WEBTOON Entertainment Inc.WBTN
WEBTOON Entertainment Inc. Income Taxes Disclosure
Income Taxes
The Company is subject to U.S. federal and various state corporate income taxes as well as taxes in foreign jurisdictions where foreign subsidiaries have been established.
Loss before income tax expense for the years ended December 31, 2025, December 31, 2024, and December 31, 2023 is as follows:
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands of USD) | |||||||||||||||||
| U.S. | $ | (9,894) | $ | (92,622) | $ | (26,780) | |||||||||||
| Korea | (106,975) | 26,166 | (10,850) | ||||||||||||||
| Other | (272,540) | (82,852) | (95,123) | ||||||||||||||
| Loss before income tax expense | $ | (389,409) | $ | (149,308) | $ | (132,753) | |||||||||||
The components of income tax expense for the years ended December 31, 2025, December 31, 2024, and December 31, 2023, consist of the following:
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands of USD) | |||||||||||||||||
| Current income tax expense: | |||||||||||||||||
| U.S. Federal | $ | 2,810 | $ | 2,419 | $ | — | |||||||||||
State | (575) | 1,025 | 150 | ||||||||||||||
| Korea | 10,758 | 23,074 | 25,881 | ||||||||||||||
| Other | 208 | 1,790 | 1,816 | ||||||||||||||
| Uncertain tax position liability (Korea) | (258) | (169) | (268) | ||||||||||||||
| Total current income tax expense | 12,943 | 28,139 | 27,579 | ||||||||||||||
| Deferred income tax expense: | |||||||||||||||||
| Korea | (4,822) | (5,673) | (13,156) | ||||||||||||||
| Other | (24,143) | (18,862) | (2,417) | ||||||||||||||
| Total deferred income tax expense | (28,965) | (24,535) | (15,573) | ||||||||||||||
| Total income tax expense (benefit) | $ | (16,022) | $ | 3,604 | $ | 12,006 | |||||||||||
| Effective tax rate | 4.11% | (2.41)% | (9.04)% | ||||||||||||||
On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act (the “Act”), with certain provisions of the Act effective in 2025 and other provisions becoming effective in 2026 and beyond. The provisions of the Act effective in 2025 were not material and have been reflected in our results, as applicable.
The reconciliation from the statutory federal income tax rate to our effective income tax rate, applying ASU 2023-09 prospectively, for the year ended December 31, 2025 is as follows:
| 2025 | % | |||||||
| (in thousands of USD) | ||||||||
| Provision computed at federal statutory rate | $ | (81,776) | 21.0 | % | ||||
| State income taxes, net of federal effect * | 188 | — | % | |||||
| Foreign tax effects | ||||||||
| Korea | ||||||||
| Difference in foreign tax rates | (816) | 0.2 | % | |||||
| Non-deductible stock compensation | 5,374 | (1.4) | % | |||||
| Foreign tax | (1,701) | 0.4 | % | |||||
Impairment of goodwill5 | 15,809 | (4.1) | % | |||||
| Others | 1,201 | (0.3) | % | |||||
| Japan | ||||||||
| Difference in foreign tax rates | 1,853 | (0.5) | % | |||||
| Non-deductible stock compensation | 1,548 | (0.4) | % | |||||
| Change in valuation allowance | (8,425) | 2.2 | % | |||||
Withholding tax7 | 8,533 | (2.2) | % | |||||
| Others | 717 | (0.2) | % | |||||
| Canada | ||||||||
| Difference in foreign tax rates | (1,145) | 0.3 | % | |||||
| Change in valuation allowance | (17,059) | 4.4 | % | |||||
Impairment of goodwill5 | 54,622 | (14.0) | % | |||||
| Others | 1,189 | (0.3) | % | |||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | % | |||||
| Effect of cross-border tax laws | ||||||||
Disavowed Deduction Addback3 | 13,755 | (3.5) | % | |||||
Global Intangible Low Taxed Income4 | 2,195 | (0.6) | % | |||||
Branch (loss)/income1 | (14,736) | 3.8 | % | |||||
| Investments in affiliates | 8,169 | (2.1) | % | |||||
| Tax credits | ||||||||
Foreign tax credits1 | (6,031) | 1.5 | % | |||||
| Changes in valuation allowances | ||||||||
| Change in valuation allowance | (363) | 0.1 | % | |||||
| Nontaxable or nondeductible items | ||||||||
Disallowed Deduction of Covered Employees Compensation2 | 1,461 | (0.4) | % | |||||
| Other | (324) | 0.1 | % | |||||
| Changes in unrecognized tax benefits | ||||||||
| Uncertain tax positions liability | (258) | 0.1 | % | |||||
| Income tax expense (benefit) | $ | (16,022) | 4.1 | % | ||||
*The state that contributes to the majority (greater than 50%) of the tax effect in this category is California for 2025.
