BUSINESS

Calls persist for Google, Apple to face stricter tax regulations in Korea

By Shin Ji-hye

Experts say local tax laws affecting global companies should be more precise and more strictly enforced

  • Published : Oct 1, 2018 - 15:34
  • Updated : Oct 1, 2018 - 18:29

Calls continue to grow in South Korea to enforce tax laws more strictly for global tech firms such as Google, Facebook and Apple, as concerns have been raised over ambiguities critics say may create an uneven playing field for local tech firms.

For example, Google Korea and Korean tech giant Naver are estimated to have reported similar sales figures of around 4.7 trillion won ($4.23 billion) last year. The US tech giant paid only 20 billion won in corporate taxes, while Naver paid 423 billion won, according to Rep. Park Sun-sook of the Bareunmirae Party.

In Korea, taxes are levied when a “fixed place of business” has been established -- for instance, a server in the case of an online company. Most global tech firms, including Google, do not have servers in Korea. When revenue is generated, often it is remitted to other nations, such as Singapore or Ireland, where the tax burden is lighter.


(Yonhap)

Last week, it was once again suggested that global firms may be avoiding value-added taxes in Korea because of legal loopholes.

During a conference held Friday on digital value-added taxes, Bang Hyo-chang, an information technology commissioner at the Citizens’ Coalition for Economic Justice and a professor at Doowon University, said the global tech firms should have paid around 400 billion won in value-added taxes last year, given their estimated sales of over 5 trillion won.

For global tech providers to be liable for value-added taxes here, they should register their digital services with the National Tax Service in accordance with OECD guidelines that have been in force since 2015. But registration is voluntary, not compulsory, and there is no practical tool to regulate those that fail to register. Penalties for tax evasion are also much lighter in Korea than in the European Union or other OECD nations, according to Bang.

It is difficult to track down tax-payment histories too, as many global firms are not obliged to disclose their sales figures to the public here. This is because they are doing business in Korea as “limited-liability companies,” and the tax authorities do not publish such information for confidentiality reasons.

The value-added tax law itself is ambiguous, said Kim Bitmaro, a researcher at the Korea Institute of Public Finance.

Kim said, “In the law, it is uncertain whether companies engaging in the online advertising business need to pay value-added tax. The range of digital services in the law includes games, audio, video and software only.”

In the EU and other OECD nations, Kim added, online advertising is classified as a digital service.

Online advertising sales for Google Korea and Facebook Korea were estimated at around 1 trillion won each last year, according to local advertising consulting firm Webloc.

Park Joon-young, an official from the Finance Ministry, said the government will review the concerns about value-added tax laws, adding that difficulties still remain as borderless “digital services” are more difficult to classify than “products.”

The forum on digital value-added taxes is the latest in a number of similar forums related to the “Google tax” in Korea in recent months. “Google tax” refers to anti-tax-avoidance provisions targeting global companies that attempt to limit their taxable presence in high-tax jurisdictions.

Global tech companies maintain that their operations and tax-payment procedures are all lawful.

“Google complies with the tax laws in every country where we operate, and we follow the laws and pay all applicable taxes in Korea. Google contributes to the tax revenue of Korea through the value-added tax which comes from Google Play, as well as via corporate tax,” said a Google Korea spokesperson.

Facebook Korea said the company “follow(s) the tax laws in Korea” and plans to disclose a sales breakdown for its client countries, including Korea, in the first half of next year. Apple Korea did not immediately respond to the inquiry.

Lawmakers from both the ruling and opposition parties are moving to propose bills to revise tax laws to more effectively enforce tax laws against global tech firms.

Early this month, Rep. Byun Jae-il of the ruling Democratic Party of Korea proposed a bill to revise the information communications network law to oblige foreign tech firms, such as Google, Facebook and Netflix, to have servers in Korea, as this would strengthen their legal responsibilities.

Rep. Park Young-sun and Rep. Kim Sung-soo, also from the ruling Democratic Party, are preparing bills that would mandate the collection of taxes from the areas where services are offered. Rep. Park Sun-sook from the minor opposition Bareunmirae Party is preparing bills to revise the corporate tax laws and the value-added tax laws to prevent tax avoidance by global tech firms.

In 2014, Rep. Hong ji-man from the main opposition Liberty Korea Party proposed the first Google tax bill, which would have involved a review of the corporate tax law, but it was discarded in the National Assembly two years later.

By Shin Ji-hye(shinjh@heraldcorp.com)


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