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(EDITORIAL from Korea Times on June 8)

Editorials from Korean dailies 07:10 June 08, 2021

Global tax reform
: More efforts needed to ensure fair taxation

Finance ministers of the Group of Seven (G7) countries agreed Saturday to a "historic" deal that would impose a global minimum corporate tax rate of at least 15 percent, to prevent multinational tech giants such as Google, Facebook and Amazon from dodging taxes by registering their businesses in offshore havens.

They also agreed to have global companies pay taxes in countries where they make huge profits even though they don't have physical headquarters in those nations. The deal is a breakaway from the 100-year old tradition of levying corporate taxes only in places where the companies' headquarters or plants are located. The United States and the European Union have been arguing over the matter for the past eight years.

Participants in the G7 ministerial meeting in London hailed the agreement as a "historic" one that will help many governments reeling from the COVID-19 pandemic to fill their coffers. "I am delighted to announce that after years of discussions, the G7 finance ministers have reached a historic agreement to reform the global tax system," said British Finance Minister Rishi Sunak, who hosted the meeting.

The agreement is also expected to create equal opportunities for companies in global markets. Thus far, governments have engaged in a race to the bottom in corporate taxation to attract tech giants. In this regard, the deal can be regarded as an attempt to level the playing field.

As Minister Sunak pointed out, the deal is designed to reform the present global tax system to make it fit for the digital era. The agreement awaits further discussion in the G20 ministerial meeting slated for July and final endorsement during the G20 summit slated for October.

The move will likely lead to the introduction of the global digital services tax. "There is broad agreement that these two things go hand in hand," said U.S. Treasury Secretary Janet Yellen. A new tax system will likely affect Korea's major companies such as Samsung Electronics, LG Electronics and Hyundai Motor as it will cover their main business items of cellphones, home appliances and automobiles.

Given this, Korea's global companies will possibly have to pay more corporate taxes in foreign countries than at home with the implementation of the new system, which will in turn reduce the Korean government's revenue from corporate taxes. The number of corporations whose revenue exceeded 1 trillion won (US$900 million) stood at 200 in 2018. The National Tax Service collected 55.5 trillion won in corporate tax last year, accounting for 20 percent of its entire tax revenue.

The G7 agreement is incomplete with details to be negotiated. The London deal says only "the largest and most profitable multinational enterprises" will be affected. For Korea, the chances for diplomatic negotiations are still open. President Moon Jae-in has been invited to the June 11 G7 Summit and Korea is leading the G20 meetings. It is time for Korea to raise its voices in the international community to protect the interests of its companies before the new global tax system is put in place.
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