[Opinion] The 'Corporate Tax Shock' Will Come in 10 Years

Samsung Electronics with Trillion-Won Operating Profit, Corporate Taxes Paid Abroad
Advanced Company Production Facilities and Profits Also Overseas

Companies pay up to 24% of their operating profit as corporate tax. This corporate tax accounts for about 20% of our total tax revenue. Unlike income tax, which usually comes directly out of people's wallets, corporate tax rarely draws much public attention. However, corporate tax tends to become a topic of discussion roughly once every ten years. Ten years ago, in 2014, SK Hynix paid corporate tax for the first time in 19 years. Founded in 1983 under the name Hyundai Electronics and acquired by the SK Group in 2012, Hynix had not paid corporate tax because its accumulated losses exceeded its accumulated net profits. The accumulated deficits were handled as so-called carryforward losses (移越缺損金), which exempted the company from corporate tax. Hynix paid corporate tax once in 1995 and then resumed payments in 2014 after 19 years. That year, Hynix paid 769.3 billion won in corporate tax. Hynix’s substantial corporate tax payment delivered a positive shock to the Korean economy.

From then until 2023, Hynix paid over 16 trillion won in corporate tax over ten years. Hynix is the second-largest corporate tax payer in Korea, following Samsung Electronics. It’s not just corporate tax; since 2014, Hynix has also paid more than 1 trillion won in local taxes. When SK acquired Hynix in 2012, the company had 7,699 employees. Currently, Hynix employs about 32,000 people. The average salary has more than doubled, rising from 57.58 million won to 121 million won. The amount paid annually by both employees and the company for income tax, national pension, and other four major social insurances has increased by about 800 billion won. Hynix, once the underdog of the Korean economy, has transformed into a swan soaring high.

Another ten years later, in 2024, people were once again surprised by corporate tax news. Despite Hynix posting an operating loss exceeding 7.7 trillion won last year, it will not pay corporate tax but will instead receive a refund of over 2.5 trillion won in prepaid corporate tax. Corporate tax is collected based on operating profit, so it is natural that a company with losses like Hynix does not pay corporate tax. There are also rumors that Hynix might post record-high profits this year. So, this is not a major issue. What is more surprising is that Samsung Electronics, which posted trillion-won operating profits last year, also did not pay corporate tax. Samsung Electronics’ consolidated operating profit, including its investment companies, was about 6.6 trillion won last year. However, on a separate basis excluding overseas local corporations and subsidiaries that pay taxes abroad, the operating profit showed a loss of 11.5 trillion won. Simply put, Samsung Electronics’ Korean headquarters recorded a loss exceeding 11 trillion won, but domestic and foreign companies in which it holds shares made substantial profits. The valuation of these companies exceeds 18 trillion won, with a significant portion of that coming from overseas.

The problem is that in another ten years, around 2034, we might again see news reporting that Samsung Electronics and SK Hynix posted strong performances but did not pay corporate tax in Korea. The Boston Consulting Group recently released a report stating that the domestic production ratio of advanced semiconductors in Korea will drop from 31% to 9% by 2032. Meanwhile, the U.S. will increase its share from 0% to 28%. The U.S. is spending tens of trillions of won in subsidies to acquire Korean advanced manufacturers, with semiconductor factories topping their shopping list. In 2008, Samsung Electronics announced plans to move its main mobile phone production base to Vietnam. At that time, the company said it would produce low-end phones in Vietnam and advanced flagship phones at its Gumi plant in Korea. However, most of the premium Galaxy phones and location user manuals we use today bear the label “Made in Vietnam.” The Gumi plant produces about 3% of Samsung Electronics’ smartphones. Taxes and employment benefits mostly go to foreign countries. There is no guarantee that a similar situation will not occur in semiconductors, Samsung Electronics’ flagship product.