South Korean lawmakers are stepping up efforts to introduce regulations against global ICT giants such as Google amid opposition from the U.S. Embassy in Seoul. A bill has been proposed for value added tax imposition on such companies, while the Science, ICT, Broadcasting, and Communications Committee of the National Assembly passed an amendment to the Telecommunications Business Act to apply domestic laws to overseas business activities that can affect markets and users in South Korea.
On Nov. 30, Liberty Korea Party lawmaker Park Sung-joong tabled an amendment to the Value-added Tax Act for imposition of the so-called Google Tax. According to the current Value-added Tax Act, only games, video files and software are electronic services subject to taxation. The amendment calls for inclusion of online advertising, remote education, cloud computing services, electronic publishing, sharing economy services, remote website and computer system configuration, maintenance and management, and B2B transactions. The value added tax that can be collected based on the amendment is estimated at 400 billion won (US$358 million) a year. For reference, the EU imposed three billion euros (about 3.8 trillion won) in such tax in 2015.
“It is not easy to levy corporate taxes on global IT companies with no fixed place of business, but value added tax imposition is not contradictory to international taxation rules and can be an effective tool for tax evasion prevention,” the lawmaker explained.
In the meantime, the committee passed the amendment to the Telecommunications Business Act for the extraterritorial application on Nov. 29. “The U.S. Embassy held a discussion meeting and said that local server installation would be a violation of the KORUS FTA, and this is extremely inappropriate,” said Bareunmirae Party lawmaker Park Seon-suk, who tabled the amendment.
The committee is expected to deliberate on more bills in the near future with regard to mandatory local server installation by global IT companies and local agent designation by such companies. The former is regarded as an essential measure for elimination of discrimination against South Korean ICT companies.
The extraterritorial application may lead to some conflicts with other countries in that it is to apply domestic laws to foreign enterprises. Under the circumstances, some lawmakers pointed out that a consensus should be reached beforehand with the U.S., the EU and so on and the scope of the application should be further clarified.