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Seoul preparing to levy ‘Google tax’

January 28, 2016

By Kim Jae-won

The government plans to exchange financial information on multinational firms doing business here with members of the OECD and G20 countries in order to make them pay appropriate taxes to countries where profits are generated, officials said Thursday.

The Ministry of Strategy and Finance said that it will follow the 15 actions of the Base Erosion and Profit Shifting (BEPS) project initiated by the OECD and G20. The project is better known as the “Google tax” after the U.S. tech giant unwittingly initiated it by shifting registration of its profits in the U.K. to Ireland to avoid corporate tax.

“We will exchange global companies’ financial information with other countries to keep the agreements of the BEPS project,” said Ahn Taek-soo, a director at the ministry. “We will prepare for it step by step, aiming to complete it by June next year.”

The 15 actions include disclosure of aggressive tax planning, preventing harmful tax practices and tax treaty abuse. The actions equip governments with domestic and international instruments to address tax avoidance, ensuring that profits are taxed where economic activities are generating them and where value is created.

The comments came after Google agreed with the U.K. government to pay 130 million pounds in tax dating back to 2005. Last month, Apple made a $348 million tax settlement with the Italian government.

Korea also plans to levy a Google tax on foreign companies doing business here, as part of its strategy to boost tax revenues, but international tax specialists questioned on its effectiveness, referring to the small market share of global firms being targeted.

“The Google tax was designed in the U.K. and Europe where Google is enjoying a dominant presence. But, the company has little presence in Korea, lagging behind local players, Naver and Daum,” said a former high-ranking official in the National Tax Service who now works as an advisor for a major law firm, asking not to be named.

Since last year, the government and lawmakers have pushed for introducing the Google tax, accusing global firms of not fully paying taxes on their profits here. Rep. Hong Ji-man of the governing Saenuri Party submitted a bill to impose the tax on global companies last year; but it is pending in a subcommittee at the National Assembly.

“We aim to set up a basic legislation which enforces Google and other foreign firms pay for copy rights of materials they provide,” said Min Sang-ki, an aide to Rep. Hong. “But, I’m not sure whether the bill can be passed as the Assembly term is coming to an end.”

The 19th term of parliament finishes in May. Min said that Rep. Hong would submit the bill again in the 20th term if it fails to be passed this time, and he is re-elected in the general election scheduled for April 13.

Google Korea said that it is uncomfortable to see that the name of the tax targeting multinational companies is called Google tax because it is one of many being targeted by the tax. The company said it has kept the country’s tax rules and will keep them even if they are changed.

“As we’ve always said, we support the process put in place by the OECD and G20 countries. We have always compiled with tax rules in all the countries where we operate, and will, of course, follow new rules that will be implemented,” said Google in a statement.