Korean Economy News
S. Korea to impose digital VAT on global tech giants starting next July

Kim Hyo-sung Kim Hyo-jin

Global tech giants like Google, Amazon and Facebook would now be levied value-added tax (VAT) on their services in South Korea following a new law passed by the local parliament last week.

A bill to impose a 10 percent VAT on technology companies’ digital services ranging from online ads to cloud computing and online to offline services was approved last Friday in the National Assembly. The amendment was proposed by Park Sun-sook of the minor opposition Bareunmirae Party.

The new tax rules would go into effect from July. 1, 2019.

Park first raised the issue of fair taxation in the tech industry at the annual parliamentary audit in October, calling attention to foreign tech giants’ tax avoidance practices and the lack of proper government action.

“With the new law, we now have a legal foundation to broaden our discussion of digital taxation,” said Park, adding there are still unresolved issues regarding transactions between foreign companies and local operators. The new law is currently limited to business-to-consumer transactions.

Currently, multinational tech companies such as Google and Apple pay VAT on select services such as app sales at Google Play or Apple App Store in Korea. But with the enforcement of the new law next year, all tech firms providing services in Korea would have to pay VAT. The Korean government is expected to collect about 400 billion won ($354.4 million) or more in tax revenue from internet companies annually, according to industry observers.

The law was passed at a time when complaints of reverse discrimination started mounting from local internet companies as multinational IT names pay little to no taxes on their earnings in Korea though they earn as much as their Korean peers in the country. Major technology firms like Google and Facebook are currently taxed on profits where their headquarters or servers are located.

Korea’s move is also in line with other countries around the world pushing for digital taxes on global internet giants. The movement has been most pronounced in Europe, though efforts to reach a compromise at the EU level have proven difficult.

Earlier this year, the European Commission drafted a proposal to levy a 3 percent tax on the gross revenues of large digital companies with annual worldwide revenue exceeding 750 million euros ($920 million) and EU revenues of more than 50 million euros.

But when EU finance ministers failed to break the deadlock, France and Germany rolled out a scaled-back version of the digital tax this month. Under the new proposal, tech companies would be levied a 3 percent tax on their advertising sales, which would be more limited in scope compared to the earlier draft that taxed on gross revenues. The two countries have set out to urge finance ministers to agree to the new plan by March 2019.

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