(EDITORIAL from Korea Times on Sept. 27)

Criticism is mounting against global tech giants like Google and Apple for paying disproportionately low taxes despite their substantial earnings in Korea. In its 2023 financial report, Google Korea reported sales of 365.3 billion won (US$274 million) and paid 15.5 billion won in corporate taxes. Concerns are growing over potential underreporting of Google’s sales, as its revenue amounts to just 3.8 percent of Naver’s and 4.8 percent of Kakao’s, two major local competitors. In contrast, Naver posted 9.67 trillion won in sales last year and paid 496.4 billion won in taxes.

Rep. Choi Soo-jin of the ruing People Power Party (PPP) claimed that Google should have paid 622.9 billion won in taxes, based on an estimated revenue of 12.13 trillion won, which includes income from ads, YouTube services, and app market commissions. Her claim is supported by research from the Korea Financial Management Association. Industry insiders are also voicing suspicions that other tech companies, such as Facebook Korea and Netflix
Korea, may have underreported their actual revenues.

Global tech giants operating in Korea often place their servers in low-tax countries like Singapore and attribute their local earnings to their overseas headquarters. This practice allows them to pay significantly less tax than what their actual earnings in Korea would require. As a result, the Korean government faces reduced tax revenues, potentially worsening its budget deficit. More critically, domestic companies are forced to compete under unfair conditions, as these global firms can reinvest the money saved through apparent tax avoidance, giving them a financial advantage.

In 2020, the National Tax Service imposed a 500 billion won tax on Google Korea, arguing that the company is conducting business in Korea despite its servers being located abroad. Google Korea is currently challenging this ruling in court. Meanwhile, more countries are adopting policies that require tech giants to pay taxes in the nations where they generate their profits.

Earlier
this month, Google successfully appealed a 1.49 billion euro fine imposed by the European Union in 2019 for anticompetitive practices in its online advertising business. However, member states of the Organization for Economic Cooperation and Development are still working to implement a global digital tax system to ensure tech giants pay taxes in countries where they generate profits.

Google and Apple, which control 85 percent of Korea’s app market, have been taking up to a 30 percent commission on payments. This practice has reportedly cost domestic game companies around 9 trillion won in commissions over the past four years. To address this issue, action must be taken to end what is seen as an unfair practice. Both the United States and the EU have already reduced fines, arguing that the 30 percent commission is excessive. As a result, the commission rate in the EU has been lowered to around 17 percent, while the U.S. has provided 1,100 trillion won in relief to app developers and consumers.

In 2021, Korea
passed a bill aimed at preventing the forced use of in-app payment systems. However, Google and Apple have continued to collect commissions by exploiting legal loopholes in the legislation. This has allowed them to maintain their commission practices despite the new regulations.

The government and political parties must take action to prevent global tech firms from earning excessive profits while evading significant taxes, and also address the reverse discrimination faced by local tech companies. An immediate priority is investigating whether these global firms are underreporting their sales. Efforts to pass relevant legislation have stalled, as political parties have failed to make progress. Although the Korea Communications Commission imposed a 68 billion won fine on Google and Apple last year for forcing the use of their apps and payment systems, the National Assembly has not held a plenary session to finalize the punishment in over a year. This political inaction has left businesses and consumers vulnera
ble.

Source: Yonhap News Agency