Supreme Court of Korea Rules Know-how Payment to US Company Subject to Corporate Tax

On May 20, 2026, the Supreme Court of Korea upheld the National Tax Service's imposition of corporate income tax on payments made by a Korean company to a U.S. firm for technical know-how. The Korean company had argued that the payments were for offshore transactions and not subject to domestic taxation. The court, however, determined that the know-how was utilized in Korea and generated income within the jurisdiction, thus constituting domestic-source income. The ruling overturned a lower court decision favorable to the taxpayer, confirming that withholding tax obligations apply to such cross-border technology license fees when the intangible asset is effectively used in Korea.

The Supreme Court ruled in favor of the tax authorities, holding that the payments are subject to Korean corporate income tax, and the National Tax Service's assessment was valid.

Whether the know-how consideration paid by a Korean company to a U.S. enterprise qualifies as domestic-source income under Korean tax law, thereby triggering corporate income tax withholding obligations.

The decision sets a significant precedent for cross-border technology transfers, potentially increasing the tax compliance burden on foreign licensors. It may lead to reexamination of existing licensing agreements and could escalate international tax disputes over source rules. Multinational enterprises operating in Korea are advised to carefully structure intangible asset transactions to account for domestic withholding tax risks.