"Netflix Must Pay Taxes Too"... Heated Debate Over Digital Tax

Legislation Proposed in Indonesia, France, Italy, etc.
South Korea Faces Fallout Affecting Samsung, Hyundai, and Complex Conflicts Over Network Usage Fees

[Asia Economy Reporter Kim Heung-soon] Global online video service (OTT) Netflix is rapidly increasing its subscribers in the global streaming market, but it is facing growing pains in various places. The so-called 'digital tax' debate has flared up, arguing that companies must pay taxes in countries where they generate revenue. Meanwhile, in South Korea, the situation is becoming increasingly complicated as the digital tax controversy is accompanied by disputes over network usage fees.

◆"Netflix, pay taxes" demands from various countries= According to the Korea Creative Content Agency on the 4th, Indonesia's Ministry of Communication and Information Technology is preparing legislation to impose taxes on foreign companies headquartered overseas that generate revenue activities in Indonesia, targeting Netflix.

Johnny Plate, Indonesia's Minister of Communication and Information Technology, recently stated in a briefing, "Even if there is no business establishment based in Indonesia, we are discussing concrete measures to collect taxes from foreign online companies conducting economic activities here," adding, "OTT companies like Netflix are also included in the scope." According to Indonesia's private research firm Statista, the number of Netflix subscribers in Indonesia is expected to nearly double from about 480,000 last year to 900,000 this year.

In Europe, discussions to impose digital taxes on online operators including Netflix are accelerating. France passed a bill last year imposing up to a 5% tax on foreign operators with global sales exceeding 750 million euros (about 990 billion KRW) and annual sales over 25 million euros in France. Netflix falls under this criterion. The UK and Italy are also pushing for the introduction of a 'digital tax' targeting Netflix.

Image source=Yonhap News

◆South Korea, conflicts over digital tax and network usage fees= In South Korea, discussions continue to impose digital taxes on global online operators operating Korean branches such as Netflix Korea, Facebook Korea, and Google Korea.

Initially, tax rates based on global sales and domestic sales were considered, similar to European standards, but the situation rapidly changed as OECD member countries recently expanded the scope of digital taxes to include multinational manufacturers targeting consumers, such as smartphones and automobiles. The United States, which hosts global online operators, is insisting that digital taxes should also apply to manufacturing companies. If this so-called 'unified approach' is finalized, domestic companies like Samsung Electronics, LG Electronics, and Hyundai Motor Company, which operate related businesses overseas, will also have to pay digital taxes in the countries they enter. According to the Ministry of Economy and Finance, OECD member countries are expected to announce an agreement on digital tax standards within this year.

Kim Jae-hwan, Policy Director of the Korea Internet Corporations Association, pointed out, "Initially, the digital tax discussed domestically raised concerns about double taxation, where foreign online operators would pay taxes in the countries where they operate services, separate from corporate taxes paid in their home countries," adding, "Now, the issue has become more complex as domestic consumer-targeted businesses may have to pay taxes overseas, requiring a careful assessment of pros and cons."

Additionally, there are ongoing concerns that overseas content providers (CPs) such as YouTube and Netflix cause excessive traffic but do not pay internet network usage fees to domestic telecom companies. Domestic CPs, including portals and content startups that already pay network usage fees, are demanding fairness with overseas operators. Park Tae-hoon, CEO of domestic OTT service Watcha, stated, "Network usage fees are so high that domestic CPs are expanding their businesses overseas, such as in the United States," and added, "This weakens the competitiveness of startups." Related government agencies, including the Fair Trade Commission, Ministry of Science and ICT, and Korea Communications Commission, are reviewing these concerns.

This content was produced with the assistance of AI translation services.