The Supreme Court ruled that LG Electronics must pay corporate tax in Korea on the fees it paid for using U.S. chipmaker AMD's patents. The court had previously reached the same conclusion for U.S. patents used by SK hynix and Samsung SDI.
The Supreme Court's First Division (Presiding Justice Ma Yong-ju) said on the 15th it overturned an appellate ruling that ordered a refund of 16.4 billion won in corporate tax and sent the case back to the Seoul High Court in the final appeal over LG Electronics' suit seeking to cancel Yeongdeungpo Tax Office's refusal to correct corporate tax (withholding tax).
LG Electronics, after a patent technology infringement dispute with AMD, signed a cross-licensing agreement in 2017. Under the deal, LG Electronics would pay AMD a fee in return for cross-licensing four U.S. patents owned by LG Electronics and 12 U.S. registered patents owned by AMD and its Canadian subsidiary ATI.
In Oct. 2017, under this agreement, LG Electronics paid AMD $97 million (109.5 billion won at the time) and paid 16.4 billion won to the Yeongdeungpo Tax Office as a 15% withholding corporate tax.
In Mar. 2018, LG Electronics filed for correction, arguing that because AMD's patents were U.S. registered patents not registered in Korea, the royalties did not constitute domestic source income subject to withholding as corporate tax by the tax authorities under the Korea-U.S. tax treaty.
A correction claim is a system that allows a taxpayer to request a refund from the competent tax office within five years after the statutory filing deadline when excess tax was paid due to omissions of deductions, understated expense entries, and the like within the filing period.
However, the Yeongdeungpo Tax Office rejected the correction claim in Aug. of the same year. LG Electronics then filed an appeal with the Tax Tribunal in Oct. of the same year, but that claim was dismissed in Mar. of the following year. LG Electronics then took the case to court.
The Seoul Administrative Court (first instance) sided with LG Electronics. The administrative court said, "Compensation for the use of patent rights registered only abroad does not constitute domestic source income regardless of whether the patent rights were used for manufacturing or sales in Korea." The appellate court dismissed the Yeongdeungpo Tax Office's appeal.
But the Supreme Court reached a different conclusion, saying, "If the patented technology of an unregistered patent in Korea was used in Korea, the royalty income in return constitutes domestic source income." It said the 16.4 billion won in corporate tax collected by the Yeongdeungpo Tax Office from LG Electronics over AMD patent use was justified.