Oracle disputes big local tax bill

The Seoul office of U.S.-based multinational IT company Oracle reportedly avoided paying its full tax bill between 2008 and 2014 and is fighting the case in court.

The Korean National Tax Service reportedly sent Oracle a 314.7 billion won ($274.5) corporate tax bill last year, which includes amounts that should have been paid from 2008 to 2014. Oracle Korea has protested the NTS’ calculations and has been fighting it in the Seoul Administrative Court since February.

The Seoul office of Oracle has been paying part of the profits it makes in the Korean market to its U.S. headquarters as royalties on intellectual properties. Under the current tax treaty between Korea and the U.S., the Seoul office has to pay 15 percent of the payments made to the U.S. headquarters as taxes.

However, Oracle Korea didn’t pay that 15 percent from 2008 to 2014 as the money went through Oracle’s office in Ireland.

Korea and Ireland have a double taxation treaty that forbids the Korean tax agency from levying taxes when Irish companies pay taxes to their own government.

The NTS says the actual beneficiary of the payment was the U.S. headquarters and that the money merely passed through Ireland.

Oracle Korea appealed to the Korean Tax Tribunal in November arguing that it has paid its taxes properly. The company’s appeal was denied, which led to the current case in the Seoul Administrative Court.

Oracle has hired Korea’s leading law firm Kim & Jang to represent it.

Oracle Korea is believed to have paid 2 trillion won in intellectual property royalties from 2008 to 2014.

Oracle isn’t the only company that has used units in Ireland for tax purposes. Major global IT companies including Google and Apple have used this tactic as well.

According to a report by the Korea Trade-Investment Promotion Agency last year, Ireland has become a tax haven for major global companies thanks to its relatively lower corporate taxes and other tax benefits that the country offers.

Ireland is one of the countries with the lowest corporate taxes including Bulgaria (10 percent) and Cyprus (12.5 percent). Ireland offers a 6.5 percent tax rate on foreign companies’ research and development activities in Ireland, which includes intellectual property royalty payments.

According to the American Chamber of Commerce in Ireland, there are roughly 700 American companies and 1,000 multinational companies that have opened offices in Ireland in hopes of getting tax benefits.

In 2014, Apple paid 0.005 percent in tax on licensing arrangements through two of its subsidiaries in Ireland. The maximum corporate tax rate applied to the smartphone manufacturer was 1 percent.

Meanwhile, the NTS also slapped a 500 billion won tax bill on Samsung Electronics. This is the largest amount of taxes levied on a single company in Korea ever.

Unlike the Oracle case, that tax bill resulted from technical errors as the Korean company and NTS defined costs differently. Samsung was slapped with a tax bill of 470 billion won during a tax audit in 2011.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]