A new report has revealed that global technology companies like Google and Meta may be substantially underreporting their earnings in South Korea. (Image courtesy of Yonhap)
SEOUL, Nov. 6 (Korea Bizwire) – A new report has revealed that global technology companies like Google and Meta may be substantially underreporting their earnings in South Korea, resulting in significantly lower corporate tax payments than their actual market presence would suggest.
According to a report released on November 5 by professors Jeon Seongmin of Gachon University and Kang Hyoung-goo of Hanyang University, Google Korea’s reported revenue for last year was 365.3 billion won, with an estimated tax payment of 15.5 billion won.
However, the study estimates that Google’s actual earnings from the Korean market, including advertising and app store commission fees, could be as high as 12.13 trillion won, suggesting a potential corporate tax obligation of up to 518 billion won.
The disparity becomes particularly striking when compared to domestic competitor Naver, which paid 496.4 billion won in corporate taxes on revenues of 9.67 trillion won during the same period.
Google maintains a dominant position in South Korea’s digital marketplace. According to the Fair Trade Commission, Google held an 80-95% market share in the Android app market between 2014 and 2019. Recent data from Internet Trend shows Google commanding a 34.03% share of the web search market, second only to Naver’s 59.44%.
The significant gap between reported and estimated revenues is attributed to big tech companies’ practice of attributing most of their earnings to overseas subsidiaries. For instance, Google reportedly assigns its app market revenues to Google Asia Pacific, its Singapore-based entity.
Some tech companies are actively challenging tax assessments. Netflix Korea is currently engaged in an administrative lawsuit contesting 78 billion won of an 80 billion won tax bill imposed by the National Tax Service in 2021 for alleged tax avoidance.
Industry observers warn that insufficient oversight of big tech companies’ financial reporting could lead to issues of tax equity and free-riding on domestic infrastructure.
“Tax revenue can fund government infrastructure investments, and failure to pay taxes proportionate to actual earnings could be seen as free-riding on domestic infrastructure,” noted an ICT industry representative.
Global initiatives to address these issues are gaining momentum. The Digital Services Tax aims to ensure tech giants pay taxes in countries where they generate revenue.
Additionally, the European Union is discussing the Digital Markets Act (DMA), which would prevent big tech companies from restricting competitors’ access to data and require algorithmic transparency, with violations potentially resulting in fines of up to 10% of global annual revenue.
However, experts emphasize the need for a more comprehensive long-term strategy. Jeon noted that while tax considerations are important, the situation calls for a broader national platform strategy.
He cited the EU’s approach of preventing big tech companies from monopolizing European-generated data and ensuring its availability to foster startup growth as an example of strategic thinking beyond mere taxation.
Kevin Lee (kevinlee@koreabizwire.com)
