Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Samsung, SK hynix on alert over OECD's 'digital tax' deal
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By Park Jae-hyuk
Google, Netflix to pay higher taxes in Korea from 2023
By Park Jae-hyuk
Samsung Electronics and SK hynix are on alert over the international community's agreement Friday to introduce the so-called “digital tax” from 2023 to ensure multinational tech giants start paying a certain amount of taxes to the counties they operate in and generate profits.
Both conglomerates said they will be keeping a close watch on the potential impact of the global tax deal on their operations.
The Korea Chamber of Commerce and Industry (KCCI) expressed concerns about the agreement, saying a considerable number of Korean exporters will be subject to the global minimum corporate tax rate, as the new rules will also apply to companies that are not engaged in ICT businesses.
“We want the government to analyze the effect of the digital tax thoroughly, so that Korean exporters can understand their burden accurately and adjust their strategies in expanding overseas,” KCCI Economic Research Division head Lee Kyung-sang said in a statement Saturday.
The business lobby group, however, added that the introduction of the digital tax was inevitable to prevent global tech giants from avoiding paying taxes.
According to the Ministry of Economy and Finance, 136 jurisdictions out of the 140 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) ― except for Kenya, Nigeria, Pakistan and Sri Lanka ― agreed to the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy.
Under Pillar One, multinational enterprises with global sales above 20 billion euro ($23 billion) and profits above 10 percent will be included under the new rules, with 25 percent of profits above the 10 percent threshold being reallocated to market jurisdictions.
Pillar Two introduces a global minimum 15 percent corporate tax rate that will apply to companies with revenue above 750 million euro.
Samsung Electronics and SK hynix are expected to be subject to Pillar One, given that the former posted 237 trillion won ($198 billion) in sales and a 15.1 percent operating profit last year, while the latter posted 32 trillion won in sales and 15.7 percent in operating profit.
“It will take some time before the impact is felt across the industry here but we remain on alert to brace for possible impacts,” said a public relations officer from one of the two companies on condition of anonymity.
As concerns have grown among the Korean businesses, the government emphasized that the new rules will have a limited impact on them.
The finance ministry said it will allow deductions in corporate taxes payable here for Korean multinational enterprises if they pay taxes in other countries in compliance with Pillar One.
The ministry also expects that foreign tech giants, such as Google, Facebook and Netflix, will pay a larger amount of taxes to the Korean government than the amount of taxes that domestic conglomerates will pay to the governments of the countries they operate in.
“Once the digital tax is introduced, Korean firms operating in other countries will be burdened with taxes overseas, but at the same time, this will provide a basis for the government to levy taxes on multinational enterprises doing businesses here,” Deputy Prime Minister and Finance Minister Hong Nam-ki said during a National Assembly audit, Wednesday.
The two-pillar solution will be delivered to the G20 Finance Ministers meeting in Washington, D.C., Oct. 13, then to the G20 Summit that will be held in Rome, Oct. 30 and 31.
If the G20 leaders give approval at the summit, Korean government officials will finish internal talks on technical details about the matter until early in 2022 and revise local tax laws by the end of next year.