Global Minimum Tax, 'Agreement Among 139 Countries' to Be Reached... G20 Approval Expected Next Month

[Sejong=Asia Economy Reporters Son Sun-hee and Moon Chae-seok] As the Group of Seven (G7) major countries, including the United States, agreed on a global minimum corporate tax rate of 15%, attention is expected to shift to discussions within the Group of Twenty (G20). This is because emerging countries such as South Korea, China, India, and Brazil are largely included, which will have a significant impact on the global economy. If a final agreement is reached at the end of this month in the OECD-led ‘Base Erosion and Profit Shifting (BEPS) Inclusive Framework (IF)’, it is expected that the G20 will endorse it.

According to the government on the 7th, the IF, including South Korea, has scheduled intensive working-level meetings for about three weeks until the end of this month and is conducting final working-level discussions related to the digital tax. The IF is a large-scale consultative body involving 139 countries worldwide.

If the final plan for the introduction of the digital tax is agreed upon at the IF at the end of this month, it is highly likely to be endorsed at the G20 Finance Ministers’ Meeting held in Italy next month. Remaining issues will be further coordinated, and a joint statement among leaders regarding the digital tax is expected to be finalized at the G20 Summit in October.

The key interest lies in whether a final agreement can be reached at the IF. This is because it has a significant impact on the global economy and the interests of each country differ. The US Wall Street Journal (WSJ) stated on the 6th (local time), "With this agreement, G20 countries face a test," adding, "Global taxation will emerge as an agenda in Venice early next month."

South Korea is focusing on the increase in tax revenue resulting from the introduction of the minimum tax. If the global minimum tax (Pillar 2) is introduced, global companies such as Google and Facebook, which have hardly paid corporate tax domestically so far, will have to pay at least several hundred billion won in additional taxes. However, the strengthening of taxing rights in the market jurisdiction (Pillar 1) has not yet determined the specific applicable industries.

There is also an opinion that simply judging national advantages or disadvantages based on increased tax revenue is premature. This is because, just as overseas IT companies will pay more taxes in South Korea, domestic companies’ overseas tax burdens may also increase.

For example, Samsung Electronics generates annual sales in the 200 trillion won range, of which 80-90% occur overseas. In particular, more than half of its sales come from the Americas and Europe. The proportion of corporate tax expenses is the opposite. According to Samsung Electronics’ Sustainability Report, the corporate tax (taxes and dues) paid by Samsung Electronics was 15.1 trillion won in 2017, 17.8 trillion won in 2018, and 9.7 trillion won in 2019, with the proportion of corporate tax paid in South Korea reaching 81%, 86%, and 69%, respectively. The proportion of corporate tax paid in the Americas and Europe was only around 10% annually. This is why it is anticipated that with the introduction of the digital tax, Samsung Electronics will pay significantly more taxes to countries in the Americas and Europe than before.

A government official said, "We agree with the rationale and necessity of the digital tax," but added, "There may be temporary tax burden shocks for companies, so we are discussing it cautiously." He continued, "Since it will take at least 2 to 3 years until actual implementation, companies are expected to take sufficient measures during that time."

Professor Ahn Chang-nam of the Department of Taxation at Gangnam University said, "The scope of the top 100 companies (subject to the digital tax) is important," adding, "In addition to Samsung Electronics, ‘quasi-IT companies’ such as Hyundai Motor may also be included." He further stated, "What the government should do is to reflect the characteristics of domestic companies and exclude as many as possible from the criteria for the top 100 companies."