South Korea to impose VAT on global tech giants

New law seen as step toward ‘Google tax’ but impact to be minimal

Starting July 2019, global technology giants, such as Google, Amazon and Facebook, will be required to pay value-added tax (VAT) on a wider range of services they provide in South Korea, as a new law stipulating the change was approved last week.

This would happen after the Korean National Assembly passed a bill to amend the already existing Value-Added Tax Act that enforces a 10 percent VAT on online advertisements, cloud computing services, forms of online-to-offline businesses and shared economy services provided by foreign information and communication technology companies. Until now, the law had required global ICT firms to pay VAT on a limited number of direct-to-consumer services, including sales generated from transactions on mobile app stores like Google Play or Apple’s App Store. The new bill, however, broadens the type of digital services subject to this tax, to reflect new tech services that are now generating big profits. As a result, profits from cloud services by firms like Amazon Web Services, online ad revenues collected by YouTube and platform commissions earned by Airbnb will also be subjected to VAT. Business-to-business sales, however, will not not affected.

Lawmakers who authored the bill say the change provides a legal basis to broaden discussions on imposing the so-called “Google tax,” or corporate tax imposed on global ICT companies accused of dodging taxes. They also contend that it is a step in ensuring that foreign ICT giants running major digital businesses in Korea - like Google, Facebook, Amazon Web Services and Airbnb - are held to the same tax policies affecting Korean firms in the same business space.

“The occasion will serve as a foundation for further discussion on digital taxation,” said Rep. Park Sun-sook of the Bareunmirae Party, who proposed the bill. “We have now made our first leap toward the age of digital economy.”

Korea’s move toward a “Google tax” come in line with global efforts to push for stronger digital taxes on big tech companies. The movement has been most pronounced in Europe, though reaching a consensus across the EU has proven more difficult. In March this year, the EU Commission proposed levying a 3 percent tax on the turnover of digital companies with annual worldwide revenue of more than 750m euros and EU revenues of more than 50m euros.

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