Introduction of Google Tax
President Moon Jae-in and the new administration will consider the introduction of a so-called “Google tax” in earnest.
According to related industry sources on May 28, Korea Communications Commission (KCC) announced to consider the introduction of Google tax during a business briefing session held by the special advisory committee at the Financial Supervisory Service Training Institute in Seoul on the 25th.
The introduction of Google tax is part of KCC’s plan to raise funds for the development of high value-added contents, such as drama and documentary, and new breed of contents, like one person broadcasting. The new administration will levy tax against foreign companies which have repeatedly been accused of dodging taxes although they generate make a huge profit in South Korea including Google, Apple and Facebook in order to raise funds for domestic content activation.
The latest decision to introduce Google tax corresponds to President Moon Jae-in’s pledge to look into reverse discrimination and fairness against foreign companies, including tax collection, when he was a presidential candidate. In addition, the National Tax Service (NTS) recently levied 314.7 billion won (US$281.16 million) in corporate tax on Oracle Korea for unreported gains of 2 trillion won (US$1.79 billion) for seven years, raising the possibility of introducing Google tax.
According to the Korea Mobile Internet Business Association (MOIBA), the domestic app market was worth 7.67 trillion won (US$6.85 billion) in terms of sales last year. Google Play accounted for 58.2 percent of the total sales, generating 4.47 trillion won (US$3.99 billion) in volume.
Considering the fact that Google collects a 30 percent commission on Google Play’ sales, its sales is estimated at 1.34 trillion won (US$1.2 billion) last year. Google is expected to generate more sales this year. The MOIBA said Google Play will post 5.32 trillion won (US$4.75 billion) in sales this year. In short, Google's mobile app market sales will reach 1.6 trillion won (US$1.43 billion) this year.
Despite its heavy gains of more than 1 trillion won (US$893.1 million), Google doesn’t pay proper taxes in South Korea. This is because Google Korea is not obliged open its books on revenue and taxation as it is a limited liability company. In addition, Google distributes mobile apps made by Korean developers not through Google Korea but Google Asia Pacific in Singapore. So, the NTS has had difficulty in monitoring Google Korea. An official from the industry said, “With the introduction of Google tax, we hope that the country can collect proper taxes from multinational companies which cause reverse discrimination.”