[Editorial] Big tech, small taxes

As with other countries, major US-based tech giants such as Google, Apple and Meta have set up local subsidiaries in South Korea, a nation known for a large pool of active users and well-established online infrastructure.

But some critics claim that there are problems with the way such overseas-based tech firms do business and pay taxes here. Among such problems, two topics stand out: lofty in-app purchase commissions and lower-than-expected tax payments to local authorities.

The controversy over the burdensome in-app purchase fee is nothing new. In some other countries, Google and Apple have been under fire for collecting too much in commissions for transactions taking place on their respective app stores, which can make it tougher for small startups to turn a profit.

But there is another aspect to consider for the Korean market. Google and Apple dominate about 85 percent of the domestic smartphone app market, and keep collecting a commission of 15 to 30 percent from the app purchase cost -- with 30 percent being a higher commission rate than in other countries.

As a result, Korean gaming companies have paid a total of around 9 trillion won ($6.7 billion) in commission to the two tech giants between 2022 and 2023, according to the Korea Industry Alliance Forum.

In 2021, Korea introduced a bill that blocked dominant app store operators from forcing in-app purchases only on their platforms. But local developers argue that Google and Apple continue to pressure app developers to use their app stores by using their dominant market positions.

A 30-percent in-app purchase commission can certainly end up being a big burden for small, cash-strapped startups. Forced to take out such a big portion of their revenue to pay for in-app purchase fees, developers in gaming, webtoon and music industries find it hard to secure enough profits to maintain their businesses.

Officially, however, developers can choose to use third-party app stores other than those operated by Google and Apple. But this method is not working properly, developers said, since many small companies cannot afford to pay for setting up the new transaction system by spending additional money. More importantly, companies are in a bind over opting for third-party or setting up their own in-app purchase systems, largely because they still have to pay a different type of commission of up to 26 percent -- a fee that the overseas-based tech companies charge for handling personal data protection.

Google and Apple are reportedly moving to lower the rates outside of Korea in response to mounting criticism over their dominant and unfair practices. But their business practices remain largely unchanged in Korea. The main reason is that Korean companies have few other choices for in-app purchase platforms, and local regulations do not have specific rules about commission rates yet.

In addition to the in-app purchase fee, overseas-based tech companies face criticism over their tax payment practices. Google Korea, for instance, reported that it posted 365.3 billion won in revenue and paid 15.5 billion won in corporate taxes last year. But Rep. Choi Soo-jin of the ruling People Power Party said that Google Korea is estimated to have earned 12.13 trillion won here and allegedly had to pay 629.9 billion won, citing data from the Korea Financial Management Association.

Given that Naver, the country’s biggest online portal, paid 496.4 billion won in taxes on its 2023 revenue of 9.67 trillion won, Google Korea paid far less in taxes than its estimated revenue, according to Choi's office. Other big tech companies such as Meta Korea and Netflix Korea face similar criticism regarding their payment of taxes.

Korean authorities are urged to address the in-app purchase issue involving Google and Apple, and push to revise taxation rules to make it fair for both domestically-based and overseas-based tech firms.