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National Tax Service Vice Commissioner Choi Jae-bong |
By Choi Jae-bong, Vice Commissioner of National Tax Service
Nestled in the southeastern corner of France lies the small sovereign state of Monaco, a tranquil city-state renowned for actress Grace Kelly and Formula 1 racing. However, in 1962, this peaceful city-state found itself at the center of a tense standoff along its borders due to a conflict over taxation between French tax authorities and taxpayers. Taking advantage of the fact that Monaco has no income tax, many French taxpayers sought to establish residency there, attempting to evade their tax obligations in France.
This is because, according to the tax law, income tax is subject to the taxing rights of the state where the taxpayer resides. The French government, refusing to tolerate such tax avoidance schemes, took dramatic steps by closing the border. As a result, these taxpayers were mandated to pay income taxes to France unless they had resided in Monaco for at least five years. With this, France successfully secured its taxing rights.
Disputes evolve with respect to taxing rights, not only between tax authorities and taxpayers but also among tax authorities. In 2019, the US government announced that it was considering imposing import tariffs of up to 100 percent on French products such as champagne and cheese. Why did this announcement come about? The answer lies in a tweet from then-President Donald Trump: “France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home country, the US. We will announce a substantial reciprocal action.”
At that time, France was not content with the tech giants from the States that were paying little tax on the revenue they generated in Europe. In response, the French government passed legislation imposing a 3 percent digital services tax on the revenue these companies earned within the jurisdiction. In countering this decision, the US government came up with tariffs on products from totally different industries, like champagne and cheese, as a way to maintain its right to tax US tech giants. This case illustrates the negative impact that recent tax disputes could have on the global economy.
The efforts to secure taxing rights among taxpayers and overseas tax authorities have resulted in inevitable conflicts. In particular, the emergence of the digital economy and reinforced practices for tax collection have led to a stark increase of 22 percent in international tax disputes over the past five years. In this context, international discussions through the OECD have gained momentum to ensure the proper distribution of taxing rights over multinational corporations and prevent disputes.
In this context, the upcoming 53rd Annual Meeting of the Study Group on Asian-Pacific Tax Administration and Research, which will bring together the heads of tax authorities from 18 Asia-Pacific jurisdictions in Seoul for four days starting Oct. 28, will also serve as an important opportunity for these discussions.
SGATAR was established in 1970 as a consultative meeting of tax authority heads to promote the exchange of best tax administration practices and foster collaboration and communication among tax authorities in the Asia-Pacific region. Eighteen tax authorities from the region, including the National Tax Service of the Republic of Korea, are members of SGATAR. It serves as a platform for discussing key tax administration issues arising from changes in the international tax environment and exploring joint response strategies.
Thus, the meeting plays a crucial role in advancing tax administration in the Asia-Pacific region. Particularly, the 53rd SGATAR Annual Meeting will bring together over 180 participants, including the heads of tax administrations from the member jurisdictions, as well as representatives from 10 international organizations such as the OECD and the IMF. The participants will address the major tax-related agendas through the assessment of the current cross-border tax disputes. Furthermore, they will explore ways to reduce the burden on both taxpayers and tax authorities through improved dispute-resolution mechanisms.
The NTS is hosting the SGATAR Annual Meeting for the first time in 11 years, marking the fifth time the event is held in Korea. At this meeting, the NTS will showcase its role as a leading tax authority by actively sharing its expertise in tax administration. The recent rise in protectionism and growing geopolitical uncertainties pose significant challenges to securing stable national revenues. The NTS and the SGATAR members, which account for more than half (52 percent) of Korea’s total trade, will take the lead in international tax discussions and establish global standards. Through such active engagement, the NTS aims to pursue measures to ensure that tax issues do not hinder trade and economic growth in the Asia-Pacific region and to prevent and resolve the double taxation burdens faced by enterprises.
Choi Jae-bong is vice commissioner of the National Tax Service. The views in this column are his own. -- Ed.
