Asia-Pacific Transfer Pricing Handbook

Chapter Twenty-Eight

South Korea Transfer Pricing

Taxpayers In korea are facing the increasing wrath of their tax authorities, in part because of increasing regulations in Korea and in part because of the breathtaking transfer pricing developments in Asia as a whole.1

BACKGROUND

At the outset, the reader should note that the transfer pricing process in Korea is well established and sophisticated; it is the second oldest transfer pricing regime in Asia after Japan. Furthermore, Korea is a member of the Organisation for Economic Co-operation and Development (OECD), the only such country in Asia after Japan, as of the mid-2010s. As a legal matter, Korean transfer pricing is based on the Law for the Coordination of International Tax Affairs and on a presidential enforcement decree promulgated in 2006. The Korean approach provides that “substance” takes precedence over “form,” and provides for intergroup service deductions. These provisions address the advance pricing agreements (APAs) program, provide for cost contribution agreements, and provide for an increasing role for Korea’s tax collector, the National Tax Service (NTS).

RELATED PARTY TRANSFER PRICING RELATIONSHIPS IN KOREA

The Law for the Coordination of International Tax Affairs (LCITA) gives the tax authorities these powers to undertake the following to achieve arm’s length pricing:

• The power to adjust the transfer price based on an arm’s length price
• The power to determine or recalculate a resident’s taxable income when ...