All eyes are on global enterprises such as Google, Apple and Cisco after Oracle was charged with heavy back taxes by the tax authority here over alleged tax-dodging practices, according to the industry, Tuesday.
Government data shows that taxes collected from foreign enterprises here settled at about 5.27 trillion won ($4.6 billion) in 2015, down 35.1 percent from 8.12 trillion won in 2012, despite the massive profits they generated in Korea.
Tax authorities have been urged to tighten monitoring on foreign companies and their tax-paying practices to uncover the reason for the decrease. Against this backdrop, the NTS reportedly slapped a back tax of over 310 billion won on Oracle Korea.
Expectations are other global enterprises such as Google, Apple and Cisco could be the next targets of the National Tax Service (NTS).
“The NTS has been closely looking into multinational companies and their subsidiaries in Korea over their taxpaying and transferring of gains,” a tax policy expert said.
“There are multiple loopholes in Korea’s laws on foreign firms and their taxation, which some companies seemingly exploited to dodge taxes,” an industry source said. “Taking Oracle’s case as an opportunity, the authority should strengthen monitoring of possible illegalities for the sake of taxation justice.”
With regard to Oracle Korea, the tax authority claimed the company sidestepped corporate taxes by shifting over 2 trillion won of gains it has generated in the Korean market between 2008 and 2014 to a tax haven in Ireland.
Protesting the NTS, Oracle Korea filed a suit with the Seoul Administrative Court this February, calling for the cancellation of the measure.
Besides Oracle, many other global enterprises such as Google, Apple and Cisco have been accused of avoiding or shrinking taxes in controversial fashions. Many multinational companies headquartered in the United States are basically subjected to heavy U.S. corporate taxes reaching 35 percent.
For this reason, some of them have chosen to save the taxes by transferring the profit rights to a subsidiary in one of many tax havens such as Ireland, Bermuda and the Virgin Islands.
According to the Korea Mobile Internet Business Association, Google gained 4.5 trillion won in Korea last year by operating Google Play, the mobile application market for Android devices. The association also expects Google Play will generate more than 5 trillion won of revenue this year.
Google has aggregated the profits in its Google Play business here to those made in other countries, thus paying less in taxes here. As a limited liability company Google Korea thus is not obligated to share information about its earnings and taxpaying.
“Google follows the laws and pays all applicable taxes in Korea. The Korean government recently completed an audit of Google Korea and found that the company is in compliance,” Google Korea said.
Cisco, which is the dominant provider of network equipment in Korea, has made its smaller local distribution partners directly make deals with its U.S. headquarters or suppliers in other countries. This way, the company registers its sales here to a branch in a country with a low tax rate, according to industry sources.
Globally, such methods have been called the “base erosion and profit shifting” and tax authorities around the globe have long discussed an effective way of preventing this practice.