Philip Morris Korea has won a legal battle worth billions of won against the country’s tax authority over trademark usage fees, according to legal sources.

The Seoul Administrative Court on Monday ruled in favor of the South Korean unit of the international tobacco company, ordering a tax imposed by Seoul Main Customs worth 9.82 billion won ($8.7 million) to be canceled.

The ruling comes four years after the Korea Customs Service ordered the company to pay some 3.4 billion won in customs duties, some 3.7 billion won in value added tax and 2.6 billion won in penalty tax in early 2017 over royalties paid to its headquarters. PMK then moved to appeal the decision.

PMK has been producing tobacco products in Korea with raw materials exported from its headquarters since 2012. The tax authorities’ move against the firm came as they believed the Korean unit had been paying royalties to use the company’s trade secrets.

According to Korea’s Customs Act, companies are subject to a levy when importers pay their business partners a low price and make the rest of the payment in royalties in order to evade taxation.

But Monday’s ruling dismissed the argument by the tax authorities, saying that the royalties paid by PMK include trademark fees as well as tobacco leaves and business secrets and that the tax needs to be recalculated.

By Yim Hyun-su (hyunsu@heraldcorp.com)