[Tax Story] Even Tax Officials Face the Era of Global Skills Competition

Professor Ahn Chang-nam, Department of Taxation, Kangnam University

The tax policy of the Joe Biden administration in the United States is quite fascinating. Moving away from American unilateralism, it is not only pursuing multilateralism and universal values but also actively implementing tax policies. Since this U.S. approach could directly affect our country, it is necessary to examine it carefully.

First, the administration has taken the initiative to dismantle the digital tax (a measure allowing income taxation in countries that pay advertising fees to companies like Google), which former U.S. President Donald Trump had opposed. However, it proposes expanding the scope to the top 100 global companies and setting a global minimum corporate tax rate at 21%. This is a kind of “ghost ship tactic.”

The rationale is that not only Google but also large multinational corporations use information technology (IT) to gain profits. Some Korean companies, such as Samsung, could be included in this group.

If the corporate tax rates of countries worldwide are set at least as high as the current U.S. rate of 21%, it is believed that U.S. companies will not relocate overseas due to taxes, hence the push to raise the minimum tax rate. If this happens, Korea’s minimum corporate tax rate of 17% (Article 132 of the Restriction of Special Taxation Act) will also be affected. When tax rates are similar, companies tend to settle in countries with superior tax services, such as better protection of taxpayers’ rights.

Second, the administration aims to equalize the tax rate on passive income, such as interest and dividends (23.8%), with that on earned income from labor (37%). This is essentially adopting what global billionaire Warren Buffett has long advocated. It is so-called “normalization of the abnormal.” Additionally, the corporate tax rate will be raised from 21% to 28% to finance $2 trillion in social overhead capital investments over the next 15 years. This is a tax policy aimed at securing fiscal soundness. This starting point of thinking differs from Korea, where even mentioning tax increases is burdensome.

Lastly, the administration is promoting the use of arbitration clauses to resolve tax disputes. This was proposed by the Organisation for Economic Co-operation and Development (OECD) and was introduced in Korea in 2020 (Article 43 of the International Tax Act). Now, U.S. companies dissatisfied with Korea’s exercise of taxing rights will rush to arbitrators who “speak the same language” instead of Korea’s judiciary.

To become an arbitrator, one must be proficient not only in foreign languages but also in tax law, accounting, and international regulations. It goes without saying. How many Korean tax officials possess such capabilities?

Reading between the lines of the Biden administration’s tax policy reveals that the source of U.S. confidence and core strength lies in its “tax officials.” For example, suppose Samsung pays 100 in taxes to Korea. If a digital tax is introduced and Samsung pays 20 to the U.S., then it only needs to pay 80 to Korea (because taxes paid in the U.S. are deducted from those owed in Korea). The total tax burden on the company does not change. Only Korea’s tax revenue decreases.

To put it bluntly, if money is scattered on the playing field, the country with more astute tax officials will take more. The U.S. seems confident about this point. Simply asserting our own justification will lead to defeat every time. We must go beyond the text of the tax law amendments proposed by the U.S. and grasp and interpret the hidden context to devise countermeasures so that Korea suffers less damage. The era of intellectual battles among tax officials worldwide is approaching. Are we prepared to respond? I want to believe, even if forcibly, that the answer is “yes.”

Professor Changnam Ahn (Department of Taxation, Gangnam University)

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