Netflix, Delivery Hero under audit for alleged tax evasion

National Tax Service (NTS) Assistant Commissioner for Investigation Lim Kwang-hyun gives a press briefing at the NTS in Sejong, Thursday. Yonhap

By Lee Kyung-min

The National Tax Service (NTS) launched an audit into Netflix Services Korea and Delivery Hero Korea, as part of a broad investigation into suspected tax evasion committed by multinational firms operating here, according to industry and government sources, Thursday.

They are two of up to 21 high-profile multinational companies under investigation.

Officials from the tax authority searched the offices of Delivery Hero Korea in Seocho-gu, southern Seoul, and Netflix Services Korea in downtown Seoul, Wednesday.

Delivery Hero Korea is an emerging contactless business whose noticeable jump in annual sales has been backed by the continued spread of COVID-19. Netflix Services Korea is another of the top beneficiaries from the pandemic.

They allegedly paid tens of billions of won ― tens of millions of U.S. dollars ― in consulting fees to their parent firms for years despite no clear evidence to suggest such “expensive” services were exchanged.

This, according to the tax agency, greatly helped the Korea offices report losses, thus avoiding hefty corporate taxes here, all the while the profit gained was being transferred back to the parent firms.

The services provided do not warrant the high fees, a reason the agency believes the firms violated the relevant domestic and international treaties that stipulate consulting fees be kept within a “proper range.”

Another allegation is that they paid their parent firms tens of billions of won in general business income in order to avoid paying hefty royalty-related taxes required to be paid to the Korean government in the form of a withholding tax. According to relevant tax treaties, multinational firms have to pay tax on general business income to the country in which they are based.

However, in the case of royalties, the firms must pay the NTS a certain amount of the total tax paid to their countries of origin.

The intense scrutiny could deal a major blow to Delivery Hero Korea, the operator of Yogiyo, a popular online food delivery app, possibly derailing its much-awaited merger between Woowa Brothers, the operator of Baemin, a major competition of Yogiyo.

Delivery Hero has come under audit for the first time since its launch in 2011, fanning speculation that the ongoing plan for a merger under review of the Fair Trade Commission (FTC) could be more stringent than previously expected.

“We cannot comment on ongoing investigations,” an NTS official said. “Any deliberate attempt to avoid tax will be duly punished with a punitive tax of up to 60 percent of the previously imposed amount. A criminal complaint will be filed with the prosecution for further investigation.”