Korean biz community expresses concerns about OECD ‘digital tax’

South Korea’s business community expressed concerns Friday about a global move toward additional taxes on technology companies that would affect Korean tech giants such as Samsung Electronics and SK hynix.

The Federation of Korean Industries, an organization that represents the interests of Korean businesses, said in a statement, “We express concerns about the side effects of an agreement on the digital tax announced by the Organization for Economic Cooperation and Development.

“It appears that almost all sectors of industries are subject to the tax, which could strain normal operations of businesses that are not related to acts of tax evasion,” the federation said.

The Korean business group said discussions about digital taxes had initially started with the aim of preventing tax evasion by digital service companies.

According to the Ministry of Economy, the OECD announced an agreement on the digital tax, which would take effect in 2023 and impact global businesses that surpassed 27 trillion won ($23.79 billion) in annual sales with operating margins of over 10 percent.

The aim of the digital tax, known as Pillar I, is to ensure that companies operating in multiple countries pay taxes in all the countries where they provide services and earn profit, not just in their home countries.

Around 100 businesses are expected to be subject to the new tax.

According to the agreement, companies subject to the tax will have to pay 20 percent to 30 percent of the profit they generate in different countries beyond a 10 percent baseline.

Samsung and SK hynix appear to be subject to the Pillar I digital tax, according to the ministry.

The Pillar II tax, a 15 percent global corporate tax rule, would additionally apply to multinational companies with consolidated sales of over 1.1 trillion won.

This is a response to the phenomenon of multinationals circumventing taxes by establishing subsidiaries in countries with lower corporate tax rates.

Under Pillar II, if a company paid 10 percent corporate tax in a country where it operated a subsidiary, it would have to pay the other 5 percent in its home country.

“Pillar II also would limit sound competition in tax payment among countries, which could hinder the free operations of businesses,” the Federation of Korean Industries said. “We hope the OECD will come up with a more reasonable measure by listening to opinions from the private economic sector.”

By Song Su-hyun (song@heraldcorp.com)