Measure for Tax Avoidance?
Google Korea held a press conference in Seoul on August 22 and released a report on effects the open Android ecosystem has on the South Korean economy.
According to the report drawn up by consulting firm AlphaBeta, the open Android ecosystem reduces South Korean manufacturers’ time for development by one million days, reduces South Korean app developers’ time for development by 30% per app, results in an annual increase in GDP of up to 17 trillion won by creating more jobs and business opportunities and encouraging competition and innovation, and provides South Korean consumers with a value of 4.5 trillion won a year. Earlier, similar reports were published in some of the other Asia-Pacific countries such as Japan and the report released on August 22 is the first in South Korea.
Industry insiders are paying keen attention to why Google released it at this point in time. According to some of them, it has to do with the South Korean government’s move to put more and more pressure on enterprises with foreign capital by looking into reverse discrimination against South Korean companies in various industries. In other words, it is for Google to avoid criticism regarding alleged tax avoidance and market dominance abuse.
Last month, the Korea Fair Trade Commission said that it was examining the introduction of new regulations to prevent the abuse of market dominance by global IT giants such as Google and Apple. President Moon Jae-in promised to check the reverse discrimination issue when he was a presidential candidate, too. This means the issue is likely to remain hot for the time being.
According to the Korea Mobile Internet Business Association, Google Play and Apple App Store represented 58.2% and 26.4% of the South Korean app market in 2016 in terms of content sales, respectively. Google Play alone posted 4.5 trillion won in sales last year, which is estimated to include 1.3396 trillion won in fee income from app developers. At present, Google takes 30% of Google Play sales as its fee and distributes the rest to app developers. At the same time, Google is being regarded as a typical tax avoider in South Korea. It is currently registered as a limited liability company in the country, meaning it does not have to disclose sales and financial data.
Many in the content industry have pointed out that the way Google makes money in South Korea has led to app market distortion by increasing local digital content companies’ reliance on the foreign platform. “With Google Play enjoying a market share of over 50%, we cannot grumble about the 30% fee,” said one of them.
The controversy surrounding market dominance abuse is related to Android apps preloaded by Google. Earlier, the European Union decided to impose a fine of approximately three trillion won with regard to this issue.
In the meantime, the amendment to the Act for the Coordination of International Tax Affairs passed by a plenary session of the National Assembly late last year is expected to act as a tool for preventing tax avoidance by multinational corporations. According to the amendment, they have to submit reports by country on local subsidiaries’ sales and tax payments to the Ministry of Strategy & Finance. However, the duty is limited to each corporation that has at least one fixed place of business, such as a server, in South Korea. Many in the industry are calling for a change in corporate tax law in this regard.