[2020 National Audit] Google Under Fire for "Is 'Let's Get Evil' Your Motto?"... Criticism Over Tolls and Tax Avoidance (Comprehensive)

[Asia Economy reporters Seulgina Jo, Hanjinju, Buaeri] #1. "What is Google's founding motto?" (Lee Young, People Power Party lawmaker)

"'Don't be evil'." (Lim Jaehyun, Managing Director of Google Korea)

"It seems to be turning into 'Must be evil'." (Lee Young, lawmaker)

#2. "We will comply if the bill (Telecommunications Business Act) passes. But if the bill proceeds like this, we may have to reconsider our business model." (Managing Director Lim)

"You come to the National Assembly hearing and threaten us? Are you saying you will ultimately pass the burden onto the public and developers?" (Han Junho, Democratic Party lawmaker)

"Isn't that a threat?" (Yoon Young-chan, Democratic Party lawmaker)

At the National Assembly audit on the 22nd, a barrage of criticism was directed at Google, the dominant market player controlling the domestic application ecosystem. Starting with the controversy over Google Play's 30% commission and forced in-app payments, known as the 'app toll,' there were successive criticisms regarding tax avoidance, network usage fee evasion, and the labeling of the Sea of Japan on Google Earth.

Lim Jaehyun, Managing Director of Google Korea, who appeared as a witness at the afternoon sessions of the National Assembly's Political Affairs Committee and the Science, Technology, Information and Broadcasting Communications Committee (STIBC), struggled to answer the flood of questions. The criticism stemmed from Google's founding motto of 'Don't be evil' while allegedly abusing its dominant market position. In particular, during this process, Lim's remarks regarding the so-called 'Google Gapjil Prevention Act (Telecommunications Business Act amendment)'?saying, "(If passed by the National Assembly) we may have to reconsider our business model"?sparked controversy as a de facto threatening statement.

Google says it will comply with local laws but "may change business model"

At the STIBC audit in the afternoon, Managing Director Lim stated, "Google complies with local laws in every country," adding, "If the Telecommunications Business Act passes as currently directed, we will have no choice but to comply with the law." The National Assembly's STIBC plans to approve the amendment to the Telecommunications Business Act, which blocks Google's forced in-app payments, by the 23rd through bipartisan agreement.

He said, "We have heard many concerns from many developers and small to medium-sized developers," and added, "I hope the voices of those participating in the ecosystem are heard more and that the bill passes after sufficient review." When Democratic Party lawmaker Hong Jung-min asked, "Does that mean the voices of small and medium developers were not included in the bill?" he explained, "The app ecosystem itself is vast. If there are voices that have not been heard, it would be good to listen to them."

Especially, in response to Hong Jung-min's request to comply if authorities such as the Fair Trade Commission and the Korea Communications Commission issue corrective measures against Google for legal violations, Lim said, "No such bill has ever passed anywhere in the world, so the headquarters has not been able to conduct sufficient review and investigation," adding, "If the bill proceeds like this, we have concerns that we may have to reconsider our business model to take responsibility for users and developers."

In response, lawmaker Han Junho said, "I was surprised. Are you saying that if such a thing happens, the responsibility will be shifted by changing the business model and passed on to the public and developers?" He criticized, "You are not threatening us at the audit, but are you saying you will ultimately pass the burden onto the public and developers?" Lim replied, "That's not what I meant," explaining, "Continuous investment is necessary, and this is to maintain that."

Google, with a market share reaching 70%, mentioned the possibility of changing its business model, which could have a broad impact on the domestic ecosystem, effectively making threatening remarks using developers and consumers as leverage. Lawmaker Yoon Young-chan also pointed out it as a "threatening statement."

Earlier, Google announced that starting next year, app developers on Google Play would be forced to use Google's payment method (in-app payment) when selling content and items, taking a whopping 30% commission in the process. Unlike Apple's App Store, which had applied the commission policy only to games, Google expanded it to all content and apps. This is feared to threaten the survival of domestic app developers and lead to price increases for major content such as webtoons and music.

"Impact of commission policy change is not significant" emphasized... 'be evil' criticism pours in

When asked about the impact of the commission policy change by Hwang Bo-seung-hee, People Power Party lawmaker, Managing Director Lim said, "Fewer than about 100 developers in Korea will be affected," emphasizing, "It's less than 1%, and the impact is not significant." He repeatedly explained that "there is not much change in sales," as the commission policy change already applies to 97% of developers worldwide. He also emphasized that most app markets, including Apple and Amazon, adopt a 30% commission.

Regarding Google's explanation, lawmaker Han Junho criticized, "You said that even if in-app payments are forced domestically, the increase in sales is not significant, so why do it? You said you don't know the appropriate 30% rate and that you do it because it's done worldwide, but this is called monopoly and collusion."

