[Tax Story] Beyond 'K-Quarantine', Now It's 'K-Tax'

Professor Ahn Chang-nam, Department of Economics and Taxation, Kangnam University

YouTube, which means "You broadcast," is a video-sharing platform operated by Google, a U.S. ICT company. Those who upload and share videos here are called YouTubers. YouTube's main source of revenue is advertising. When a Korean company pays 100 in advertising fees, YouTube takes 45, and the remaining 55 goes to the YouTuber. From a tax perspective, this is not simple. Under the current tax system, when a Korean company pays advertising fees, its expenses increase, reducing corporate tax. Conversely, YouTube's revenue increases, so corporate tax rises in the U.S., where its headquarters are located. The more money YouTube makes, the more Korea's tax revenue decreases, while the U.S.'s increases. One "smart company" is fattening the U.S. Internal Revenue Service's coffers significantly.

In response, the European Union (EU) has tried to increase its tax revenue by imposing a digital tax (GAFA tax) in the form of consumption tax on large ICT companies (Google, Apple, Facebook, Amazon). In turn, U.S. President Donald Trump has threatened retaliatory tariffs. A tax war without gunfire is underway. To resolve this, the Organisation for Economic Co-operation and Development (OECD) is creating a tax formula that allows the country paying the advertising fees to also collect taxes on the 45 share belonging to YouTube (under the current tax system, YouTube must have a business establishment in Korea for this to be possible, but since business is conducted over the internet, no physical establishment is needed).

However, the U.S. is unlikely to concede easily. The formula's scope is intended to include not only digital service businesses of U.S. companies but also consumer-targeted businesses. This could include Korean companies like Samsung and Hyundai. In other words, if Korea taxes Google, the U.S. threatens to tax Korean companies in retaliation. This is not the only challenge. The Korean National Tax Service has no way to obtain payment statements for the 55 share belonging to YouTubers from Google. Since Google is a foreign company, it has no obligation to submit such information. Some domestic YouTubers, sensing this, are evading tax authorities by using nominee accounts. This is a tax blind spot. It is difficult to persuade Google to cooperate and provide this information.

Tax policies on international transactions tend to be determined more by political power than economic logic. The influence of the U.S. and EU is strong. However, Korea's status has risen through the experience of the COVID-19 pandemic. When the U.S. and EU are at odds, Korea's position could be decisive. This is because Korea has risen from a developing to an advanced country and has platform operators with international competitiveness. Therefore, rather than simply supporting the opinions of the U.S. or EU, Korea should propose and enforce a rational alternative where multiple countries fairly share tax revenues. The era of "world tax," where the residence country and the consumption (expenditure) country share taxing rights on income generated from international transactions, is arriving. From Korea's perspective, it is necessary to secure taxing rights over foreign companies while ensuring that Korean companies operating abroad are not subjected to unfair taxing rights in those countries. Disadvantages should be minimized, and advantages expanded.

The income of wealthy countries is accompanied by the expenditure of poor countries. Therefore, it is natural to fairly divide the tax base. Fair taxation is the right path to overcoming the rich-get-richer and poor-get-poorer phenomenon between countries. When this is rationally resolved, wars and revolutions will disappear. Just as Korea's K-quarantine has become a global standard, the rational fair taxation plan proposed by Korean tax officials can also become an international taxation standard. This is the so-called "K-tax." We look forward to the efforts of tax officials armed with a stewardship mindset.