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Government officials say multinational technology giants are reluctant to pay anything
By Yoon Sung-won
The Korean affiliates of Microsoft (MS) and Oracle are under increasing pressure to pay taxes here, with government officials saying the two multinational technology giants were reluctant to pay anything, although they generated huge a lot of money from projects with Korean technology companies.
Tax officials are closely monitoring such continued tax avoidance by foreign companies here. It is possible the authorities may launch an investigation, although officials declined to comment, citing sensitivity.
Since Eric Schmidt, chairman of Google's parent company Alphabet, made it clear that the tech giant was ready to follow international rules on taxation, officials say foreign companies such as MS and Oracle, which have operated here for a long time, had been avoiding corporate taxes.
"I think taxes should not be optional," Schmidt said when he visited Korea to celebrate Google's corporate social responsibility activity on Oct. 30.
"It is right to pay tax if one gets a profit and Google will also pay it properly. We will follow the rules decided by the Organization of Economic Cooperation and Development (OECD)."
In the U.S., enterprises have avoided paying up to 35 percent of their taxes by not including income from overseas income.
According to data from business finance researcher Audit Analytics, MS headquarters has "permanently reinvested" $108.3 billion overseas as of June this year. It also loaned money overseas at low interest rates to purchase treasury stocks and increase dividends.
International Business Machines (IBM) also had indefinitely tied up $61.4 billion overseas as of last year. This has reduced IBM's effective tax rate in the U.S. to 21 percent.
According to Korea's National Tax Service, 4,752 foreign companies ― 49.9 percent of 9,532 overseas businesses operating here ― did not pay corporate tax at all in 2013.
Most of the foreign companies here ― including MS and Oracle ― that recorded sales worth hundreds of billions of dollars, did not reveal their earnings or the number of employees here.
"This has been possible because they are limited liability companies," an official said.
It is also argued that multinational companies pay little or no taxes here because the companies' foreign subsidiaries and branch offices depend largely on headquarters.
"Although there are local branches of multinational companies here, they have little authority to decide by themselves," the official said.
"They mostly run under orders from headquarters. That's why an international agreement on corporate tax guidelines is needed. Companies have no option but to follow rules once they become law."
Led by the OECD, over the past two decades many countries have discussed regulating multinational corporations such as Google, MS, Apple and Facebook regarding what is called the "Google tax" or the "base erosion and profit shifting (BEPS)," which refers to avoiding corporate and value-added taxes overseas.
During the G20 summit in Turkey this month, the world's first act was passed aimed at counteracting multinational enterprises' tax avoidance.
The decision will help countries introduce a new type of tax starting next year. Once the new tax is introduced, authorities will be able to impose corporate taxes on multinational companies' earnings before interest, tax, depreciation and amortization.
The South Korean Government has welcomed the global initiative to tackle multinational companies' BEPS activities.
A Ministry of Strategy and Finance official said the government was supporting the global tax reform, which would enable authorities to become more active in dealing with the digital economy.