The reconciliation from the statutory federal income tax rate to our effective income tax rate, applying ASC 740 prior to the adoption of ASU 2023-09 for the years ended December 31, 2024 and December 31, 2023 is as follows:
| 2024 | 2023 | ||||||||||
| (in thousands of USD) | |||||||||||
| Provision computed at federal statutory rate | $ | (31,355) | $ | (27,878) | |||||||
| State income taxes, net of federal effect | 1,006 | 150 | |||||||||
| Difference in foreign tax rates | 1,406 | (6,317) | |||||||||
| Permanent differences: | |||||||||||
| Foreign tax | (1,681) | (1,145) | |||||||||
Branch (loss) income1 | (16,834) | (13,987) | |||||||||
| Non-deductible interest expense | 489 | 1,038 | |||||||||
| Non-deductible stock compensation | 6,500 | 1 | |||||||||
Disallowed deduction of covered employee compensation2 | 15,680 | — | |||||||||
Disavowed deduction addback3 | 10,290 | — | |||||||||
Global intangible low taxed income4 | 3,899 | — | |||||||||
| Investment in subsidiaries | 3,993 | 1,784 | |||||||||
Impairment of goodwill5 | 13,618 | 13,317 | |||||||||
Disposition of LOCUS6 | — | 5,355 | |||||||||
| Other permanent differences | 1,105 | 850 | |||||||||
| Other tax credits | (534) | (47) | |||||||||
Withholding tax7 | 7,969 | 5,479 | |||||||||
| Foreign currency translation adjustments on deferred tax | 7,734 | 699 | |||||||||
Taxation on foreign currency translation gains or losses8 | (13,256) | — | |||||||||
| Change in valuation allowance | (7,198) | 26,465 | |||||||||
| Uncertain tax positions liability | (169) | (268) | |||||||||
Tax audit payment9 | — | 7,044 | |||||||||
| Other | 942 | (534) | |||||||||
| Income tax expense | $ | 3,604 | $ | 12,006 | |||||||
______________
1.For the years ended December 31, 2025, December 31, 2024 and December 31, 2023, a permanent difference of $(14.7) million, $(16.8) million and $(14.0) million, respectively, were included as branch (loss)/income. The branch loss of $14.7 million for the year ended December 31, 2025, represents the tax effect on $70.2 million of accounting loss and $6.0 million of foreign tax credits generated by NAVER WEBTOON. The branch loss of $16.8 million for the year ended December 31, 2024, represents the tax effect on $20.7 million of accounting income and $21.2 million of foreign tax credits generated by NAVER WEBTOON. The branch loss of $14.0 million for the year ended December 31, 2023, represents the tax effect on $4.6 million of accounting loss and $13.0 million of foreign tax credits generated by NAVER WEBTOON. The foreign tax credits include income taxes paid in Korea and withholding taxes paid in various countries by NAVER WEBTOON, which are adjusted for the effect of changes in foreign tax credits in connection with the future reversal of the deferred taxes recorded under the Korean tax laws.
2.Internal Revenue Code (“IRC”) Section 162(m) limits the deductible compensation paid to covered employees of publicly traded companies, which includes the CEO and CFO, to $1 million per covered employee per year. The Company has disallowed total cash and equity compensation of $7.0 million for the year ended December 31, 2025. The Company has disallowed total cash and equity compensation of $74.7 million for the year ended December 31, 2024.
3.IRC Section 59A levies a tax on certain qualifying large corporations that have deductions with respect to amounts paid or accrued to foreign related parties that are 3% or more of their total deductions (“base erosion percentage”). A taxpayer may elect to waive such deductions to reduce their base erosion percentage below the 3% threshold. For the year ended December 31, 2025, the Company has waived approximately $65.5 million of deductions. For the year ended December 31, 2024, the Company has waived approximately $49.0 million of deductions.
4.IRC Section 951A requires a U.S. taxpayer to include income from its Controlled Foreign Corporations (“CFCs”) as Global Intangible Low Tax Income (“GILTI”) in computing U.S. taxable income. The section allows for a special deduction up to 50% of the income inclusion. The Company has GILTI inclusion of $10.5 million net of deductions for the year ended December 31, 2025. The Company has GILTI inclusion of $18.6 million net of deductions for the year ended December 31, 2024.
