Google, Facebook face 10% VAT from July

By Lee Kyung-min

Global IT giants, such as Google and Facebook will have to pay a 10 percent value-added tax (VAT) starting next month, according to the National Assembly and industry sources, Wednesday.

This comes from a revision to the VAT Act, a much-awaited measure for their local counterparts that have long demanded a “fair and level” playing field.

The revision, which was approved by the Assembly late last year, is set to take effect from July 1.

Under the revision, the tax authorities will impose a 10 percent VAT on global IT giants' business-to-consumer (B2C) digital services, including online-to-offline services, online advertisements and cloud computing, which many expect will increase the competitiveness of domestic IT firms.

Accordingly, foreign IT companies are expected to increase their services and advertisement fees by 10 percent.

The sources said that Google has sent notifications to its paid services account holders about the revised law.

Similar action is expected from other IT giants including YouTube, Airbnb and Amazon Web Service (AWS).

The revision stipulates that the VAT will apply to firms providing B2C services, a process that removes the “middleman” between the seller and end-consumers.

The revised law, proposed by Rep. Park Sun-sook of the minor opposition Bareunmirae Party in November 2018, is expected to see the National Tax Service (NTS) collect an additional 400 billion won ($354 million) in annual revenue.

The rather belated move could also help the NTS establish the legal basis to identify taxable income amid criticism that many global IT giants have long enjoyed advantages by exploiting legal loopholes.

The tax agency has long struggled to find legitimate grounds to levy tax, as most firms have refused to comply with requests for corporate documents submission, citing “confidential business information.”

Most of them have deliberately delayed submitting income tax filings as well as sales figures, knowing no punitive measures would be enforced.