EU (European Union) started discussing about increasing taxes that are levied on multinational internet businesses such as Google and Facebook. Tax issues regarding multinational businesses is also talked about frequently in South Korea. Some are also bringing up the fact that ‘permanent establishment’ concept, which becomes a standard for taxes, needs to be expanded in order to effectively prevent tax evasion.
According to foreign press such as Reuter and The Guardian, 10 countries out of 28 countries agreed on levying taxes on multinational internet businesses based on sales rather than profits at a meeting for finance ministers from 28 EU countries. This meeting was held in Tallinn, Estonia on the 16th (Estonian time).
Revised plan, which was led by France, was prepared by finance ministers from G4 countries such as Germany, Italy, and Spain. If taxes are levied based on sales, countries can collect more taxes than current size of collection even if lowest tax rate is applied. This revised plan is part of ‘equalization tax’ that imposes multinational businesses to properly pay taxes to countries where these businesses make profits from. France claims that collection of tax will be possible based on tax rate of a country where sales occurred.
Although this plan received support from 33% of countries from EU including powerful European countries, some countries are showing uncertainty towards this plan. At the meeting, some countries brought up prudence due to reasons such as global tax system and relationship with U.S. Another obstacle is that countries such as Ireland and Luxemburg need to receive active national support in order to attract foreign businesses with low tax rate. If countries from EU cannot come to a complete agreement, there is a chance that countries that agree to this plan may introduce tax increase plan, which is based on ‘Enhanced Cooperation’ method, first. Enhanced Cooperation is a procedure that introduces and carries out a system partially starting with countries that agree to a proposal that is agreed by at least 9 countries or to an agreement of an execution committee.
“Digital economy also needs to be taxed just like any other economic fields.” said Pierre Moscovici who is currently serving as the European Commissioner for Economic and Financial Affairs, Taxation and Customs. “We are going to submit a report that contains almost all legal options in order to increase taxes on internet businesses in the future.”
As EU is working to increase taxes on multinational internet businesses, South Korean Government is also having active discussions regarding increased taxes on internet businesses. Requests for resolving tax issues on Google have been brought up continuously due to reasons such as implementation of tax justice and settlement of reverse discrimination. Problems regarding tax issues on Google were the focus of ‘Internet Governance Forum 2017’ that was held at Sejong University on the 15th of this month.
South Korean tax experts are pointing out that permanent establishment concept needs to be expanded through revision of tax laws. Permanent establishment of current internet businesses is servers. Multinational internet businesses were criticized because they were able to avoid taxes by not having their servers in South Korea.
Other countries are attempting to divide authority of taxation on profits from digital businesses based on original countries. Spain court ruled in 2012 and 2015 that profits earned through a country’s computer transactions while not having servers belong to that specific country. Spain court ruled that financial substance existed in spite of not having servers in Spain. There was an incidence in Japan in 2015 when a U.S. online retailer that had its servers in the U.S. saw its warehouses in Japan as its permanent establishment.
“It is not difficult to increase taxes on multinational IT businesses through current concept of permanent establishment.” said Professor An Chang-nam of Kangnam University’s Department of Taxation. “Tax laws need to be revised so that increased taxes are levied on multinational interne businesses even if they do not have their own actual facilities in South Korea through establishment of separate provisions of expansion of regulations regarding current concept of permanent establishment.”
Staff Reporter Oh, Daeseok | ods@etnews.com