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Seoul moving to impose 'digital tax' on US tech companies

Apple, Google, Facebook face grilling in South Korea's parliament next week

Lawmakers criticize Google for not paying tax, even though the tech group has annual revenues in South Korea of almost 5 trillion won.

SEOUL -- South Korean lawmakers are moving to impose a "digital tax" on U.S. tech companies, accusing Apple, Google and Facebook of not paying appropriate tax to the local authorities while generating billions of dollars of revenue every year in the country.

A science and technology committee at the National Assembly plans to summon the local heads of Apple, Google and Facebook next week to grill them over their tax payments and privacy protection policies. This will be the first time that chiefs of the U.S. tech companies' local affiliates testify in the parliament.

Rep. Byun Jae-il of the governing Democratic Party of Korea submitted a bill last month to force global content providers to set up their servers in the country, by imposing fines worth up to 3% of their revenues if they do not follow the regulation. The bill apparently targets Google, Facebook and Apple, which run servers outside the country.

Rep. Park Sung-joong of the opposition Liberty Korea Party said that the country needed to levy a "digital tax" on foreign technology companies which sell advertising and other services in South Korea. The lawmaker criticized Google for not paying tax, even though the tech group has annual revenues in South Korea of almost 5 trillion won ($4.5 billion).

Park is not alone. Civic groups have been pressuring legislators to fill loopholes in the local tax system to prevent the U.S. tech companies from abusing them. Local internet companies, such as Naver and Kakao, have also raised such issues, demanding fair and equal treatment of Google and other global players.

"Google and other foreign tech companies pay very little tax compared to their revenues. For instance, Google does not pay tax on ad revenues, even though it makes a lot of money through YouTube," said Jeong Ho-chul, a coordinator at the Citizens' Coalition for Economic Justice.

The movement in South Korea is in line with that in the European Union, which in March proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the bloc.

The European Commission proposed that its member states tax profits that are generated in their territory, even if a company does not have a physical presence there. The commission said that the new rules, targeting the big U.S. tech groups, would ensure that online businesses contribute to public finances at the same level as traditional "brick-and-mortar" companies.

"Google complies with the tax laws in every country where we operate and we follow the laws and pays all applicable taxes in Korea," the company said in a statement emailed to the Nikkei Asian Review.

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