Korean Push for own Domestic Servers Against Claims of US Tech Giants’ Tax Dodging

On November 28th (UTC+9), the  debate over the borderless nature of the internet and government sovereignty, titled “Borderless Internet vs. Internet Sovereignty”, was co-hosted by the US Law Center, Korea OpenNet, and the US Embassy in Seoul.

OpenNet, which led the debate, has been defending the freedom of expression on the internet in Korea. However, the very grounds OpenNet protects is up for debate due to its Google sponsorship. The Korean legislative branch, the National Assembly, lambasted the US tech giants Google and Facebook on October 10th for alleged underhanded business practices.

“I cannot disclose sales for individual countries, and we abide by tax law and international tax treaties in South Korea.” says Google Korea CEO John Lee

In the parliamentary audit, the two companies were questioned about possible tax evasion parliamentary audit by the Ministry of Science and ICT, and Broadcasting and Communications Committee. It was suggested that Google made more than the $1.74 billion USD through Google Play advertising, but the details of these numbers are deliberately withheld, causing the Korean government to lose large sums of tax revenue. The reason proclaimed, was that because the revenue made through Google Play is labeled as overseas, specific data is protected from Korean tax authorities. Google denies any wrong doing, saying it follows both international and domestic tax laws.

Heads of Google and Facebook selected for National Assembly audit Oct. 2018.

Mover over, their is an issue over Google and Facebook’s network fees. Korean companies such as Kakao and Naver that channel vast amounts of traffic, pay telecom companies millions of dollars per year in network usage fees. However, Google avoids paying these undesirable fees as an overseas business, instead, citing their cache servers stationed in the country which subsequently classifies this as a Korean service. However, when questioned about the number of cache servers, which is fundamental in calculating data usage, Google Korea CEO John Lee stated he could “not disclose” the details.

The National Assembly’s mistrust was further compounded after the failure of negotiating new networking fees with Facebook. The company is accused to have unilaterally altered its traffic routes to damage Korean users following the disagreement. The Korean government has since then made moves to protect itself from possible corporate retaliation.

Korean lawmakers are working to make possible the installation of domestic servers (Information and Communication Network Act) while putting a tax on advertisements from international content providers like Google and Facebook (VAT Law).

On November 28th, OpenNet, the US Embassy, ​​and Korea University opened a debate to argue the philosophical principles of the National Assembly’s plan for domestic servers.

Holding the global Internet trade into consideration, the organizers claim that localization of servers would ironically restrict freedom of expression in fear that Korea would allow its own internet companies to over-regulate the internet.

This argument some feel is a very real one in Korea. Last month after a lengthy investigation, HyeGyeong Kim, the wife of the conservative Gyeongi Province mayor, was found guilty of producing damaging fake news against opponents on Twitter under a different name. The ruling was controversial with the accused and supporters claiming the probe was strong arming by the ruling party.

Skeptics of the verdict and its potential politicized motives fear that the ruling party could adjust information on domestic servers to suit its own agenda. Supporters of the ruling however counter with the fact that despite the verdict made by Korean prosecutors, Twitter was not cooperative because it does not have a “realistic defamation crime” in the United States, suggesting that Korea’s sovereignty is restricted by other an overseas company. The position of Korea hosting domestic servers is an argument of sovereignty, but also one that finds itself running on party lines. 

“Localization of data reduces the size of the global internet and will increase the cost for consumers.” says Joshua Meltzer

In addition to the concern that information could face censorship, Joshua Meltzer, a senior researcher at the Brookings Institution, argues that by splitting data movement via server localization, it will reduce opportunities that a shared internet nurtures. By dividing up the internet, it may effectively sever the exchange of thoughts and ideals, a blow to innovation.

The act to create domestic servers was in part sparked by the alleged dubious behavior of international corporate tax dodging along with retaliatory measures by the accused.  However, the argument has since transcended into a philosophical debate of states rights and the freedom of collective information.

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