South Korea is seeking ways to levy a corporate tax on profits of global technology companies and other multinationals as early as next year in response to growing criticism of their tax avoidance structures.
The diverted profits tax is more widely called the “Google tax,” as U.S. tech giants such as Google, Apple and Amazon earn a lot of money around the world, but collect nearly all of the profits in tax havens.
“The rest of the world is considering the adoption of the ‘Google tax’ because they agree tax avoidance must stop. The Korean government is willing to take a preemptive action,” said an official from the Ministry of Strategy and Finance.
Google Inc. employees sit outside at the company’s headquarters in Mountain View, California. (Bloomberg-Yonhap)
More detailed plans are expected to be announced in August next year when the government finalizes revisions to local tax laws.
If the new tax is implemented as planned, Korea would become the second nation to do so after the U.K., which announced a new 25 percent tax on multinationals last year.
Industry watchers predict more nations to follow. Early this month the G20 finance ministers signed measures to combat “based erosion and profit shifting,” which is considered a key step before the wider adoption of the “Google tax.”
In Korea, there were 9,523 multinational companies as of 2013 and almost half of them, or 4,752, paid nothing in corporate tax. Among those that have avoided taxes, 15 companies earned more than 1 trillion won ($890 million) here.
Tech firms, in particular, have come under fire for the relatively small corporate tax they pay in Korea compared to their extensive business activities.
For instance, Google is estimated to make 1.5 trillion won every year in its app store sales alone, but the company has avoided taxes because it has a server in Ireland.
Amid criticism about reverse discrimination against Korea-based information technology firms, the government early this year decided to impose a 10 percent value added tax on app sales of Google and other multinationals.
But no progress has been made in legal changes needed to force all multinationals to pay Korean taxes on their domestic profits.
Experts urged international cooperation in order for the new corporate tax to become an effective tax avoidance deterrent.
By Lee Ji-yoon (
jylee@heraldcorp.com)
