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[Alpha Biz= Paul Lee] A South Korean court has ruled that payments for telecommunications equipment software should be taxed as royalty income rather than treated as purchases of goods.

According to legal sources on April 26, the Seoul Administrative Court dismissed a lawsuit filed by Ericsson-LG Company against a local tax office, upholding a corporate tax assessment.

The dispute centered on whether payments made by the company to Ericsson’s parent entity for software related to 3G, LTE, and 5G network equipment should be classified as business income or royalty income.

Tax authorities had determined that the payments constituted royalties for the use of technology or know-how, subject to a withholding tax of up to 10%.

The company argued that the software should be considered a product, meaning the payments should be treated as business income, which is generally not taxable in Korea if the foreign entity lacks a permanent establishment.

However, the court ruled that the software represents accumulated technical expertise and know-how rather than a standardized commercial product. It noted that such software requires specialized knowledge to operate and maintain, and is not freely usable by the general public.

The ruling also cited Supreme Court precedents indicating that software developed for specific applications or priced based on usage conditions can be classified as technology or know-how, making related payments subject to royalty taxation.

 

 

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