EU Outlines New Tax Rules for Digital Companies like Google

The European Union (EU) announced its new tax bill to levy more taxes on digital businesses online on March 21. Under the newly proposed tax bill, any company with revenues exceeding €700 million (US$8.62 million or 9.3 billion won) online or more than 100,000 users will need to pay a higher rate of taxes regardless of their bricks-and-mortar presence.

The EU said it has come up with the new tax bill to force digital companies that make money online to pay a “fair” share of taxes by preventing them from transferring income to tax havens with a lower rate of corporate taxes in order to pay less.

The EU said it will impose 3 percent of tax rates on internet-based firms with annual global revenues of at least €750 million (US$923.51 million or 997.4 billion won) and EU revenues of €50 million (US$61.57 million or 66.49 billion won) as an interim measure. The European Commission believes the tax will generate €5 billion (US$6.16 billion or 6.65 trillion won) for European treasuries each year. The new proposals must be agreed unanimously by 28 EU member states before they become law.

Although Europe is seeking to implement the so-called “Google Tax,” South Korea is sitting on its hands. The related bill was brought before both the 19th and the 20th National Assembly of South Korea but it is still pending at the National Assembly. Under the current Corporate Tax Act, a company with a fixed place of business in South Korea, including servers, is required to pay taxes. Therefore, there is no way to tax foreign IT companies on their revenues in South Korea.

In addition, the government-wide task force based on the Ministry of Science and ICT was set up in September last year and has discussed ways to address reverse discrimination related to foreign internet-based companies such as taxation. However, it hasn’t come up with specific plans yet. With the revision of the act on external audit of corporation last year, limited companies are required to appoint external auditors. Furthermore, with the revision of the Adjustment of International Taxes Act by the Ministry of Strategy and Finance, foreign companies are required to submit their report on revenues and tax payments of their local subsidiaries by country, starting from this year. However, the government will be able to actually impose taxes and set a foundation to remove reverse discrimination only when it revises its Corporate Tax Act, according to industry sources.