[2020 National Audit] Earning Trillions, Avoiding Taxes... Google Korea as an 'Operational Support Organization'

Earned 6 Trillion Won Last Year but Paid Taxes in Singapore
Google Homepage Also Encourages Avoiding 'KRW Payment'
Google Korea Is a Sales Support Organization, Not a Legal Subsidiary
Avoiding Network Usage Fees, Too,

Lim Jae-hyun, Executive Director of Google Korea, appeared as a witness at the comprehensive government audit on the Office for Government Policy Coordination held at the National Assembly's Political Affairs Committee on the 22nd, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Han Jinju] Google has been criticized at the National Assembly audit for avoiding taxes by paying them to Singapore despite generating trillions of won in advertising and in-app purchase revenues in South Korea.

At the National Assembly Science, Technology, Information and Broadcasting and Communications Committee audit on the 22nd, Kim Young-sik, a member of the People Power Party, pointed out, "Google Korea's sales are recorded as Singapore sales, and since the corporate tax rate in Singapore is 17% while it is 25% in South Korea, isn't this done because of the difference in corporate tax rates?" He added, "From Korea's perspective, we are suffering a disadvantage due to tax avoidance." Im Jae-hyun, Executive Director of Google Korea, who appeared as a witness, responded, "All companies look for countries with favorable conditions if they exist."

Earned 6 trillion won last year alone... Taxes paid to Singapore, Google Korea is just a 'Sales Support Organization'

According to the Mobile Industry Association, Google Play's domestic sales amounted to 6 trillion won last year. Google Korea disclosed that domestic Google Play sales were 1.4 trillion won. The government even started imposing value-added tax (VAT) on transactions between overseas ICT companies and domestic consumers from July last year, but Google advertised tax avoidance methods on its homepage. It encouraged payment in dollars by stating that "if payment is not made in Korean won (KRW), a 10% tax will not be imposed."

Regarding this, Representative Kim said, "The homepage states that if Korean won is not selected, a contract is made with 'Google Asia Pacific' and VAT is not applied," adding, "It is very bitter from South Korea's standpoint that Google encourages tax avoidance by telling consumers they can buy cheaper."

Kim also pointed out, "Google was fined 500 million euros for tax avoidance in France and paid an additional 610 billion won in taxes to settle all disputes. Unlike France, Google is resisting corporate tax reassessments in South Korea."

In response, Executive Director Im said, "Google works with various partners and advertisers, many of whom are multinational companies. Some want to receive invoices from Korea, while others want overseas invoices," adding, "Sales from overseas developers occur through Google Play, but since they cannot directly pay VAT in Korea, we annually pay VAT on behalf of overseas developers to the National Tax Service, amounting to several billion won per year."

Despite South Korea ranking among the top three globally in sales on Google's app market, Google Play, the taxes are actually paid to Singapore. Moreover, Google Korea is not a legally independent subsidiary but merely a support organization assisting the Singapore entity's operations. This has led to criticism that it is an arbitrary organization set up to avoid paying taxes despite generating massive revenues.

Yoon Young-chan, a member of the Democratic Party of Korea, said, "If income is generated in a country, taxes should be paid there, but using Google Korea only as a sales support organization appears to be a strategy to avoid taxes," adding, "Singapore, Ireland, the United States, and the Netherlands, where Google has its headquarters, all have low corporate tax rates."

In response, Executive Director Im said, "Google has paid an average of 23% in taxes globally over the past 10 years. The issue is where the taxes are paid," adding, "I understand that taxes are mostly attributed to countries where marketing and production activities are most active." He further added, "I am aware that tax issues have become a hot topic in the digital economy and hope new rules will be established."

Using Negotiation Advantage to Avoid Network Usage Fees

Google's failure to properly pay network usage fees to telecom operators despite generating massive traffic has also come under scrutiny. YouTube traffic generated domestically accounts for as much as 23.5% of total traffic.

Jeon Hye-sook, a member of the Democratic Party of Korea, said, "Google properly pays network usage fees in the United States, but avoids paying them domestically, causing domestic content companies to be unfairly disadvantaged," adding, "Global companies have secured strong negotiation advantages, limiting autonomous negotiations between telecom companies and providers."

Jeon also said, "A survey on the necessity of overseas companies bearing network usage fees among the public showed that 70% responded that network usage fees should be paid. This public sentiment should be conveyed to the headquarters," adding, "The Ministry of Science and ICT should take an active stance to ensure overseas companies pay network usage fees."

Representative Kim Young-sik also said, "Google is cleverly exploiting loopholes in the overall domestic system by not properly paying taxes and network usage fees. A comprehensive government-wide countermeasure should be discussed," adding, "We need to review the Information and Communications Network Act, tax laws, and the Broadcasting and Communications Act together."

In response, Choi Ki-young, Minister of Science and ICT, said, "It is a difficult issue, but we will look into it," adding, "The Korea Communications Commission, the Fair Trade Commission, the Ministry of Culture, Sports and Tourism, and the Ministry of Science and ICT are consulting together."

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