[Reverse Discrimination Against Korean IT Companies] Korea Encroached by Google, Politicians Obsessed with Regulation

Big Tech like Google Faces Years of Tax Avoidance Controversy
Corporate Tax Only 16.9 Billion Despite Estimated Sales Over 6 Trillion
Native IT Companies' Services Eroded by Google
Political Circles Eager for Regulation

Google Korea (hereinafter Google) paid 16.9 billion KRW in corporate tax last year. This amount is only about 1/24th of the corporate tax paid by Naver. Although it is estimated that Google collects more than 6 trillion KRW in "pass-through fees" from domestic companies, it does not properly pay taxes in Korea, claiming that the money earned is not actually from Korea.

Google stated in its audit report that it recorded sales of 344.9 billion KRW last year. It is hard to accept that Google, considered the world's largest IT company, earns only 344.9 billion KRW in Korea. The revenue Google disclosed does not include the commission collected from the application (app) market Play Store.

Google Does Not Pay According to Its Earnings

The Play Store commission is called a "pass-through fee" because it is impossible to operate an app without going through the Play Store. All major domestic IT companies' app services, such as Naver and Kakao, are listed on the Play Store.

The problem is that the in-app payment commission reaches 30%. Google forces in-app payments, where content is paid through its own payment system. For example, if a user downloads Naver Webtoon from the Play Store and pays 1,000 KRW, Naver Webtoon must pay Google a 300 KRW commission.

Last year, Google implemented a policy forcing in-app payments on all listed vendors. It expanded the 30% in-app payment commission, which was previously applied only to games, to all services. Overnight, the in-app payment commission for music, webtoons, emoticons, and other services doubled, eventually leading to price increases.

The app market commission earned by Google is estimated to exceed 6 trillion KRW. Kim Young-sik, a member of the People Power Party, estimated that applying the proportion of Google Play in Korea and advertising shares to Google's app market commission revenue would amount to at least 4.2 trillion KRW and up to 6.4 trillion KRW.

The tax issue of global big tech companies like Google has been repeated for years. Under current tax laws, foreign corporations without a fixed place of business have no obligation to report specific sales status or service details.

Tax avoidance is a problem, but a bigger issue is that domestic companies face reverse discrimination. Naver, Kakao, and others pay thousands of billions of KRW in corporate tax annually, but there is no political movement to level the playing field. Instead, regulations targeting domestic companies are being strengthened, and domestic services are being replaced by Google.

There have been discussions about a "global digital tax" that could tax big tech companies, but progress has been sluggish. The comprehensive implementation framework (IF) of the Group of Twenty (G20) and the Organisation for Economic Co-operation and Development (OECD) agreed to introduce a digital tax in 2021. The digital tax requires multinational companies meeting certain revenue thresholds to pay taxes in the countries where their sales occur to prevent tax avoidance.

However, the U.S. government requested a delay in the introduction of the digital tax, fearing that tax revenues from big tech companies like Google and Microsoft might decrease. The timing of the related law's enactment is likely to be postponed. Simply put, this means that the tax on money Google earns in Korea is paid to the U.S.

Native Companies Being Driven Out

Korean companies are struggling in major services such as video and search. Naver TV and Kakao TV, which have been overshadowed by YouTube, are finally facing restructuring. There is even talk of business withdrawal. Native video services are at risk of disappearing forever, but even now, politicians who have become YouTubers are busy uploading their own videos. Naver TV and Kakao TV do not even have official channels for ruling and opposition parties.

Regarding this, an IT industry insider said, "Politicians rush to criticize when someone drives an imported car, but they ignore domestic services and only seek YouTube, which is contradictory," adding, "It is unclear whether only Samsung and Hyundai are our companies, while IT companies like Naver and Kakao are considered foreign companies."

Due to political indifference and reverse discrimination regulations, native services are losing their foothold. Video services are a prime example. In 2017, the Fair Trade Commission fined Naver 200 million KRW and issued corrective orders for unfairly not informing competitors when it revised its video search algorithm. However, recently, Naver partially won a lawsuit against the Fair Trade Commission's corrective order and fine payment order.

Meanwhile, YouTube has grown rapidly without any checks. The political interest alone shows this. Naver TV and Kakao TV do not even have official channels for ruling and opposition parties. YouTube has official channels for each party, as well as daily videos from politicians promoting their legislative activities. YouTube's monthly active users (MAU) in May reached 40.95 million, closely trailing KakaoTalk's 41.45 million, which is the first time the gap has narrowed to 500,000 users.

Other native services are also in crisis. Domestic music streaming providers such as Melon, Genie Music, Flo, and Bugs raised their monthly subscription fees by about 10% last year due to Google's increase in in-app payment commissions. In contrast, Google's YouTube Music grew rapidly without being affected by the in-app payment commission increase and overtook Melon in April to become number one. YouTube Music's rapid growth was fueled by being offered as a bonus to subscribers of 'YouTube Premium,' which allows ad-free viewing of YouTube videos. Although there were criticisms of "bundling," there are no means to regulate this.

The search market is also losing ground. Naver's domestic search market share was close to 80% in 2017 but dropped sharply to 56% as of last month. Meanwhile, Google's share surged from 9% to 35%. Countries where domestic companies lead the search market globally are rare, including Korea and the U.S., but at this rate, Korea is likely to lose its home ground to Google.

The domestic IT industry is demanding a reduction in "discrimination" against global big tech companies, leaving aside "privileges." The problem is that regulations often fail to be properly applied to foreign companies. Therefore, domestic companies read regulations as reverse discrimination.

In fact, regulatory proposals targeting domestic IT companies continue to be introduced. The Online Platform Act (OnPla Act), to be detailed next month, is a high-intensity regulation that could impose temporary business suspension orders if platform companies are found to engage in monopolistic practices. However, very few believe that such suspension orders would be applied to global operators like Google, even if monopolistic issues exist. Additionally, domestic companies must strictly follow 'personal information guidelines,' but global companies are not subject to significant sanctions even if they do not comply.

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