IT Giants’ Tax Evasion
The Korean government is proceeding with a plan to institute a new 10 percent surtax on global companies like Google and Apple for sales reported in the nation through overseas mobile application markets. Local credit card companies are more likely to pay first and charge the surtax later.
According to sources in the financial industry on June 25, the Ministry of Strategy and Finance (MOSF), the credit Finance Association of Korea, and the credit card industry recently held a closed-door meeting to discuss a measure to collect a 10 percent surtax on mobile applications through local credit card companies. Participants talked about a way to levy a surtax on products and services traded in mobile application markets abroad such as the Google Play Store and Apple’s App Store.
Based on the results of the meeting, the government is planning to create a legal basis that requires Seoul to be informed about the domestic sales of mobile applications via overseas app markets and the details of the payments.
Currently, it is not possible to impose a surtax on the Google Play Store or Apple’s App Store, since companies based in Korea are only required to pay a surtax. In contrast, local companies that develop and provide apps to local app markets like the T Store and KakaoTalk have been paying a 10 percent surtax since June 2010. Therefore, the issue of fairness has consistently been raised. The amount of the surtax applicable to the Google Play Store and Apple’s App Store is estimated at 200 billion won (US$197 million) in total per year.
The government is reportedly working to have credit card companies pay the surtax first, in that a large number of people use credit cards to purchase apps. Specifically, Seoul is planning to create a new clause on providing the necessary information for third-party proxy payments. After establishing a legal basis in which app providers in other countries are obliged to provide the necessary information to credit card companies or banks acting as proxies, the government is going to request Google and Apple to hand over related information. Seoul is scheduled to push forward with a tax-code revision during the latter half of this year.
The credit card industry believes that if a legal base that allows them to get access to information about Google’s and Apple’s sales is established, the government’s proxy payment plan is acceptable. An industry source said, “There is no reason why we should object to the plan once related laws are created.” The source added, “Since credit cards are often used in the payment of apps, we are discussing a payment method with the MOSF where credit card companies pay a surtax on apps first, and charge the amount to overseas platform providers later.”
The government began to levy a surtax on local app developers in 2010, but was unsuccessful in its attempt to do the same to business operators based in other countries. In particular, the National Tax Service tried to find a way through mobile carriers, but failed to implement its plan last year due to the MOSF’s opposition to authoritative interpretations.
Experts couldn’t solve the problem, either. It is largely attributable to Google’s and Apple’s failure to cooperate and a lack of government willingness to address the issue. It was not easy to estimate the businesses size of platform providers abroad, unless provided with information. Moreover, relevant government agencies could not agree on which tax law should be revised. These are the reasons why the government was not able to come up with a solution.
According to Google Korea on June 25, a surtax is already included in the price of apps in 29 nations. In 28 out of 140 countries, developers that sell apps through Google Play are obligated to pay the tax. Other countries like Japan, the UK, and Germany are collecting taxes by revising tax codes related to IT businesses, but Korea has been unsuccessful in finding the way to solve the problem for several years.