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Transfer Price

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Subject
Overview of Transfer Price in Korea(2)
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2014-04-28
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1.      Scope of foreign special related parties

(1)   A relationship in which either party to a transaction owns directly or indirectly 50 percent or more of the voting shares of the other party;

(2)   A relationship between both trade parties, in cases where a third party owns directly or indirectly 50 percent or more of their respective voting shares;

(3)   A relationship in which parties to a transaction have common interests through an investment in capital, a transaction of goods or service, a grant of loan, etc. and either party has a power in fact to make a decision on the business policy of the other party; and

(4)   A relationship between both parties to a transaction, in cases where the parties to the transaction have common interests through an investment in capital, a transaction of goods or service, a grant of loan, etc. and a third party has a power in fact to make a decision on the business policies of the both parties;

 

Method of calculating the arm's length price

The arm's length price shall be calculated by the most reasonable method among those falling under any of the following subparagraphs: Provided that the method under subparagraph 4 shall be limited to the case where the arm's length price may not be computed by the methods under subparagraphs 1 through 3:

 

1. Method with a comparable third party's price:
A method to regard a trade price between the independent unrelated parties in a trade situation similar to the relevant trade, as the arm's length price in the international trade between a resident and a foreign related party;

 

2. Method with a resale price:
 Where a resident and a foreign related party trades the asset, and then the purchaser of relevant asset, who is one party to such trade, resells it to the unrelated parties, a method to regard the amount computed by deducting the amount viewable as normal profits of the purchaser from such a resale price, as the arm's length price;

 

3. Cost plus method:
 A method to regard the price computed by adding the amount viewable as normal profits of the seller of asset or the service provider to the cost incurred in the course of production or sale of the assets or provision of service, as the arm's length price in the international trade between a resident and a foreign related party; and

 

4. Profit-split Method

   When the international transactions between residents and foreign related parties take place, the realized transaction profit which is measured the reasonable basis by both parties have to divide by the relative contribution rate and then the transaction price based on the allocated profit will be the arm's length price.

 

5. Method of trade net profit

  When the international transactions between residents and foreign related parties take place, the transaction price will be the arm's length price based on the net profit rate which is normally calculated and realized the similar trade between residents and non-related parties.

 

 6. Other methods deemed to be reasonable, as prescribed by Presidential Decree.

 

(2) Definite matters as to the arm's length price computation method under paragraph (1) shall be prescribed by Presidential Decree.

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