South Korean companies should be more vocal in the global discussion on digital tax before it becomes too late, said a partner lawyer at a local law firm.

As the world faces a new paradigm where more businesses are being conducted online, the necessity to define digital tax is growing worldwide and a debate is underway in the Organization for Economic Cooperation and Development.

Pressed by the US, home to many digital firms, the OECD discussion is also considering whether manufacturing companies should pay digital tax -- which may affect the taxation of top-tier South Korean firms such as Samsung Electronics, LG Electronics and Hyundai Motor.

“Korean companies should not stand by but actively participate in the OECD discussion in shaping digital tax,” said Kang Sin-wook, a partner at law firm Shin & Kim in an interview with The Korea Herald. 

Kang joined the law firm in 2016 after working for ministries related to information and communications technology specializing in regulations and promotion of internet of things, big data and cloud areas for 10 years.

“Once fixed, it will be very difficult for Korean firms to raise their voice separately to reverse the rules even if they have negative consequences,” Kang said.

Compared to the relatively passive stance of Korean firms, US companies, including Netflix, Uber Technologies, Amazon, Johnson & Johnson and Unilever, have participated in and raised their voice in a series of OECD discussions on digital tax over the past two months.

“In the worst case scenario, Korean firms may face double taxation under OECD rules and independent rules of some European countries,” Kang said.

Currently, some European countries, including the UK and France, are pushing ahead with their own taxation rules on global tech firms fearing a drop in tax revenues.

Separately from the global debate on digital tax, similar discussions are also taking place in political circles here, mainly focusing on how to raise taxes on global firms, such as Google and Facebook.

The global tech firms face relatively less corporate taxes compared to local firms here due to the absence of servers, which act as a barometer for the taxation of digital firms under the current international taxation rules. Calls are growing among lawmakers here to revise tax laws to levy heavier taxes on the firms.

Kang, however, pointed out such an approach is too short-sighted.

“We should keep in mind that if we make rules to impose stricter taxes on global companies doing business here, the same rules could be applied for Korean firms in global markets,” Kang said.

Currently, many manufacturing Korean companies are earning profits outside Korea and more digital firms, such as Never’s Line, Kakao Pay, Coupang’s e-commerce business and Baemin’s delivery apps, have either already made inroads or seek to expand their business overseas.

He also added that Korea should weigh the benefits that global firms can bring to the Korean economy, such as decent jobs and advanced technologies. 

By Shin Ji-hye (shinjh@heraldcorp.com)