Home > Opinion > Editorials

Pay tax as much as you earn in Korea

Published: 19 Sep. 2024, 20:05

Apple, which earned 7.3 trillion won ($5.5 billion) from its operation in Korea in 2022, paid a corporate income tax of 50.2 billion won last year. Sony, with a revenue of 1.6 trillion won in Korea in the same year, returned 0.4 percent of the sum or 6.7 trillion won in taxes. Mercedes-Benz Korea, whose earnings amounted to 7.5 trillion won, coughed up 1.2 percent of its revenue, or 91.1 billion won, in tax, and BMW dished out 1.1 percent, or 66.2 billion won out of its sales of 5.7 trillion won.

Korean companies earning more than 5 trillion won last year paid their income tax of 263.9 billion won on average last year. The average of foreign entities’ stopped at 14.1 billion won. Given the yawning gap, Korea is more like a tax haven for multinational companies.

The Organization for Economic Cooperation and Development (OECD) devised the Global Anti-base Erosion Model Rules to ensure large multinational enterprises pay a minimum level of tax on their income in each jurisdiction of their operations. Multinational enterprises earning more than 1 trillion won must calculate their income and taxes on a jurisdictional basis, and if it results in a tax rate lower than the minimum effective tax rate of 15 percent, their headquarters must return the differences. The OECD-guided tax agreement took effect in Korea from this year.

The minimum tax rate has been set to offset the abuses and side effects from competitive tax cuts to draw foreign investments. The Wall Street Journal pointed out that governments were lowering the effective tax rate through tax credits and subsidies by exploiting the loopholes in the minimum tax rate system.

A balanced tax policy on incomes according to domestic tax law while appealing to foreign capital to add jobs and revenues in Korea is important. The NTS plans to levy compliance deposits to ensure foreign companies comply with tax processing responsibilities. Foreign companies are required to update the contact and information for tax queries, but their submission rate stopped at 45 percent last year.

Cheap tax is not the sole appeal to investments by multinationals. The market condition, location, supply chain and regulations also affect their decisions. Amending the labor rules, including the rigid 52-hour workweek, and deregulations on factory sites can help draw foreign investments.