Apple is criticized for paying less corporate tax than in other countries

By Baek Byung-yeul

Apple, Google, Netflix, Meta and other tech giants doing business here have been criticized for shifting most of their profits abroad, paying less corporate taxes and spending a minimum to fulfill their social responsibility activities, according to industry analysts and experts Friday.

These multinational companies earn trillions of won in Korea every year, but they pay ridiculously small taxes based on the fact they don't have manufacturing facilities or computing servers operating here, they said.

According to a report unveiled by independent lawmaker Yang Jung-suk on Feb. 2, Apple paid only a quarter of the corporate tax rate to Korea compared to its overall payment rate, by raising the price of goods sold to lower its operating profit.

Her report is based on an analysis of Apple's report submitted to the New York Stock Exchange in 2021 and an audit report on Apple Korea the same year. She is a member of the National Assembly's Science, ITC, Broadcasting and Communication Committee.

"Apple's global operating profit margin reached 29.8 percent in 2021, 18.6 times higher than that of Korea, which was 1.6 percent," Yang said. The Korean branch's ratio of operating profit to net sales is significantly lower than those of Apple's other regions ― 34.8 percent in the Americas, 36.4 percent in Europe, 41.7 percent in China, 44.9 percent in Japan and 37.2 percent in Asia-Pacific.

The lawmaker argued this was possible because its Korean branch paid more than it should for bringing in products from its Singapore unit.

Due to the low operating margin, Apple paid a significantly lower corporate tax in Korea in 2021 than it did in other countries. "Last year, Apple Korea's corporate tax payment was 62.8 billion won, or 0.9 percent of its total sales of 7.1 trillion won, while Apple paid $14.527 billion in taxes worldwide, or 4 percent of total sales," she said.

Yang also urged Apple and the government to come up with prompt measures. "The company needs to adjust its operating profit ratio to a level similar to China, Japan and other countries in the Asia-Pacific region that are in a similar environment to the Korean market," she said.

Apple was unavailable for comment on Yang's statement.


Apple is not the only one that pays less corporate tax. Google, Netflix, Meta and other global tech firms have paid less than 10 billion won in corporate taxes here on the basis that there are no computing servers or production bases in Korea. In 2020, Google Korea paid 9.7 billion won while Korean IT giants Naver and Kakao paid 463.3 billion won and 82.7 billion won respectively. Meta also paid 3.5 billion won and Netflix paid 2.2 billion won.

A company official, who works for a foreign-affiliated company that operates manufacturing facilities here, said foreign companies that pay less taxes because they do not have production facilities in Korea could introduce a problem of "reverse discrimination" against other foreign-affiliated firms operating manufacturing facilities here.

"I think it is right that even foreign companies should contribute to Korean society and pay taxes as much as paying to other overseas branches as long as they are doing business well here. Many of the people working for foreign-affiliated firms do not appreciate Apple's behavior in Korea. It doesn't make sense either not to be able to fulfill corporate social responsibility while making huge amounts of money," the official said on condition of anonymity.

"In the case of companies that operate production facilities in Korea, there are many things to pay attention to, such as newly changing government regulations and relationships between employees. In particular, with the enforcement of the industrial accident law, we should pay more attention to safety regulations. However, this is a responsibility that we have to follow while doing business here, so we are willing to follow it."

Michael Fritzell, a Singapore-based analyst at Asian Century Stocks, said Apple paying less corporate tax can be explained by its tax-planning strategy that minimizes tax burden. He also pointed out that Korea has a higher corporate tax rate of 25 percent than Singapore with 17 percent.

"I would assume that companies do everything they can to minimize taxes. They have an incentive to minimize the profits of their Korean subsidiary given that Singapore has a lower corporate tax rate. There could also be currency considerations at play here ― perhaps Apple wanted to minimize its build-up of Korean won, for whatever reason," the analyst said.

"Corporations are often actively minimizing their taxes, by placing their headquarters in Ireland, Switzerland or other tax havens. And I would imagine that they push the boundaries when it comes to transfer pricing, and sometimes step over those boundaries as well."

Asked if the National Tax Service (NTS) has ever looked into allegations that Apple tries to pay less tax in Korea, a chief spokesman of the agency said, "We cannot answer issues related to certain companies due to confidentiality provisions."

However, an expert in taxation pointed out that such criticism that overseas-based companies are trying to avoid taxes paid to Korea should be approached carefully because how much corporate tax each region pays is determined by the business strategy of each company.

"It should not be considered that foreign companies are evading taxes in Korea. In the case of Apple, it had to pay the price of the products to its Singapore branch, but just because the cost was too high, it cannot be said that it was intended to avoid taxation," said Jeong Seung-yeong, a taxation professor at Changwon National University.

"If the transaction between Apple's Korean branch and Singapore branch was a normal one within a legal framework, it cannot be considered wrong. Conversely, it should be noted that such criticism can be raised to Korean companies. Samsung Electronics, a global tech firm born in Korea, also does business targeting the global market and does not plan a strategy by looking at only certain markets."

Saving taxes by lowering operating profit ratio as Apple Korea does is one of the ways global companies reduce their tax burden. But, such practices are not expected to remain in effect past this year as taxing the digital economy, led by the OECD, was endorsed by 136 countries in 2021.

Starting 2023, firms with global sales of over 20 billion euros and profit rate above 10 percent are supposed to pay 25 percent of profit margins above 10 percent in countries where their businesses are based.

The NTS is also taking action against digital taxes. On Jan. 26, the agency said it plans to legislate laws and systems necessary for the application of digital taxes.