Agreement Likely to Affect South Korean Companies
The G7 finance ministers reached an agreement on June 5 on a minimum corporate tax rate of 15 percent and joint efforts against tax avoidance by major global IT companies. This agreement is likely to affect South Korean companies as well.
According to experts, the impact of the minimum corporate tax rate on South Korean companies is likely to be rather limited as the rate is already high in South Korea. At present, the maximum corporate tax rate in South Korea is 27.5 percent.
On the other hand, their decision to impose taxes in countries where sales are generated is likely to affect South Korean companies to some extent. According to the ministers, a profitable large corporation must pay at least 20 percent of its profit exceeding a profit ratio of 10 percent in taxes in the country where the profit has been created. This may lead to a decrease in net profit on the corporation’s part and a decrease in tax revenue on the South Korean government’s part. In addition, it may result in a decrease in employment and investment in South Korea.
Those with a higher overseas sales ratio and more dependent on export are likely to take a direct hit, examples of which include Samsung Electronics, LG Electronics and Hyundai Motor Group. Last year, Samsung Electronics, Hyundai Motor Company and SK Hynix paid 4.8 trillion won, 2 trillion won and 1.4 trillion won in corporate taxes. In 2019, overseas sales accounted for 70.6 percent of the sales of Samsung Electronics, Hyundai Motor Company, SK Hynix and LG Chem. The ratio amounted to 85.2 percent in the case of Samsung Electronics.
In the meantime, the OECD is currently planning to expand the application of digital taxes to manufacturers as well as IT companies. Experts point out that the digital taxes collected from South Korean companies will exceed the digital taxes from foreign companies in South Korea.