The royalty payments are exempt from withholding tax in Korea (Rep.), granting the Netherlands exclusive taxing rights over the income.
The Netherlands tax authority clarified on 10 July 2025 that payments for software distribution licenses by a Dutch company (X BV) to a South Korean distributor do not qualify as royalties under Article 12 of the 1978 income tax treaty with South Korea.
Instead, the royalty payments fall under Article 7 (Business Profits), granting the Netherlands full taxing rights. The decision was based on the fact that the distributor and its customers lacked the right to reproduce, modify, or exploit the software’s copyright. Following updated OECD commentary (1992 and 2008), payments for software distribution without reproduction rights are treated as business profits, not royalties.
As a result, the payments are exempt from withholding tax in South Korea, granting the Netherlands exclusive taxing rights over the income.