5.The Company recognized impairment loss on goodwill of $257.2 million, $74.0 million, $2.9 million, and $1.4 million for Wattpad, Munpia, WWS and Purple Duck, respectively, for the year ended December 31, 2025. In 2025, the impairment loss was recognized as the carrying value of each reporting unit exceeded the fair value of the respective reporting unit. None of the goodwill generated from business combinations structured as a
sale/purchase of stock was tax deductible and thus, the impairment of goodwill for book purpose for Wattpad, Munpia, WWS, and Purple Duck have been added back as permanent difference.
The Company recognized impairment loss on goodwill for Wattpad, Munpia, and WWS of $46.7 million, $20.3 million, and $2.7 million respectively, for the year ended December 31, 2024. The Company recognized impairment loss on goodwill for WWS, Munpia, and Jakga of $6.1 million, $25.6 million, and $31.7 million, respectively, for the year ended December 31, 2023. The impairment loss was recognized as the carrying value of each reporting unit exceeded the fair value of the respective reporting unit. None of the goodwill generated from business combinations structured as a sale/purchase of stock was tax deductible and thus, the impairment of goodwill for book purpose for Wattpad, WWS, Munpia, and Jakga has been added back as permanent difference.
6.On June 27, 2023, the Company sold part of its voting interest in LOCUS, decreasing its ownership to 39.2%. This resulted in the deconsolidation of LOCUS and its subsidiaries. $5.4 million of net DTA of LOCUS was removed upon deconsolidation. Since LOCUS had recorded a full valuation allowance, there was a change in the valuation allowance of $(5.4) million upon deconsolidation and no tax expense or benefit was recognized upon deconsolidation.
7.NAVER WEBTOON has received royalty income from various foreign entities and has paid withholding taxes on such income.
8.On December 11, 2024, the US Treasury and IRS released final regulations under IRC Section 987 and related rules, which are effective on December 10, 2024, and generally apply to taxable years beginning after December 31, 2024. For the year-ended December 31, 2024, NAVER WEBTOON is the only Section 987 qualified business unit (“QBU”) of the Company whose functional currency is non-USD. The Company has calculated pre-transition loss of $63.1 million based on the rules prescribed in the final regulations.
9.In December 2022, the Korean National Tax Service (“KNTS”) initiated a regular tax audit for NAVER WEBTOON covering tax years 2020 and 2021. The tax assessment primarily relates to the disallowance of losses on a disposition of the Parent’s shares in 2020. The assessment also includes a deemed distribution from a disproportionate capital increase of its investment in an affiliate and the disallowance of research and development credits. NAVER WEBTOON did not appeal the assessment result and settled the tax payment in May 2023.
Deferred tax assets (liabilities) as of December 31, 2025, and December 31, 2024, consist of the following:
| 2025 | 2024 | ||||||||||
| (in thousands of USD) | |||||||||||
| Deferred tax assets: | |||||||||||
| Stock compensation | $ | 6,252 | $ | 4,991 | |||||||
| Accrued expenses | 10,313 | 9,701 | |||||||||
| Operating lease liabilities | 8,073 | 5,253 | |||||||||
| Property and equipment | 4,754 | 47 | |||||||||
| Intangible assets | 4,388 | 7,565 | |||||||||
| Foreign currency translation | 1,705 | — | |||||||||
| Valuation of investment | 11,641 | 9,307 | |||||||||
| Provision for retirement benefits | 6,285 | 6,437 | |||||||||
| Bad debt allowance | 5,455 | 3,266 | |||||||||
| Unearned revenue | 14,309 | 10,792 | |||||||||
| Taxation on foreign currency translation gains or losses | 11,975 | 13,830 | |||||||||
| Capitalization of specified research | 10,942 | 7,392 | |||||||||
| Net operating loss carry-forwards | 53,036 | 62,360 | |||||||||
| Tax credits | 13,245 | 24,940 | |||||||||
| Others | 1,931 | 662 | |||||||||
| Subtotal deferred tax assets | 164,304 | 166,543 | |||||||||
| Less: Valuation allowance | (100,833) | (125,648) | |||||||||
| Total deferred tax assets | $ | 63,471 | $ | 40,895 | |||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right -of-use assets | (6,406) | (4,459) | |||||||||
| Foreign currency translation | — | (1,805) | |||||||||
| Deferred gain on restructuring | — | (322) | |||||||||
| Intangible assets | (40,520) | (46,988) | |||||||||
| Total deferred tax liabilities | (46,926) | (53,574) | |||||||||
| Net deferred tax assets (liabilities) | $ | 16,545 | $ | (12,679) | |||||||
Cash paid for income taxes, net of refunds received, by jurisdiction for the year ended December 31, 2025, is as follows (in thousands):
| As of December 31, | |||||
| 2025 | |||||
| (in thousands of USD) | |||||
Federal | 4,305 | ||||
State | 577 | ||||
Foreign | |||||
Korea | 10,176 | ||||
| Japan | 9,644 | ||||
Cash Paid for income taxes, net of refunds received | $ | 24,702 | |||
The amount of cash income taxes paid by the Company during the years ended December 31, 2024, and December 31, 2023, was $25,675 and $26,644, respectively.
