Amid recurring allegations of corporate tax evasion amounting to hundreds of millions of dollars, Google Korea CEO Kim Kyung Hoon appeared before the South Korean National Assembly’s Planning and Finance Committee for a comprehensive audit. Kim asserted that the company is diligently paying its taxes, which is drawing significant attention. During the hearing, Kim stated, “We are paying taxes diligently by domestic laws and international tax treaties.”
On October 28, the Planning and Finance Committee summoned Kim to address suspicions of underreporting sales to minimize tax liabilities. Lawmakers from both parties highlighted that while Google utilizes 28% of the communication network, suggesting substantial actual revenues, the company reportedly underreports its sales to reduce corporate tax payments.
In response, Kim clarified that the reason for low internet usage revenue is that Google Korea is not the contracting entity for these services, meaning the revenue does not belong to Google Korea. He also stressed that the company fully complies with domestic laws and international tax treaties regarding tax payments. Kim reiterated this explanation, which he has provided multiple times this year during audits by the Science, ICT, Broadcasting, and Communications Committee and the National Policy Committee whenever corporate taxes were raised.
Representative Gu Ja Geun of the ruling People Power Party questioned Kim about Google’s ongoing administrative lawsuit with the National Tax Service. Kim responded, “As Google Korea is not the actual contracting party for services generating revenue, such as the Play Store, we are presenting our case in court.”
In January 2020, the Seoul Regional Tax Office imposed a corporate tax of about 500 billion won ($364 million) on Google. The company contested this decision by filing a complaint with the Tax Tribunal, which was dismissed. Google is currently pursuing administrative litigation in response.
Every year, accusations surface that Google Korea manipulates its tax reporting practices to evade hundreds of millions of dollars in corporate taxes. According to IT industry sources, as of Wednesday, Google Korea’s annual revenue in recent years is estimated to exceed 10 trillion won ($7 billion), with projected corporate tax liabilities of around 600 billion won ($436 million).
However, Google Korea’s annual corporate tax payments have been limited to approximately 10 billion won ($7 million), sparking controversy. Over the past three years, Google Korea has paid a total of 66.3 billion won ($48 million) in corporate taxes, merely 2.6% of the amount paid by Naver during the same period.
The industry believes that Google attributes its primary revenue, app marketplace earnings, to Google Asia Pacific in Singapore, thus avoiding Korean taxes. Singapore is considered a tax haven with a notably low corporate tax rate.
Essentially, Google has strategically located its Google Play servers in Singapore to exploit the country’s lower corporate tax rates. During the audit, Kim explained that Google Korea’s main role is reselling advertising within Korea, avoiding any mention of in-app purchase revenue from the app marketplace, which constitutes most of its Korean income.
Meanwhile, recent international cases have seen global tech giants accused of tax evasion losing legal battles against tax authorities. In 2016, the European Commission ordered Apple to pay 13 billion euros ($14 billion) in back taxes, alleging that the Irish government had applied excessively low corporate tax rates to the company.
Apple and the Irish government contested the fines, claiming they were unjust, and filed a lawsuit with the European Court of Justice (ECJ). However, the ECJ recently ruled in favor of the European Commission, upholding the original decision.
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