The Korean version of the so-called "Google tax," which refers to a value-added tax (VAT) on the gross revenues of global IT giants, such as Google and Facebook, has gotten to first base. It is still not clear what the exact tax revenue from global internet companies will be but the figure is estimated at 400 billion won (US$353.83 million) a year.
The National Assembly passed a revision bill to the VAT Act proposed by Rep. Park Sun-sook of the minor opposition Bareunmirae Party on Dec. 8. The revision calls for imposing a 10 percent VAT on business-to-consumer digital services of foreign tech companies, including Google, Facebook, Amazon Web Services (AWS) and Airbnb. The targeted services range from online ads to cloud computing, sharing economy and online to offline (O2O) services. The new tax rules would go into effect from July 1, 2019. Until now, multinational tech companies have paid the taxes on only some electronic services such as games, video clips and software.
For instance, YouTube’s ads and AWS’ cloud computing services will be subject to VAT taxation according to their profits in the future.
The revised VAT Act, however, does not include global firms' business-to-business (B2B) services, though it was included in the draft. The National Assembly plans to continue its discussion on measures to impose VAT on B2B dealings between global IT companies and domestic firms to ensure fairness in the tax system.
The exact tax revenue coming from the revision is unknown yet. However, the Korean government is expected to collect about 400 billion won (US$353.83 million) or more in tax revenue from internet companies annually, considering the fact that the European Commission levied 3 billion euro (US$3.41 billion or 3.86 trillion won) of VAT on global IT companies in 2015.
Industry analysts say the passage of the revision is meaningful in that the nation now has taken the first step to reduce the reverse discrimination against domestic companies. Critics pointed out that global IT giants, including Google, have made huge profits in the nation but avoided the taxes. It is estimated that Google turned over 4.9 trillion won (US$4.33 billion) of sales in South Korea last year but the company paid only 20 billion won (US$17.69 million) of corporate taxes, which was about 5 percent of 400 billion won (US$363.83 million) paid by Naver.
The revision to the law regarding the promotion of information and communication network use and protection of information to require foreign IT companies over a certain size generating revenue in Korea to set up servers here and the revision to the telecommunications business law to require foreign operators to designate domestic representatives are also pending in the National Assembly.