hankyoreh

French media outlets reported on Feb. 5 that Apple has reached an agreement with the French government to pay 500 million euros (US$568.1 million) in unpaid taxes for the past 10 years. The French government has applied strong pressure to Apple over the fact that the company makes billions of US dollars in profits in France while avoiding taxes by basing their European headquarters in Ireland, which has a low tax rate.

It is nothing new for the international community to discuss the introduction of a ‘Google tax’ to deal with ‘legal tax evasion’ from multinational IT companies such as Google, Apple, Facebook and Amazon. Current international tax treaties stipulate that company tax is to be paid in the country the corporation is based in rather than where profits are generated. The European Union (EU) has been pushing for a Google tax for some time.

However, introducing a new tax within the union requires agreement from all 28 members, and little progress has been made due to opposition from countries such as Ireland where a large number of IT companies are based. The EU Finance Ministers Meeting in December last year also discussed this issue, but failed to come to an agreement. Now France has decided to take independent action.

The French government is expected to submit a bill to the National Assembly mid-February to introduce a “digital services tax” that would apply retroactively from January this year if enacted. The government has decided to levy a temporary tax until a unified tax regime is put in place at the EU level.

Multinational IT companies also make huge profits in Korea while paying little to no tax. In 2016, Google earned 4.9 trillion won (US$4.36 billion) in revenue within Korea, yet paid only 20 billion won (US$17.8 million) in tax. In comparison, Naver paid 432.1 billion won (US$384.6 million) in company tax on revenue of 4.8 trillion won (US$4.27 billion). Although both companies record similar revenue figures, Google pays less than 1/20 the tax of Naver.

The Korean government has acknowledged the need to strengthen taxation on multinational IT companies. The 2019 economic policy plan released at the end of last year stated, “The government will put systems in place to mitigate reverse discrimination between domestic and foreign IT firms.” However, the government also adopted a cautious approach, adding, “International agreement on tax standards must come first.” The government’s policy is to actively participate in international community discussions.

The first principle of taxation is: where there is income, there shall be taxes. However, the tax evasion practiced by multinational IT companies flagrantly violates this principle, and reverse discrimination against domestic companies also needs to be remedied quickly. The Korean government should use France as a reference point for implementing a fair tax system. Paying tax in proportion to income should be a matter of course.

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