Criticism likening Google's founding motto also continued. Democratic Party lawmaker Jo Jung-sik mentioned the U.S. Department of Justice's antitrust lawsuit against Google, pointing out, "Google's motto is 'Don't be evil,' but it is becoming 'be evil'." Jo said, "If they force in-app payments and a 30% commission, the same thing as in the U.S. will happen," expressing concern about the shock Google's monopolistic commission policy will have on developers and consumers. Lawmaker Yoon Young-chan also said, "If Google does not allow anything else, it becomes evil," adding, "They should not mention 'Do the right thing' (the motto following the 2015 launch of parent company Alphabet) or the so-called open ecosystem."

At the Political Affairs Committee, lawmaker Lee Young criticized, "It seems the founding motto has become 'Must be evil'." Lee said, "If the commission increases by 30%, in crude terms, the ones benefiting are Google and the three telecom companies," adding, "The ones suffering are consumers and small businesses." Democratic Party lawmaker Min Hyung-bae also said, "(Google) said it would normalize the ecosystem, but in my view, it is destroying the ecosystem."

Google "Removal if in-app payment is refused"... denies 'gapjil' controversy

Google reaffirmed its policy to remove developers who do not follow its payment system. At the STIBC session, lawmaker Hong Jung-min mentioned the case of global game developer Epic Games, which was removed from Google Play after opposing Apple and Google's payment systems and building its own system, asking, "If domestic content companies refuse, will they be removed?" Managing Director Lim replied, "There is a grace period of about one year until the end of September next year," adding, "From September next year, those not complying with the policy will inevitably be blocked."

Google drew a line regarding repeated 'gapjil' (abuse of power) controversies. In recent years, the domestic game industry has continuously raised concerns that Google, which virtually dominates the app market, tacitly penalizes developers by limiting first-page (featured) exposure when new games are simultaneously launched on Google Play and domestic app markets. Lawmaker Han Junho asked Lim if Google Korea had ever forced exclusive releases or engaged in gapjil behavior, to which Lim answered, "No (there was no gapjil)." Lim also firmly denied when People Power Party lawmaker Park Sung-joong asked if there had been any disadvantages for apps listed on One Store, saying "No."

However, during late-night resumed questioning, lawmaker Han Junho said, "I will show what kind of gapjil Google is doing to domestic businesses," mentioning cases received from the industry. He insisted, "A strong warning message must be sent," and claimed, "We need to see if Lim Jaehyun's testimony denying gapjil constitutes perjury." Minister Choi Ki-young said, "It appears Google used its monopolistic position to pressure content companies," adding, "Such things should not happen."

Fair Trade Commission Chairman Cho Sung-wook also responded to lawmakers' criticisms at the Political Affairs Committee, saying, "From the FTC's perspective, Google has engaged in acts that undermine market competition," and "We plan to investigate this matter."

Making trillions in Korea but avoiding taxes... brazen news business, Sea of Japan labeling also controversial

Both ruling and opposition parties criticized Google for earning trillions of won in advertising and in-app payment revenue domestically while paying taxes in Singapore to avoid taxation.

People Power Party lawmaker Kim Young-sik pointed out, "Google Korea's sales are recorded as Singapore sales, and Singapore's corporate tax rate is 17%, while Korea's is 25%. Isn't this done because of the difference in corporate tax rates?" adding, "From Korea's perspective, this results in a disadvantage due to tax avoidance." Managing Director Lim responded, "All companies look for countries with favorable conditions if available."

The Mobile Industry Association disclosed that Google Play's domestic sales amounted to 6 trillion won last year, while Google Korea reported domestic Google Play sales of 1.4 trillion won. Lawmaker Kim revealed that Google is encouraging tax avoidance on its homepage and criticized, "Unlike France, Korea is resisting corporate tax reassessments." Lawmaker Yoon Young-chan also criticized, "If income is generated in a country, taxes must be paid, but using Google Korea only as a sales support organization appears to be a strategy to avoid taxes."

In response, Managing Director Lim said, "Google has paid an average of 23% tax globally over the past 10 years. The issue is where the tax is paid," adding, "I understand that taxes are mostly attributed to countries where marketing and production activities are most active."

At the audit, Google's evasion of network usage fees despite generating massive traffic was also raised. Google YouTube traffic accounts for about 23.5% of total domestic traffic. Democratic Party lawmaker Jeon Hye-sook raised the issue, "Google properly pays network usage fees in the U.S., but avoids paying them domestically, causing domestic content companies to be discriminated against."

Additionally, when People Power Party lawmaker Jo Myung-hee questioned the labeling of the East Sea as the Sea of Japan on the English version of Google Earth, Lim said, "If this is true, it seems to be a huge mistake. We will correct it immediately."

Furthermore, People Power Party lawmaker Park Dae-chul criticized, "Google has not registered as a domestic news business operator," calling it a "brazen news business for 10 years." He rebutted Lim's explanation that the service provider is Google headquarters, not Google Korea, and thus it does not pass through government reception channels, saying, "Location information business operators are Google Korea and Google, but the business is conducted by the headquarters. This is logically inconsistent."