IF, Agreement Reached to Impose 'Digital Tax' on Mobile Phone, Apparel, and Automobile Companies

Samsung, Hyundai, and Other Domestic Companies Expected to Face Burdens... Emergency Measures for Tax Revenue Also Anticipated

(Data provided by Yonhap News)

[Asia Economy Reporter Kwangho Lee] The so-called 'Google tax,' a digital tax, will also be imposed on global companies in the mobile phone and automobile sectors. If the final plan is confirmed by the end of this year, it could become a burden for Korean companies such as Samsung Electronics, LG Electronics, and Hyundai Motor. In particular, there are concerns that domestic tax revenues could be severely impacted as taxing rights will be allocated to market jurisdictions.

According to the Ministry of Economy and Finance on the 31st, the Organisation for Economic Co-operation and Development (OECD) held the BEPS Inclusive Framework (BEPS Inclusive Framework) steering committee and general meeting in Paris, France, from the 27th to the 30th (local time), with participation from 110 countries, where they agreed on the basic framework and future plans. The BEPS Inclusive Framework is a multilateral consultation body involving 137 countries, including the OECD and the Group of Twenty (G20).

Participating countries agreed to discuss the digital tax through two approaches going forward.

The first is to impose a digital tax on a portion of the global profits of multinational corporations above a certain scale. The applicable industries were defined as digital services businesses and consumer-targeted businesses.

Digital services businesses are classified as online platforms such as social media, search, advertising, and intermediaries, content streaming, online gaming, and cloud computing. Consumer-targeted businesses include computer products, home appliances, mobile phones, clothing, cosmetics, luxury goods, packaged foods, franchises (hotels and restaurants), and automobiles.

The second approach is to introduce a global minimum tax. This involves taxing global companies’ income above a certain level through methods such as income inclusion, shifting taxing rights, excluding deductions for base erosion costs, and denying benefits under tax treaties.

Specific measures are expected to be outlined in July. Participating countries plan to proceed with a schedule of norm-setting work, including the February G20 Finance Ministers meeting, the July BEPS Inclusive Framework general meeting and G20 Finance Ministers meeting, the final plan at the end of the year, and a multilateral treaty after 2021.

Im Jae-hyun, Director of the Tax Policy Bureau at the Ministry of Economy and Finance, said, "Whether domestic companies will be subject to the tax, the overall tax revenue, and changes in individual companies’ tax burdens will be concluded based on detailed issues to be discussed later. Technical details may continue to be discussed after the end of the year. We will do our best to secure national interests, including securing tax revenues and minimizing the compliance costs for domestic companies."

Meanwhile, the government established a Digital Response Team within the Tax Policy Bureau of the Ministry of Economy and Finance last year in preparation for the possibility that the digital tax target companies may expand to global manufacturing companies. In September of the same year, a private task force (TF) was also formed, consisting of the National Tax Service, the Korea Institute of Public Finance, and related companies.

This content was produced with the assistance of AI translation services.