Urgent need for system to block multinational firms’ tax avoidance

There have been a series of cases in which multinational corporations, such as overseas Big Tech, have refused to undergo tax inspections to avoid large-scale corporate taxes and have only paid small fines. This is because there is no mechanism to sanction their non-compliance with the tax inspection, such as refusing to submit tax data. There is a saying among global companies that 'not cooperating with the Korean tax authorities is the secret to paying less tax.'

Company A, a global information technology (IT) company, rejected the National Tax Service's request to submit data 92 times but was only fined 20 million won (14,700 US dollars). Company B, a global platform company with annual sales of trillions of won in Korea, also remitted most of the money it earned in the country to its overseas headquarters in the name of royalties but refused to submit relevant data. Again, the punishment was only a fine of tens of millions of won (tens of thousands of dollars). In the past three years, the National Tax Service has imposed 44 fines on companies that refuse to submit data, with an average of 6.14 million won (about 4,510 dollars).

Even if the tax authorities try to impose tougher penalties, the penalty for evading data submission under the current law is up to 50 million won (36,700 dollars), regardless of sales size. The court ruled that the penalty cannot be duplicated for a single tax audit. As a result, refusing to pay taxes normally and then paying a tiny penalty instead is said to be a "profit-making business."

In the meantime, the practice of tax evasion by overseas Big Tech is taking its root. Google Korea reported sales of 365.3 billion won (268.4 million dollars) last year and paid 15.5 billion won (11.4 million dollars) in corporate taxes. However, Google Korea's actual revenue will exceed 12 trillion won (8.82 billion dollars), and the corporate tax it will have to pay will reach 510 billion won (374 million dollars), according to the Korea Financial Management Association. Last year, Netflix Korea paid 3.6 billion won (2.65 million dollars) in corporate taxes. Still, it was estimated that it would actually have to pay up to 87.6 billion won (64.4 million dollars) in taxes. Even if the tax authorities estimate the size of their profits and impose the corporate tax accordingly, they are fighting back with litigation.

For foreign companies to make astronomical sales in Korea but not pay taxes properly is not only against tax justice but also against equity with domestic companies that pay taxes in good faith. Developed countries strictly respond to non-compliance with the submission of tax data with various regulatory mechanisms, such as criminal penalties and suspension of the statute of limitations for tax expiration. We also need to urgently put in place a system to block malicious tax avoidance by global companies.