and second trials.

In this case, the Supreme Court en banc decided that domestic tax authorities can tax patent royalties that our corporations pay to foreign corporations. Until now, the Supreme Court had held that if a patent is registered only overseas, taxation is not possible domestically. This changes precedent for the first time in 33 years.

Chief Justice Cho Hee-dae and the justices enter and take their seats in the Grand Bench at the Supreme Court in Seocho-gu, Seoul on the afternoon of the 18th for an en banc ruling. /Courtesy of News1

On this day, the Supreme Court en banc overturned the appellate ruling that had favored SK hynix in a lawsuit to cancel a disposition rejecting correction that SK hynix filed against the head of the Icheon Tax Office and sent the case back to the Suwon High Court. The gist is that "SK hynix cannot get back the little over 300 million won in corporate tax it already paid."

SK hynix has been paying $1.6 million (about 2.2 billion won) annually since 2014 in royalties to a U.S. corporation that holds patents related to DRAM semiconductors. In the first year, SK hynix withheld 310 million won in corporate tax on the patent royalty income and paid it to the tax office.

The very next year, SK hynix asked the tax office to refund the corporate tax. Under the Korea–U.S. tax treaty, the country of use (the country where the asset is used) may tax patent royalties. SK hynix argued that the "country where the asset is used" should be regarded as the country where the patent is registered. It then said that because this patent is registered in the United States, domestic tax authorities cannot impose tax.

Both the first and second trials sided with SK hynix. They followed an earlier Supreme Court ruling that in 2014 held that royalties for patent rights not registered domestically are not domestic-source income.

However, on this day, the Supreme Court en banc changed precedent for the first time in 33 years. The Supreme Court ruled to the effect that "if the Korea–U.S. tax treaty does not clearly define the taxation of patent royalty income, it is proper to tax under Korea's Corporate Tax Act." It added, "Korea's Corporate Tax Act provides that where patent technology is in substance used for manufacturing and the like, this is to be interpreted as use of the patent."

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