Over 80% of Revenue Remitted to Headquarters as Membership Purchase Consideration, Capping Local Corporate Tax at 6.6 Billion Won
(Photo courtesy of Reuters)
Netflix surpassed 1 trillion won in annual revenue in South Korea for the first time in its nine years in the market, but after remitting most of its earnings to its headquarters, its corporate tax payment stood at just 6.6 billion won ($4.76 million).
According to the Financial Supervisory Service’s electronic disclosure system on April 23, Netflix Services Korea posted revenue of 1.0542 trillion won and operating profit of 20.3 billion won in the previous year. That was up 17% from a year earlier in both categories, marking its best performance since launching its service in South Korea in 2016.
By contrast, during the same period, TVING saw its revenue fall 7%, while Wavve posted a 19% decline on a consolidated basis, leaving Netflix as the only platform to grow alone. Compared with 2020, when it first submitted an audit report, both revenue and operating profit have more than doubled.
Stronger content competitiveness and a more diversified pricing structure drove the growth. Last year, self-produced content including “When Life Gives You Tangerines,” “Squid Game Season 3,” and “KPop Demon Hunters” scored successive hits, while the expansion of its ad-supported plan improved accessibility and helped the company secure a large number of new users.
According to data from Mobile Index, Netflix’s monthly active users in December last year rose 20% from the same month a year earlier to a record 15.59 million. That was about double the 8.43 million recorded by second-place Coupang Play.
Despite that top-line growth, however, its operating margin has remained at around 2% for a sixth straight year. That is because more than 80% of the subscription revenue earned by Netflix’s Korean entity is remitted to its global headquarters under the item of “membership purchase consideration.”
As of last year, 853.9 billion won ($615.80 million), equivalent to about 81% of domestic revenue, was transferred to headquarters. As a result, the scale of corporate tax Netflix pays in South Korea has also remained limited. Last year, Netflix’s corporate tax payment totaled 6.6 billion won ($4.76 million), or just 0.6% of revenue.
According to corporate data tracker CEO Score, the average share of corporate tax to revenue among 1,583 foreign-invested companies from 2022 to 2024 was 1.1%. Netflix is therefore paying corporate tax at a level even below the average for foreign-invested companies.
Industry officials point out that Netflix is intentionally reducing its domestic operating profit to avoid tax burdens.
According to the audit report, Netflix Services Korea pays membership purchase consideration to headquarters under a membership distribution agreement with the parent company. Its operating profit is also determined under the Netflix group’s transfer pricing policy. Because the subscription right consideration, booked as cost of sales, is set through “consultation” between headquarters and the local subsidiary, the explanation is that it is possible to raise it arbitrarily and reduce operating profit.
Jung Suk-yee
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