Korea to finalize specifics of digital tax next year

Ko Kwang-hyo, right, the director general in charge of the income tax and corporate tax bureau under the Ministry of Economy and Finance speaks during a briefing at the Sejong Government Complex, Monday. Courtesy of Ministry of Economy and Finance

By Lee Kyung-min

“Digital tax” for Samsung, Hyundai and LG will be limited overseas, following an agreement from the OECD, which will recognize permanent establishments set up and operated by the leading Korean manufacturers as grounds to partly ease related tax rules, the finance ministry said Monday.

The agreement being fine-tuned by the international body is part of the worldwide move to impose a digital tax on global tech giants and cross-border multinational firms in countries where their services are provided.

Financial service providers, air carriers, marine transport operators, infrastructure builders and semiconductors will be classified as producers of intermediate goods and services and therefore exempt.

The tentative tax to be imposed in stages ― often referred to as the “Google tax” ― is being introduced and discussed by governments around the world as they find it increasingly difficult to levy taxes on online platform operators despite a continued sharp increase in their economic activities in their countries.

The Ministry of Economy and Finance said a multilateral consultative body participated in by the OECD and G20 on the initiative of countering base erosion and profit shifting (BEPS) agreed that governments will be able to tax multinationals on profits generated in their respective countries.

The OECD/G20 Inclusive Framework (IF) involving 137 countries held a meeting from Oct. 8- 9 online.

The results of the deliberations will be revealed at the G20 meeting Oct. 14 with specifics to be finalized by mid-2021. Up to three years will be required for the full implementation.

“Korea's Samsung Electronics, LG Electronics and Hyundai Motor, the consumer goods producers with substantial revenue overseas will be subject to tax that is not as great as that of other IT giants,” a ministry official said.

“But uncertainties still remain ahead over how they will be granted an exemption status, not to mention the scope and extent of the tax subject to various changes down the road. Firms that make about 1 trillion won ($871 million) in annual sales will be subject to the tax in line with OECD guidelines, although the exact figure is subject to change,” he added.

The tax will be levied after taking into account a firm's global and domestic revenue, profit margin in areas subject to the tax and existing tax codes.

The ministry dismissed concerns of double taxation, adding the tax in total paid by businesses around the world will not be raised, meaning firms will not be asked to pay tax on the same earnings twice.

“The total amount of tax remains the same. The only difference is which government will collect the tax from a certain firm,” the ministry official said.