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| Jobseekers listen to a career planning instructor at a small job fair at Google Campus in Seoul, Aug. 10, 2017. Korea Times file |
By Lee Kyung-min
The Korean offices of Netflix and Google will have to pay higher corporate taxes, upon the agreement of over 130 participants in the OECD blueprints drawn up to tackle global tax challenges.
Apart from the two firms, global IT giants including Amazon, Facebook and Apple will be subject to the so-called “Google tax,” whereby large digital companies will have to pay a certain amount of corporate tax, the rate of which is yet to be determined.
“The government will have the grounds to tax them, if the agreement is reached. Nothing has been finalized yet,” a finance ministry official said, Tuesday.
This is part of the global wave of efforts to tax the lucrative firms based on where their revenues are generated, not where their regional headquarters are located. Many global tech heavyweights have long managed to pay only a fraction of their profits as taxes here, largely by routing them to lower rate tax jurisdictions where their headquarters are based.
The two-pillar blueprints outlined by the OECD detail ways to overhaul member countries’ taxation regimes as economic activities are shifting online rapidly.
It seeks to tackle base erosion and profit shifting (BEPS), or tax avoidance strategies that exploit gaps and mismatches in tax rules through artificially shifting profits to low- or no-tax locations.
Another key point of contention will be pushing for a revision of laws on permanent establishment, or the fixed place of business that gives rise to income or value-added tax liability in a particular jurisdiction. Also included is setting a minimum corporate tax rate.
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| Officials of Netflix Korea introduce new content on their streaming service, Feb 25. Korea Times file |
According to the Financial Supervisory Service’s electronic disclosure system, Google Korea said April 14 that it recorded sales of 220.1 billion won ($198 million) last year, up 3.6 percent from a year earlier.
Its operating profit was 15.5 billion won, up 53.4 percent from the year before. Net profit during the same period was 6.2 billion won, up 741.2 percent.
The figures sharply contrasted with those of its Korean peers Naver and Kakao, which reported respective annual sales of 5.3 trillion won and 4.1 trillion won.
The stunning difference are a result of profits from Google Play Store’s app market revenue being recorded as sales of Google Asia Pacific based in Singapore, not Google Korea.
Industry watchers estimate Google Korea’s domestic sales to be in a range of 5 trillion to 6 trillion won. According to the Korea Mobile Internet Business Association, a group of IT and telecommunication businesses, Google Play’s sales in 2019 are estimated to be about 5.7 trillion won.
Also reporting rapid growth is Facebook Korea, which according to FSS data recorded 44.2 billion in sales and 11.7 billion won in operating profit last year.
Its sales increased 10.3 percent from 40.1 billion won in 2019 and operating profit reported over a six-fold increase, year-on-year.
The firm’s net profit was 6.3 billion won, up 33 times from 190 million won in 2019, driven by a spike in ad revenue from Instagram.
Pang Hyo-chang, IT committee head at the Citizens’ Coalition for Economic Justice, said the U.S. tech giant practically exists in the virtual world, and its corporate activities cannot be identified under the current permanent establishment-based tax code.
“Calls will grow for a prompt revision of related laws to clearly state that firms should be subject to tax where their services are used, not where headquarters are based,” he said.
The last meeting attended by the OECD/G20 Inclusive Framework (IF) involving 137 countries was held last October. Specifics will be finalized as early as the end of this month. Up to three years will be required for the full implementation.
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