[편집자주] Tax avoidance is the area that global big tech companies, which make huge amounts of money in Korea through app markets, smartphone OSs, social media, and OTTs, are putting the most effort into. Requests for data from tax authorities and voices from domestic industries asking for tax justice are met with nothing more than empty voices. Their tax evasion has a negative impact on increasingly insufficient tax revenues, which ultimately fall on the public. We take a look at what expedients global big techs have used to avoid taxes and what institutional measures are in place to prevent this.
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“I would have earned 12 trillion won” but taxes were only 15.5 billion won?… ‘Eat and run’ global big tech
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/Design Reporter Jiyoung Kim Global IT (information technology) companies are on the chopping block for paying low taxes that do not match the profits they make in the Korean market. Unlike domestic companies, institutional reasons that make it difficult to look into accounting details are cited as the background. Some point out that domestic companies suffer reverse discrimination due to such ‘tax avoidance’ by global big techs. In order to prevent this, it is pointed out that tax authorities need to understand the actual situation and international cooperation is needed.
◇Google is used by 46 million people, and corporate tax is 3% of Naver’s.
According to the industry on the 31st, Google Korea is at the forefront of such tax avoidance. According to a study by Gachon University business administration professor Jeon Sung-min and Hanyang University business administration professor Kang Hyeong-gu, Google Korea reported sales of 365.3 billion won last year and paid corporate taxes of 15.5 billion won. If you consider advertising revenue from YouTube and Google, which are used by more than 46 million people, and in-app payment fees from Google Play, sales are said to be excessively low.
Last year’s domestic sales, estimated by Professor Jeon Seong-min and others based on Google’s economic effectiveness report, amounted to a maximum of 12.135 trillion won. This is 33 times the actual reported sales. According to this, corporate tax of about 518 billion won should have been paid. Fully reported sales NAVER (169,700 won ▼300 -0.18%)(Naver)’s corporate tax last year was 496.4 billion won.
Google’s sales decline is due to the cost of sales accounting for up to 90%. Google exports most of the profits it earns in Korea as a cost of sales item to Google Asia Pacific in Singapore. Facebook Korea also set a high cost of sales sent to Meta, so the corporate tax it paid last year was only 5.1 billion won. Apple Korea lowered its cost-of-sales ratio from 95.3% in 2022 to 88.8% last year. Accordingly, corporate taxes of 200.6 billion won were paid last year, which is four times higher than in 2022 (50.3 billion won).
◇ Domestic companies that faithfully pay taxes are bleeding.
Kim Kyung-hoon, CEO of Google Korea, is answering questions from lawmakers during a comprehensive audit of the Ministry of Strategy and Finance and others held at the Planning and Finance Committee of the National Assembly in Yeouido, Seoul on the afternoon of the 28th. /Photo = News 1 The competitiveness of foreign companies that do not pay their fair taxes is bound to increase naturally. This leads to the weakening of domestic companies. Naver’s search market share, which hovered around 80% 10 years ago, has stayed around 60% in recent years. Google’s market share is also stuck at 30%, but recently, apps such as YouTube have strengthened their search functions, leading to an invisible increase in market share.
An industry official said, “Naver and Kakao pay hundreds of billions of won in taxes every year based on transparent accounting, while overseas companies such as Google, Meta, and Netflix simply pay exorbitant taxes based on their own calculated sales.” He pointed out, “While the political world is busy bashing the platforms of domestic IT companies, saying they have monopolies, global big tech companies are squandering money without any regulations.”
In addition, big tech companies are taking legal action against corporate tax collection by domestic investigative authorities. Google Korea filed an administrative lawsuit in 2020 when the Seoul Regional Tax Office attempted to collect 500 billion won, which is still in progress. Netflix Korea also filed an administrative lawsuit over tax collection of 80 billion won in 2021.
◇Digital tax collection must begin with an understanding of the current situation… 27 global companies with sales of KRW 5 trillion and corporate tax of KRW 0 last year alone
/Illustration=Jongcheol Lim, Design Reporter The ‘global digital tax’ discussion, which has been promoted mainly in the European Union (EU) in recent years, is considered an alternative to prevent tax avoidance by global big techs. The key is to ensure that if a certain sales standard is met, taxes are paid to the country where the sales occurred. Compared to the past method of levying corporate tax based on the location of a fixed business location, this policy targets global IT companies that generate sales around the world regardless of their business location.
However, the U.S. government, which owns many global big tech companies, is taking the lead in blocking the introduction of digital taxes. Big tech companies also stick to the method of shifting the cost of sales to countries with low corporate tax rates and paying less taxes. A representative example is Google Korea remitting cost of sales to its Singapore corporation. Some even send all of their sales overseas. Last year, there were 27 global companies that paid ‘0 won’ in corporate tax despite generating over 5 trillion won in domestic sales.
Tax avoidance by global companies is largely due to limited information. Professor Jeon Seong-min said, “Google Korea’s actual sales estimate was thanks to the ‘Economic Effect Report’ posted by Google on its website. When I wrote a research paper based on this, the report disappeared from Google’s website.”
