The Korean National Tax Service is considering reforms after losing a series of corporate tax lawsuits against global tech giants like Google and Meta. Im Kwang-hyun, the head of the National Tax Service, emphasized the need to tax these companies, which generate substantial profits in South Korea, and vowed to strengthen efforts to protect tax sovereignty.
Im made these remarks during a National Assembly audit of the National Tax Service held on October 13 at the Government Sejong Complex, responding to a suggestion from Democratic Party lawmaker Kim Tae-nyeon to analyze the reasons behind the tax authority's losses in lawsuits against global tech firms and to develop reform measures.
Kim pointed out that the three Google subsidiaries in South Korea reported revenues of 683.1 billion won last year but paid only about 28.3 billion won in corporate taxes. He highlighted the recent losses in lawsuits involving a 1.54 trillion won tax claim against Google Korea and a tax dispute with Meta, indicating the limitations of the current tax system.
In fact, Google Korea won a lawsuit seeking to cancel the tax authority's imposition of approximately 1.54 trillion won in corporate and local income taxes. On October 8, the Supreme Court upheld the lower court's ruling in favor of Google Korea, dismissing the tax authority's appeal.
The key issue in the lawsuit was whether the advertising resale fees paid by Google Korea to its Singapore entity could be classified as taxable royalty income in South Korea. The court ruled that it could not be considered royalty income.
Meta also achieved partial victory in a first-instance ruling in April regarding a lawsuit to cancel a corporate tax assessment. While the tax authority argued that the domestic entity constituted a permanent establishment of its Irish counterpart, the court found it difficult to conclude that the domestic entity was engaged in essential business activities such as platform operations.
Im stated, "Global IT companies are trying to avoid paying corporate taxes by not having a physical presence. This is not just a problem for South Korea; tax authorities in other countries are facing similar issues." He added, "Given the significant profits made in Korea, a fair share of taxes should be imposed from the perspective of tax sovereignty," noting that various arguments, including permanent establishment and deemed permanent establishment, are being used for taxation, but the court's judgments seem to differ.
He also mentioned the challenges of implementing a digital tax, explaining that it is difficult due to opposition from the United States, and emphasized, "We will do everything we can to protect our tax sovereignty."
Kim urged the tax authority to conduct a thorough analysis of whether the reasons for the losses in lawsuits stem from legal limitations or issues in the evidence-gathering process. He specifically pointed out the need to categorize the loss judgments to identify shortcomings in laws and systems and to develop improvement measures in collaboration with relevant ministries and the National Assembly.
In response, Im stated, "I will report the results of the analysis of the types of loss judgments and the proposed reform measures to the National Assembly."
* This article has been translated by AI.
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