South Korea

Introduction

The first Transfer Pricing regulations were introduced in 1988. In the 1990s, there were significant amendments such as Section 482 and its regulations, as well as the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

In January 1996, the LCITA (Law for the Coordination of International Tax Affairs) was introduced to align the law and tax practices of Korea with international standards prior to joining the OECD. It is a separate statute governing Transfer Pricing and international taxation.

Korea’s Transfer Pricing regime was set out in the Law for the Coordination of International Tax Affairs (LCITA), and the interpretative and implementing rules in the Presidential Decree for the Implementation of the LCITA and the Ministry of Economy and Finance (MOEF) Ordinance of the LCITA. They were extensively amended in 2010 to reflect the amendments made in the Organization for Economic Cooperation and Development (OECD).

The National Tax Service (NTS) may issue administrative orders and rulings; however, these do not constitute a binding authority in Korea.

Related Parties

The term “special relationship” means any of the following:

A relationship between the parties to a transaction in which either thereof directly or indirectly owns at least 50% of the voting shares of the other party;
A relationship between the parties to a transaction in which a third party or a person prescribed by Presidential Decree, including relatives, directly or indirectly owns at least 50% of the voting shares of both parties;
The parties have a common interest through an investment of capital, trade in goods or services, grant of a loan, or similar financial provision. In addition, either party may substantially determine the commercial policy of the other party; or
Both parties have a common interest through an investment of capital, trade in goods or services, grant of a loan, or similar financial provision. In addition, a third party may substantially determine the commercial policies of both parties.

Transfer Pricing Methods

The LCITA lists the following methods for determining an Arm’s Length price:

Comparable Uncontrolled Price Method.
Cost Plus Method.
Resale Price Method.
Profit Split method.
Transactional Net Margin Method.

Other reasonable methods may be used if the above-mentioned methods are not feasible to apply.

Previously, traditional transactional methods were applied first, prioritizing them over transactional profit methods. However, the LCITA was revised at the end of 2010, abolishing this prioritization and facilitating taxpayers to select the most reasonable method among the available ones.

Transfer Pricing Documentation

The LCITA includes a reporting requirement for multinational companies in Korea to file a consolidated report (including the Local Report and Master File) concerning their cross-border related party transactions, not only affecting Korean companies but also foreign companies in Korea that meet all of the following conditions: (i) Annual gross sales of an individual entity exceeding KRW 100 thousand million, and (ii) International related party transactions exceeding KRW 50 thousand million per year.

Local Report and Master File

International related party transactions exceeding KRW 50,000 million and total sales revenue exceeding KRW 100 thousand million during the corresponding taxable year. It must be filed within 12 months after the end of the previous fiscal year.

Country-by-Country Report

Regarding the Country-by-Country Report, foreign parent companies with consolidated sales of KRW1 billion in the immediately preceding year must file it, provided that:

There is no requirement to file Country-by-Country reports in their home country; and
Their home country did not sign any Country-by-Country reporting treaty with Korea.

Transfer Pricing Penalties

The tax authority may request a taxpayer file data regarding its related-party transactions. If a taxpayer fails to file the data within the deadline without justification or files false data, this will be subject to an administrative fine not exceeding KRW 100 million.

Source: National Tax Service

<script>

  /*
 Author:       Wolfgang Hartl
 Author URI:   https://my-webcraftdesign.at/
 DOCS:         https://my-webcraftdesign.at/tutorial/read-more-read-less-toggle-in-bricksbuilder/
*/
function WCD_rmrl(options) {
  const readLessText = options.readLessText;
  const readMoreText = options.readMoreText;

  const rmrlContent = document.querySelectorAll("[wcd_rmrl_percentage]");

  rmrlContent.forEach((element) => {
    // INITIAL SETUP (define height, overflow and attributes)
    element.style.overflow = "hidden";
    element.setAttribute("wcd_rmrl_max", element.clientHeight + "px");

    var percentage = element.getAttribute("wcd_rmrl_percentage");
    var height = element.clientHeight;
    height = Math.round((height / 100) * percentage) + "px";

    element.setAttribute("wcd_rmrl_min", height);
    element.style.height = height;

    //ASSIGN CLICK EVENT TO TRIGGER
    trigger = element.nextSibling;
    trigger.addEventListener("click", function () {
      if (element.style.height == element.getAttribute("wcd_rmrl_min")) {
        element.style.height = element.getAttribute("wcd_rmrl_max");
        this.childNodes.forEach((node) => {
          if (node.nodeValue !== null) {
            node.nodeValue = readLessText;
          }
        });
      } else {
        element.style.height = element.getAttribute("wcd_rmrl_min");
        this.childNodes.forEach((node) => {
          if (node.nodeValue !== null) {
            node.nodeValue = readMoreText;
          }
        });
      }
    });
  });
}
  
  
  const rmrl = new WCD_rmrl({
    readLessText : 'Read Less',
    readMoreText : 'Read More',

  });
  
</script>