Professor Jeon said, “In order to prevent tax evasion by multinational companies, international alliances and cooperation through them are important, but before doing so, an accurate understanding of the actual situation is necessary.” He added, “The tax authorities must first identify the tax evasion patterns of multinational companies to determine what type of international cooperation is possible.” “If necessary, we will be able to find a way,” he said.
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18 countries, including the UK, apply their own ‘digital tax’… Should we stop big tech tax avoidance?
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The first Google data center in Germany, which opened on October 6, 2023, in Hanau near Frankfurt, Germany. As the comprehensive Digital Markets Act (DMA), designed to prevent giant technology companies from targeting the digital market, came into effect early this month, European Union (EU) regulators began investigating Apple, Google, and Meta on the 25th. 2024.03.25. /AP=Newsis As the influence of global big tech companies grows, the international community is pursuing measures to prevent their tax avoidance. Some countries, such as the European Union (EU) and the United Kingdom, are making every effort to prevent so-called ‘scams’ by introducing their own digital service tax (DST).
According to Bloomberg Tax and the think tank Tax Foundation, 18 countries, including France, Italy, Spain, and the United Kingdom, currently apply their own digital taxes. This creates a legal basis so that if an IT (information technology) company makes a profit, the country where the profit is made can tax it, regardless of where the server is located.
Internationally, discussions on allowing the country where the sales occurred to tax the income of multinational companies began in 2017. At the time, the EU criticized in a report that “manufacturing companies are subject to an average effective tax rate of 23.2%, but digital companies pay only 9.5%.”
This is due to the geographic mismatch between consumers using digital platforms and where the products are developed. The Tax Foundation explained that while 40% of the value created in the information industry in 2020 occurred in North America, approximately 41% of global Internet users live in East Asia and Southeast Asia.
There has been growing criticism that global conglomerates, such as Google, do not pay taxes by using various tax avoidance methods despite making enormous profits overseas. In the end, governments of each country stepped forward to solve this problem. In particular, the EU took the lead in discussing the introduction of a digital tax. The European Commission proposed the introduction of a ‘digital services tax’ as a temporary measure in March 2018.
However, due to opposition from some member states, an EU-level agreement could not be reached, leading individual countries to introduce their own digital taxes. Since April 2020, when the UK left the EU, a 2% tax rate has been applied only to excess profits of companies with global sales exceeding 500 million pounds (approximately KRW 899.6 billion) and domestic sales exceeding 25 million pounds (approximately KRW 44.98625 billion). Do it. Some EU member states, such as France and Austria, and countries such as India, Nepal, and Colombia also apply tax laws according to their own standards.
Current status of ‘digital tax’ promotion around the world/Graphic = Lee Ji-hye Then the U.S. government protested. They claimed that it was ‘unfair trade’ and ‘discrimination against American companies’ based on the fact that most of the companies affected by the digital tax are based in the United States. The US government responded with ‘tariff retaliation’. When France introduced a digital tax in 2019, then-US President Donald Trump warned of the introduction of a ‘wine tax’ targeting wine, France’s representative export. The Joe Biden administration also decided to impose a 25% tariff on goods worth $2 billion in 2021 from six countries, including the UK, India, Austria, Italy, Spain, and Turkic countries.
As conflict continued between the United States and several countries, in 2021, the Organization for Economic Co-operation and Development (OECD) proposed a mediation plan through the Inclusive Framework (IF) with the 20 major countries (G20). Countries that have introduced digital taxes have decided to abolish their own independent tax systems and replace them with new international agreements when a global digital tax agreement is reached by 2024. Accordingly, the United States has also decided to withdraw its threat of retaliatory tariffs.
Pillar One, the specific issue covered by IF, is a multilateral agreement that grants taxation rights to the country in which a digital company makes profits, regardless of where the company is headquartered. If a large company has annual sales of more than 20 billion euros (approximately 29.9214 trillion won) and a profit margin exceeding 10%, the goal is to pay an amount equivalent to 25% of the excess profits as a digital tax to the country where the sales are generated. Pillar Two is the introduction of a ‘global minimum tax’. A corporate tax rate of at least 15% is uniformly applied to income regardless of the location of the multinational company. Some companies, including those in the United States and Brazil, agreed to the introduction of a global minimum tax (Pillar 2), but have a negative stance on the introduction of a digital tax (Pillar 1).
OECD-led multilateral negotiations, which were supposed to be concluded by this year, are still ongoing.
Meanwhile, Canada has decided to introduce its own digital tax starting next year rather than following the OECD’s arbitration plan. Only big tech companies that earn more than 20 million Canadian dollars (approximately 19.8154 billion won) annually from its citizens and companies with global revenues exceeding 1.1 billion Canadian dollars (approximately 1.1027 trillion won) are eligible for sales in Canada. It says that 3% will be charged. In fact, analysis suggests that it is aimed at Google, which has a 90.9% search market share, and Facebook, which has a 45.9% social media (SNS) market share.