Changes in the valuation allowance for deferred tax assets for the years ended December 31, 2025, December 31, 2024 and December 31, 2023 are as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands of USD) | |||||||||||||||||
| Beginning balance | $ | 125,648 | $ | 131,524 | $ | 105,345 | |||||||||||
| Disposition of LOCUS | — | — | (5,355) | ||||||||||||||
| Changes to existing valuation allowances | (25,473) | 5,167 | 32,246 | ||||||||||||||
| Valuation allowance release | — | (16,987) | — | ||||||||||||||
| Taxation on foreign currency translation gains or losses | — | 13,830 | — | ||||||||||||||
| Translation adjustments | 650 | (7,886) | (712) | ||||||||||||||
Rate Change | 8 | — | — | ||||||||||||||
| Valuation allowance, balance at the ending | $ | 100,833 | $ | 125,648 | $ | 131,524 | |||||||||||
As of December 31, 2025, December 31, 2024, and December 31, 2023, the Company recorded a valuation allowance of $100.8 million, $125.6 million and $131.5 million, respectively, on its deferred tax assets related to temporary differences, taxation on foreign currency translation gains or losses, NOL carry-forwards and foreign tax credits. The changes to existing valuation allowances for the year ended December 31, 2025 were primarily attributable to the utilization of foreign tax credits and net operating losses.
The changes to existing valuation allowances for the year ended December 31, 2024 were primarily attributable to the release of valuation allowance due to the LDF-eBIJ merger.
The changes to existing valuation allowances for the year ended December 31, 2023 were primarily attributable to the increase in outside basis differences of investments at the Company level and NOLs incurred by the Canadian and Japanese subsidiaries for which the Company has recorded a full valuation allowance and a valuation allowance release of $5.4 million from the deconsolidation of LOCUS.
The Company makes an ongoing assessment of our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences, expiration of foreign tax credit and NOL carry-forwards and tax planning strategies. The Company will continue to evaluate the ability to realize our net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets.
Net operating loss carryforwards as of December 31, 2025 and December 31, 2024 follows:
| 2025 | 2024 | ||||||||||
| (in thousands of USD) | |||||||||||
| Net operating loss carry-forwards | $ | 182,722 | $ | 208,021 | |||||||
As of December 31, 2025, the Company had $182.7 million of NOL carry-forwards, which $17.9 million, $76.5 million and $88.3 million are associated with the Company’s Korean, Japanese and Canadian subsidiaries, respectively. NOLs from our Japanese subsidiary begin to expire from 2032 through 2034 and NOLs from Canadian subsidiaries begin to expire from 2039 through 2045. The remaining NOLs related its Korean subsidiaries which expire at various years from 2036 through 2041. The Company has U.S. foreign tax credit carry-forwards of approximately $27.8 million as of December 31, 2025, which begin to expire from 2032 through 2034.
As of December 31, 2024, the Company had $208.0 million of NOL carry-forwards available to offset future taxable income, of which $18.8 million, $103.4 million and $85.4 million are associated with the Company’s Korean, Japanese and Canadian subsidiaries, respectively.
The material filing jurisdictions are the U.S. and Korea. The Company and its subsidiaries are subject to examinations by tax authorities of these jurisdictions for all open tax years. The open tax years for the company’s major tax jurisdictions are 2022 through 2025 for the U.S. and 2020 through 2025 for Korea.
The Company is currently under examination by local taxing authorities in the United States and in Canada. The Company has not identified additional uncertain tax positions during the audits. We continue to monitor the progress of ongoing discussions with tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.