South Korea’s National Assembly has passed legislation that will subject a wide range of digital services provided to consumers to the country’s 10 percent VAT.
The bill, which was passed December 8, expands VAT to online ads, cloud computing, and online-to-offline services, The Korea Times reported December 11. VAT currently applies to a limited range of digital services, such as app sales made through Google Play and Apple’s App Store. The legislation goes into effect July 1, 2019.
When it was proposed in November, the legislation also covered business-to-business digital services, but that provision was dropped during negotiations. One of the bill’s sponsors, Rep. Park Sun-sook of the opposition Bareunmirae Party, called the bill a step forward. “The passage of the revision formed the basis for a discussion of digital taxes,” Park said, as quoted in the Korea Times article.
Pulse, an English-language Korean financial news website, reported December 11 that the expansion of the VAT regime to digital services provided to consumers is expected to bring in approximately KRW 400 billion (around $354 million) of revenue annually.
Korea’s move comes against the backdrop of wide-ranging efforts to tax multinational technology companies that often have little or no physical presence in many of the countries where their services are consumed. Most prominent of those initiatives is the faltering attempt by member states to reach agreement on an EU-wide digital services tax. Other countries either contemplating or moving forward with their own versions of a digital services tax are France, Spain, New Zealand, and the United Kingdom.