By Yoon Ja-young
Google was estimated to have recorded 1.6 trillion won sales in Korea last year, and Apple 955.8 billion won, according to the Korea Mobile Internet Business Association. While they take up most of the mobile content market, they aren’t paying much tax here.
At a forum organized by Rep. Hong Ji-man of the governing Saenuri Party, Tuesday, there was heated discussion over how to deal with global ICT companies that are avoiding taxes.
The so-called “Google Tax” has become a global issue, with a number of European countries pondering over ways to raise tax from companies reaping huge profits but avoiding taxes.
In the United Kingdom, for instance, Google has been avoiding paying taxes to the U.K. government by making Google Ireland collect most of its profits. The business in Ireland doesn’t pay much tax either by using tax havens such as Bermuda.
In Korea applications traded at foreign app markets like Google Play and Apple’s AppStore will be subject to 10 percent value added tax from July, following a tax revision last year.
However, the companies are still evading corporate taxes by locating their data servers in tax havens ― the tax authority loses justification for taxation under current tax treaties.
Hong thus submitted a revision bill in December which enables levying corporate taxes on global ICT giants for digital goods they sell in Korea.
“By defining IT services as digital goods instead of only considering the location, we can levy tax on their income from creations,” the lawmaker said.
There has also been criticism that local Internet service companies like Naver and Daum Kakao are suffering reverse discrimination, as they are having to pay all the taxes that the global companies avoid.
Prof. Kim Hyun-kyung at Seoul National University of Science and Technology pointed out that the Korea Communications Commission discriminated against local video streaming services by defining Google’s YouTube as an overseas site that isn’t subject to Korean law. “As a consequence, local portals Naver and Daum had to make monetary compensation for their past infringement of copyright, but YouTube didn’t have to.”
As the Google Tax has become a global issue, OECD member countries are trying to discuss the matter together to counter the tax evasion by these multinational companies.
A spokeswoman for Google Korea said the issue should be settled by international organizations.
“As Eric said in his op-ed, when a company only operates in one country, it's easier to determine where its profits are generated and thus where its taxes should be paid. But for multinational companies with a global presence, it's much more complicated as it requires consideration of cross-jurisdictional tax rules,” she said.
“As these are complex and interconnected issues, we believe that International forums like the OECD are precisely the places to decide tax rules for multinational businesses because everyone would benefit from a simpler and more transparent tax system.”
She stressed that Google complies with the tax laws in every country where it operates, including Korea.
Even so, global ICT companies are expected to face tougher monitoring by the government. The Fair Trade Commission (FTC) also said that it will strengthen monitoring on global ICT giants for unfair practices. It is creating a special task force dedicated to ICT.