The government will move quickly to impose taxes on Google, Apple, Amazon and other global IT companies. This follows policymakers and lawmakers paying greater attention to growing criticism that the firms earn billions of dollars in sales here annually but pay no taxes.
|Google Korea CEO John Lee|
Under the law, the government is unable to tax global companies as it is not mandatory for them to disclose their sales and operating profit here.
The Corporate Tax Act stipulates that global companies must pay taxes when they have fixed places of business in Korea.
This law has provided global companies with an excuse to avoid taxes while they expand their businesses rapidly here as their bases are established in other countries such as the United States, China and Ireland.
This has provoked criticism that these companies are contributing little to Korea through taxes and corporate social responsibility activities although they are doing business here on a large scale.
Amazon is one of the global IT firms actively targeting the Korean market as it has recently begun the free shipment of goods purchased by customers here.
Google and Apple are gaining huge profits through the sales of apps, with the former actively expanding its businesses here by, for example, launching its in-car infotainment application Android Auto.
This has also caused a controversy over "reverse discrimination" against domestic companies, such as Naver and Kakao, which are obliged to comply with all kinds of regulations and pay taxes, while fiercely competing to survive amid more and more aggressive inroads by global firms.
Ahn Jeong-sang, a policy advisor to the ruling Democratic Party of Korea, said it was an urgent task to introduce institutional measures to resolve issues involving global internet firms.
"Under the current law, preliminary or ancillary places of business are not regarded as global companies' offices in Korea, and this has played a role in their tax avoidance," Ahn said.
"Considering the characteristics of the digital economy, the concept of fixed places of business needs to be expanded so that the government can secure authority to impose taxes on them."
He stressed that substantive locations and subjects, to which companies offer their services, should be taken into consideration. For example, when companies' cache servers are in Korea, it should be construed that their places of business are also here, he said.
A local cache server is used to save internet content locally in temporary storage. Such a server is essential as it is almost impossible for global IT firms to bring high-definition, massive content from servers in other countries all the time.
The Ministry of Economy and Finance said its officials are participating in a taskforce operated by the Organization for Economic Cooperation and Development to discuss taxation policies targeting global IT companies.
Officials from domestic firms are claiming the government should be more active in establishing effective measures as their business environment is becoming more difficult.
"There are too many regulations against domestic companies, and discrimination between Korean and global firms is worsening," said an official at a Seoul-based IT firm. "For example, Google does not disclose its sales in Korea and sends its enormous advertising revenue to its headquarters. We want a fair tax system."
However, Google Korea said it complies with Korean laws and regulations.
"Google follows the laws and pays all applicable taxes in Korea," it said. "Information on Google Korea's revenue and profit is regularly reported to the Korean tax authority."