Accordingly, the United States began dispute resolution procedures under the Canada-U.S. trade agreement last August. On August 30, the Office of the United States Trade Representative (USTR) said, “The United States requested Canada to discuss dispute resolution under the United States-Mexico-Canada Agreement (USMCA) in relation to Canada’s recently implemented digital services tax (DST).” “The United States opposes a unilateral digital services tax that discriminates against American companies,” he said.
In the case of France, plans are being made to increase the current tax rate of 3% to 5% starting next year. On the 28th, the U.S. Chamber of Commerce criticized this move, saying, “By raising the wages of service workers, it burdens French economic growth, heightens trade tensions with the United States, and has the adverse effect of hindering progress in global tax negotiations.”
Meanwhile, the introduction of digital tax is scheduled to be discussed as a major agenda item at the G20 summit held in Brazil next month. The G20 and the OECD announced a digital tax statement last year, and last month began a circulation process for signing a multilateral treaty on digital tax.
Brazilian President Luiz Inacio Lula da Silva is giving a keynote speech at the G20 Ministerial Meeting on ‘Global Solidarity to Address Hunger and Poverty’ held on the 24th in preparation for the G20 Summit to be held in Rio de Janeiro, Brazil. The Rio G20 Summit will be held for two days on November 18th and 19th. 2024.07.24 /AFPBBNews=News 1
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“Giving Korea 10 trillion won worth of economic value without paying taxes?… Must be regulated through multinational cooperation”
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Kim Kyung-hoon, CEO of Google Korea, is taking a witness oath during the comprehensive audit of the Ministry of Science and ICT, the Nuclear Safety and Security Commission, and the Korea Aerospace Administration by the Science and ICT Committee held at the National Assembly in Yeouido, Seoul on the afternoon of the 25th. /Photo = Newsis / Photo = Kwon Chang-hoe Amid continued criticism that tax evasion by global big tech companies such as Google and Netflix has gone too far, experts say that strong international regulation through ‘multinational cooperation’ is needed rather than Korea alone in regulating. Collect.
On the 31st, people inside and outside the industry emphasize that accurate sales disclosure is a priority for big tech companies to faithfully pay taxes. Jeon Seong-min, professor of business administration at Gachon University, said, “According to a research report recently published by the Korea Financial Management Association, Google Korea’s estimated sales last year (KRW 12.135 trillion) were more than 33 times higher than the sales (KRW 365.3 billion) published in Google Korea’s audit report. “He pointed out.
Last year, Google Korea’s actual corporate tax payment was only 15.5 billion won. Considering that domestic IT (information technology) companies pay around 5% of their total sales as corporate tax, Professor Jeon estimates that Google Korea will have to pay about 518 billion won. Professor Jeon said, “Google Korea is avoiding taxes by transferring most of its Korean sales to the Singapore corporation because it simply acts as an agent for the Singapore corporation and the Google Play server is also located in Singapore.” He pointed out, “It will reduce domestic sales.”
Professor Jeon emphasizes that international cooperation is needed to prevent tax avoidance by Big Tech. Professor Jeon said, “It is not new for multinational companies to avoid taxes in this way. Since platform companies operate without borders, tax definitions must be established accordingly. Multinational cooperation is needed for this.” . At the same time, he said, “Google claims to be giving more than 10 trillion won in economic value to Korea, but it is not correct to make this claim while actually avoiding hundreds of billions of won in taxes.”
Yoo Byeong-jun, a professor of business administration at Seoul National University, continued his explanation in a similar vein. Professor Yoo said, “Tax avoidance by Big Tech is becoming a problem not only in Korea but also in the United States and Europe, and the United States is also considering applying new taxation rules to solve this problem.” He added, “By applying this, Korea will also be able to reduce corporate tax.” “If we introduce it, big tech won’t be able to protest,” he said.
In addition, he suggested, “Since Big Tech is likely to object to the idea of charging taxes like domestic companies, the next best option could be to apply standards such as those in the U.S. to set a tax rate equivalent to that and tax it at that level.”
Meanwhile, there is also a view that regulation of foreign companies is not the only solution. Rather, the argument is that taxes should be reduced for domestic companies to create a fair competition environment. An industry official said, “Naver (NAVER (169,700 won ▼300 -0.18%)), cacao (36,150 won ▼800 -2.17%) “The problem is that an abnormal structure has been formed where even companies that are much smaller in scale than global companies such as Google pay more taxes than Google,” he said. “In fact, if it is difficult to regulate Big Tech, we can create an environment in which domestic companies can compete with them by reducing their taxes.” “It is a more realistic option to create one,” he said.
Naver paid 496.4 billion won in corporate taxes last year. This amounts to 5.1% of total sales (KRW 9.6706 trillion). Naver earned more than 2 trillion won less than Google Korea, but paid 32 times more corporate taxes. Kakao also paid 168.4 billion won in corporate tax, about 11 times more than Google Korea.
