Domestic-source royalty for a foreign-registered patent used in Korea

1. 01Question

   Where a patent is registered abroad but not in Korea, and the manufacturing method, technology or information it covers is used in Korea, is the royalty paid for that use domestic-source income, and does 'use' mean using that method, technology or information rather than using the patent right itself, which carries exclusive effect?

2. 02Holding

   It is. Article 2(2) first sentence of the Korea-US treaty leaves undefined terms to the law of the contracting state where the tax is determined, so 'use' takes its meaning from Korean law, and the latter part of the proviso to Article 93(viii) of the former Corporate Tax Act treats a patent registered abroad as used in Korea regardless of domestic registration once it is used in domestic manufacture or sale. That 'use' means use of the patented method, technology or information, not use of the patent right itself; where the royalty is consideration for the de facto use of that technology in domestic manufacture or sale, it is domestic-source income under Article 6(3) and Article 14(iv)(a) of the treaty and that proviso.

   Points at issue, verbatim

   이때 적용되는 법규(=구 법인세법 제93조 제8호 단서 후문) 및 여기서 ‘사용’은 독점적 효력을 가지는 특허권 자체를 사용하는 것이 아니라 그 특허권의 대상이 되는 제조방법·기술·정보 등을 사용한다는 의미로 보아야 하는지 여부(적극)

   Unofficial English translation

   Whether the applicable provision in that case (the latter part of the proviso to Article 93, subparagraph 8 of the former Corporate Tax Act) and whether the term "use" herein should be understood to mean not the use of the patent right itself, which has exclusive effect, but the use of the manufacturing method, technology, information, etc. that is the subject matter of the patent right (affirmative)

3. 03Disposition

   Reversed and remanded Stated in the decision

   원심판결을 파기하고, 사건을 서울고등법원에 환송한다.

   Unofficial English translation

   The judgment of the court below is reversed, and the case is remanded to the Seoul High Court.

4. 04Form of the test

   Elements stated Stated in the decision

   여기서 ‘사용’은 독점적 효력을 가지는 특허권 자체를 사용하는 것이 아니라 그 특허권의 대상이 되는 제조방법·기술·정보 등(이하 ‘특허기술’이라 한다)을 사용한다는 의미로 보아야 한다.

   Unofficial English translation

   The term "use" herein should be understood to mean not the use of the patent right itself, which has exclusive effect, but the use of the manufacturing method, technology, information, etc. that is the subject matter of the patent right (hereinafter "patented technology").

5. 05Factors

   • 국외에 등록되었으나 국내에 등록되지 아니한 특허권의 대상이 되는 제조방법·기술·정보 등이 국내에서 사용된 경우
   • 그 대가인 사용료소득이 국내원천소득에 해당하는지 여부
   • 여기서 ‘사용’은 독점적 효력을 가지는 특허권 자체를 사용하는 것이 아니라 그 특허권의 대상이 되는 제조방법·기술·정보 등을 사용한다는 의미로 보아야 하는지 여부(적극)

   Unofficial English translation

   • Where a manufacturing method, technology, information, etc., which is the subject matter of a patent right registered abroad but not registered in the Republic of Korea, is used in the Republic of Korea

   • Whether the royalty income paid as consideration therefor constitutes domestic-source income

   • Whether the term "use" herein should be understood to mean not the use of the patent right itself, which has exclusive effect, but the use of the manufacturing method, technology, information, etc. that is the subject matter of the patent right (affirmative)

6. 06Relation to precedent

   Follows earlier decisions Stated in the decision

   대법원 2025. 9. 18. 선고 2021두59908 전원합의체 판결(공2025하, 1938)

   Unofficial English translation

   Supreme Court en banc Decision 2021Du59908 decided September 18, 2025 (Gong 2025 Ha, 1938)

   Decisions referred to

   대법원 2025. 9. 18. 선고 2021두59908 전원합의체 판결(공2025하, 1938)

7. 07Burden of proof

   Not addressed Not in the decision

8. 08Open question and revisit condition

   How substantial must the de facto use of the patented technology in domestic manufacture or sale be before the royalty paid for it becomes domestic-source income?

   The remand judgment of the Seoul High Court on whether the patented technology was in fact used in Korea would show how the 'use' test is applied to these facts. A later decision narrowing or extending Supreme Court Decision 2021Du59908, or an amendment to Article 93(viii) of the Corporate Tax Act or to the Korea-US treaty, would require this entry to be read again.

Read 2026-10-24 · Cross-read 2026-10-24. All quotes matched against the official text. The Chinese-character placeholders the court used for anonymised parties are given in their Korean readings, and parenthetical Chinese-character glosses are omitted.

Every entry is published only after all quotes have been matched character by character against the official text, and audited by an independent second reading from a different model family across all eight axes. Both agreed axes and text-grounded interpretive divergences are recorded openly. The ledger is a research record, not an assessment of the court or advice on any matter.