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Money flows upstream for Netflix with measly tax bill on 1 trillion won earnings

Published: 16 Apr. 2025, 20:55

The Netflix logo is shown on one of their Hollywood buildings in Los Angeles on July 12, 2023. [YONHAP/REUTERS]

Netflix earned nearly 1 trillion won ($705.46 million) in revenue in Korea alone last year thanks to the popularity of titles like season two of "Squid Game" (2021-) and "Culinary Class Wars" (2024), but the company paid a paltry 5 billion won in corporate tax, raising fresh scrutiny over its profit structure and tax practices.

According to Financial Supervisory Service data on Wednesday, Netflix Services Korea, the company’s local distributor, posted 899.7 billion won in revenue in 2024. That marks a 9.27 percent, or 76.3 billion won, increase from the previous year, while operating profit also rose 44 percent on year to 17.4 billion won.

Another local subsidiary, Netflix Entertainment Korea, recorded 49.9 billion won in revenue last year. Combined, the two entities earned close to 950 billion won.

However, the total corporate tax paid by both entities amounted to just 5.2 billion won — 3.9 billion won by Netflix Services Korea and 1.3 billion won by Netflix Entertainment Korea — a small sum compared to the scale of their reported revenue.

Industry analysts say the low operating margins are the result of Netflix Korea’s structure, in which most of the revenue is remitted to headquarters. Netflix Services Korea reported 767.4 billion won in cost of sales last year, accounting for 85.3 percent of its total revenue of 899.7 billion won. Of that, 732.4 billion won — or 95.4 percent — was listed as subscription membership fees, which are presumed to be payments to its U.S. parent company.

Netflix has also paid out retained earnings to its headquarters in the form of dividends — 28 billion won in 2023 and 9.5 billion won last year — further minimizing its domestic tax burden.

In its audit report, Netflix Services Korea stated that “the company’s operating profit is consistent with the arm’s length principle under Netflix Group’s transfer pricing policy.”

Still, Korea’s National Tax Service considered the structure a form of tax avoidance and imposed a 78 billion won tax bill on the company in 2021. Netflix challenged the decision in court, lost in the first trial, and is currently appealing.

Netflix is not alone in facing scrutiny over tax practices. Google Korea posted 386.9 billion won in revenue last year but listed 351.3 billion won in operating costs, leaving it with just 35.6 billion won in profit and a 17.3 billion won corporate tax bill. Google Cloud Korea and Google Payment Korea followed similar patterns.

Google has long been criticized for attributing most of its Korean earnings to Google Asia Pacific, its Singapore-based regional headquarters.

Other global tech firms have reported higher revenue and tax payments in Korea. Apple Korea posted 7.83 trillion won in revenue and paid 82.5 billion won in corporate tax. Microsoft Korea earned 1.49 trillion won and paid 19.2 billion won in tax. Facebook Korea reported 73.8 billion won in revenue and paid 5.4 billion won in corporate tax for the 2023 fiscal year.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY LEE HAY-JUNE [[email protected]]