As the United States and Europe clash again over taxes, trade tensions between the U.S. and the EU are rising once more. (Photo: Solution News AI image illustration)
The United States and Europe are back at loggerheads over taxes. The spark is the “digital tax.” U.S. President Donald Trump has raised the prospect of a 100% tariff on countries that impose taxes on American IT companies.
On the 26th (local time), President Trump posted on Truth Social: “Any country that imposes a digital tax on U.S. companies will immediately face a 100% tariff on all goods entering the United States.”
What stands out even more is that even existing trade agreements would not be exempt. Trump made clear: “Whether a deal is being implemented or has been signed, this tariff takes precedence.”
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Why digital tax is called the “Google tax”
Many readers may not be familiar with digital tax. In simple terms, big tech companies such as Google, Apple, Meta, and Amazon earn money all over the world. But their physical bases, such as offices and factories, are mostly in their home countries.
Corporate tax is usually paid where the business establishment is located. That means even in countries where they generate huge sales, they pay almost no tax. In other words, there is a mismatch between where revenue is generated and where tax is paid.
South Korea has seen this before. Netflix Korea earned 415.5 billion won in 2020, but paid only 2.2 billion won in corporate tax that year.
European countries sought to close this loophole by taxing sales directly. France moved first in 2019 with a 3% rate. The United Kingdom introduced a 2% levy in 2020. Italy, Spain, and Turkey also adopted similar systems. Because the targets were mainly U.S. big tech firms, the taxes earned nicknames such as the “Google tax” and “GAFA tax.”
The United States was not going to stay still.
Multilateral agreement stalled, and everyone began fending for themselves
There had originally been another solution: an international coordination framework created by the OECD and the G20. It was built on two pillars. One, called “Pillar One,” would allocate taxing rights to the countries where revenue is generated. The other, “Pillar Two,” would require businesses to pay at least 15% tax regardless of where they operate.
If Pillar One were implemented, individual digital taxes in each country would be abolished. The idea was to resolve the conflict through a multilateral agreement.
That framework began to unravel. In 2025, the first year of President Trump’s return to office, the United States pulled out of the negotiations. The U.S. Congress has long opposed a system that makes American big tech companies the target.
As the multilateral deal stalled, countries returned to unilateral digital taxes. The United States responded with tariffs. A “every country for itself” structure took hold.
The trend diverged by country. Canada tried to push ahead with a digital tax last year, but withdrew under U.S. pressure. The United Kingdom is also reportedly considering scrapping its digital tax. France, by contrast, has refused to back down. President Emmanuel Macron made it clear at last week’s G7 summit that France would not withdraw the tax.
The European Union has also pushed back. Olof Gill, a spokesperson for the European Commission, said, “Unilateral trade retaliation against legitimate policies cannot be justified.” He added that the EU would “respond swiftly and firmly to protect regulatory autonomy.”
Behind this lies an agreement reached last year. The United States and the EU signed a trade deal limiting tariffs on goods to 15%, and the European Parliament approved implementing legislation this month. Both sides are set to begin implementation on July 4. Digital tax was left out of that agreement, which is why Trump’s latest threat has raised concern that the deal could be undermined.
South Korea is not the target, but it is too early to relax
South Korea has so far escaped the spotlight because it does not have its own digital tax. It has only participated within the OECD multilateral framework. For now, the United States has little ground to impose a 100% tariff on South Korea over digital tax.
The problem comes next. If Pillar One is implemented, Samsung Electronics and SK hynix would be included among the taxable companies. The standard applies to global companies with consolidated revenue exceeding 20 billion euros, or about 27 trillion won, and an operating margin above 10%. Both companies meet those criteria.
For South Korea, the upside is gaining new taxing rights over giant IT firms such as Google and Netflix. At the same time, however, Samsung and SK could face higher taxes abroad.
The government is also responding. Early this year, the Ministry of Economy and Finance finalized a plan to revise the global minimum tax. The idea is to collect, at home first, taxes that would otherwise be transferred to other countries, thereby protecting the tax base.
The bigger variable is the trade environment. South Korea’s economy is highly dependent on exports to the United States. In June, exports surged on strong demand for AI semiconductors. In such a climate, if a tariff war between the U.S. and Europe spreads, it is hard to predict where the fallout will land. Experts warn that if retaliatory tariffs broaden, companies will face heavier export burdens and consumer prices could rise.
For now, however, the market remains calm. There are doubts about whether Trump’s threat will actually be carried out. The U.S. Supreme Court this year blocked the Trump administration’s reciprocal tariffs. It is also not yet clear under what legal basis a 100% tariff could be imposed. That is why some foreign media compared the threat to a “toothless bluff.”
In the end, the issue comes down to one thing: the clash between the principle that taxes should be paid where value is created and the interest in protecting domestic big tech companies. Analysts say the deadlock can only be broken if stalled multilateral negotiations start moving again.
For South Korea, the key is how to protect both its tax base and exports within the multilateral negotiation framework, rather than being swept up by either side. The turning point in the new tax order of the digital era is drawing near.