April 26, 2024

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[THE INVESTOR] Korea has incorporated 15 actions as part of a global project to curb tax evasion and profit-shifting by multinational companies, according to the government on Aug. 13.

The new regulations will get rid of the so-called “Google Tax,” referring to a practice of tech giants earning a lot of money around the world, but collecting nearly all of the profits in tax havens.

Measures to curb base erosion and profit-shifting drafted by the Organization for Economic Cooperation and Development and G20 in 2015 with the participation of 96 countries is considered an important step for the wider global adoption of “Google tax.’ 

An official said that Korea has now adopted all 15 action plans recommended by the OECD. The latest action plan involved expanding the scope of “domestic business area” for MNCs, which is included in the Tax Reform Bill 2018. The scope for exclusion of MNCs from domestic business sites is limited only when they are of a preliminary or auxiliary nature.

The ministry will submit the new revision to the National Assembly by the month-end.

In addition to the BEPS project, the government is also reinforcing other measures to prevent MNCs from evading taxes in the country, according to the Ministry of Economy and Finance. One such measure includes the scrapping of corporate and income taxes which have been lawfully exempted for limited liability companies.

MNCs have been blamed for getting a free ride or not paying taxes properly by using legal loopholes as they have been enjoying exemption for corporate and income taxes while local companies claimed they are suffering from “reserve discrimination.”

The Korean arms of Google, Apple, Facebook, Microsoft, HP, Louis Vuitton, Gucci, Pizza Hut and Coca-Cola are all registered as LLCs. Starting from 2020, MNCs that are LLCs in Korea will face external audits and have to disclose financial information such as sales, operating profit, net profit, dividend and taxes.

Korea was included in the tax haven list by the European Council due to preferential tax regimes for foreign companies in December last year.

By Park Ga-young (gypark@heraldcorp.com)