Welcoming the ‘Google Tax’

South Korea will be joining other governments to introduce the so-called Google Tax to combat profit shifting and tax evasion by multinational enterprises as early as 2017.

President Park Geun-hye during the Group of 20 summit conference on Monday said Korea will also consider taking further steps.

Governments around the world have been coming up with their own tax legislation to address the practices of global technology and Internet giants like Amazon, Google and Facebook, which shift their profits from patents and consulting services to their subsidiaries in tax havens or lower-tax countries, by forcing them to pay up. The Organization for Economic Cooperation and Development estimates multinational companies save between $100 billion to $240 billion a year through these practices, about 4 percent to 10 percent of global tax revenue.

Korea in particular has also been an easy target for global companies. In 2013, of 9,532 foreign companies, more than half - 4,752 companies - did not pay a penny in corporate taxes. Of them, 15 earn more than 1 trillion won ($852 million) in sales in Korea a year. Apple is estimated to generate sales of 1 trillion won to 2 trillion won annually in Korea through app revenue, but it does not pay any taxes by claiming its server is based in Ireland.

Moreover, these companies do not make their sales and profit records public because they do not fall under disclosure requirements as unlisted entities.

In the meantime, local competitors like Naver and Kakao are disgruntled because they must release their earnings figures regularly and pay taxes according to the law.

The United Kingdom, Spain, Australia and Japan have already taken steps to introduce the Google Tax. Consumption taxes will be levied on global tech giants’ software and content sales in the countries, and heavy penalties will be imposed if they attempt evasion. Korea also must hasten with appropriate legal procedures.

Regardless of their status as unlisted firms, multinational companies should be required to be audited if their sales go beyond a certain level. The government must also consider the idea of levying corporate and income taxes in proportion to their sales and profit in Korea. We must have a tax code fit for an age of borderless commerce and consumption while collecting due taxes.

JoongAng Ilbo, Nov. 18, Page 34