Non-IT Manufacturers Included in Targets

The Korea Economic Research Institute (KERI) said on May 25 that the consumer-oriented manufacturing sector should not be subject to the digital tax the OECD is currently working on.

In October last year, the Secretariat of the OECD decided on taxation rights granted to cover market jurisdictions and proportional allocation of taxation rights by country in relation to excess profits in order to promote international negotiations related to digital taxes. The OECD is likely to come up with a digital tax imposition plan late this year and introduce the taxes within three years.

During the OECD discussions, general manufacturers as well as digital services were included in the taxation objects and member countries agreed on digital tax application to global manufacturers with sales of at least 750 million euros. Specifically, the newly added objects include hotel and restaurant franchises and companies manufacturing computers, consumer electronics, mobile phones, automobiles, cosmetics and clothes, which include major South Korean companies such as Samsung Electronics and Hyundai Motor Group.

According to the institute’s report published on May 25, the digital taxes South Korean companies are to pay abroad are likely to exceed the digital taxes to be paid by foreign companies in South Korea. “The South Korean government needs to raise a question as to the appropriateness of the taxation,” the institute pointed out, adding, “The purpose of digital taxes is to prevent tax avoidance by global IT companies and the inclusion of non-IT manufacturers is against the purpose.”

The institute also called for the government to work with Asian countries so that the inclusion does not actually occur. “The OECD agreement is absolutely disadvantageous for Asian countries such as South Korea, China, India, Japan and Vietnam, which are home to a lot of consumer-oriented companies, and South Korea’s tax sovereignty may be infringed upon by the United States and the European Union,” it went on to say.

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