South Korea’s Supreme Court has ruled that LG Electronics must declare imports of semiconductors using U.S. chipmaker AMD’s proprietary technology at domestic sites and pay applicable taxes there, rather than shipping them directly to headquarters.
Key Details of the Ruling
The Supreme Court, in a decision led by Presiding Justice Ma Yong-ju, reviewed a case on August 8 involving an assessment by the Yeongdeungpo Tax Office. LG Electronics had listed the tax office as the importer for semiconductors but shipped goods worth 164 billion won to its Seoul headquarters. The court determined that such imports require declaration at the domestic usage site.
This ruling aligns with similar positions taken against SK hynix and Samsung SDI for their use of U.S. specialty chips.
LG Electronics’ AMD Chip Usage
LG Electronics began incorporating AMD chips in 2017 after signing import contracts. The company sources chips from four U.S. firms it owns and 12 additional U.S. and Canadian registered specialty chip units previously held by AMD and ATI.
In October 2017, LG imported chips valued at $97 million (equivalent to 109.5 billion won at the time) and shipped 15%—or 164 billion won worth—to its headquarters after declaring them at the Yeongdeungpo Tax Office.
Regulatory Scrutiny and Assessments
By March 2018, AMD chips lacked domestic registration in South Korea. Imports proceeded via one-time cooperation procedures, yet the tax office issued assessments. Officials cited past non-compliance, excessive internal transfers, and failure to provide required documentation, imposing penalties related to semiconductors used within five years.
The Yeongdeungpo Tax Office conducted another review in August of the same year. LG appealed to the Tax Tribunal in October, but the Supreme Court upheld the tax obligations.
The Seoul Administrative Court had initially sided with LG, with its panel stating, “Payments for patents registered only abroad do not qualify as domestic source income, regardless of whether the patent is used in domestic manufacturing or sales.”
However, the Supreme Court countered: “If proprietary technology from unregistered foreign patents is used domestically, the associated payments constitute domestic source income.” A shippers’ representative echoed this, noting that large-scale use of foreign specialty chips domestically triggers local tax handling.
Yeongdeungpo Tax Office officials confirmed the 164 billion won assessment related to AMD chip imports remains valid.
