[Graphics by Song Ji-yoon]
South Korea’s chipmaking giants Samsung Electronics Co. and SK hynix Inc. may have to pay hundreds of millions of dollars in the global digital tax in all countries where they provide services and earn profit from 2023, not just in their home country.
Earlier, the OECD Inclusive Framework on Base Erosion and Profit Shifting (IF) committed to fundamental changes to the international corporate tax system released detailed blueprints of its Pillar 1 and 2 proposals agreed by 130 countries of its 139 members.
Under the Pillar 1 digital tax, multinationals with global annual turnover of above 20 billion euros ($23 billion) and operating margin of over 10 percent should pay taxes in all countries they provide services and earn profits.
As the tax is applied to all businesses, except for the crypto mining and some financial fields, Samsung Electronics and SK hynix are expected to fall under the Pillar 1 first among Korean names from 2023.
Last year, Samsung Electronics earned 35.99 trillion won in operating profit on revenue of 236.81 trillion won. Its excess profit reached 12.31 trillion won, which means the company has to pay tax dues for a quarter of the profit or 3.08 trillion won in all countries under the new rule.
Considering the reliance of its overseas sales, the Korean company is subject to digital taxes for the profit of 2.6 trillion won outside the country. Experts say at least hundreds of billions won in corporate taxes will go outside Korea.
For companies paying digital tax overseas, deductions in local corporate tax will be allowed to ease their financial burden.
Foreign streaming giants and content moguls like Netflix who have earned a lot in Korea but paid less taxes will also be put under larger tax dues following the reform.
Netflix last year earned 415.4 billion won in revenue from the Korean market, of which 77 percent or 320.4 billion won went to the headquarters for fees. It paid only 2.1 billion won in corporate tax in Korea.
By Chun Gyung-woon, Yang Yeon-ho and Lee Ha-yeon
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]