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Transfer Price

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Overview of Transfer Price in Korea(3)

Transfer Price System VS
the regulation of the denial of wrongful calculation


Transfer Price

 Denial of wrongful calculation

Subject of application

Regardless of tax evasion from international trade between foreign related parties, the profit was shifted from which transaction price is lower or higher than the arm's length price.   

Ex) Transfer price system is not required the pre-requisitions which is intended the tax evasion or realization of taxable income from foreign related parties.

Applied on the trade which was decreased the local tax burden between local special related parties.

* If the tax burden is significantly decreased, the examples are stipulated on the Enforcement Decree of Corporation Tax Act. Article 88.

Criteria of Special relationship

    Based on Shareholding : more than 50 % directly or indirectly

    Practically controlling the relationship (Management or monopoly supply, etc )

    The person concerned in business relationship

     Mainly standard of judgment from number of share but do not apply the % of share.( Applied the share is lower than 50%)

     The person who can control the actual management power.

How to calculate the Tax Base

Based on the arm's length price.

* The arm's length Price is stipulated on the tax Act and it's kind of estimated price(Judged price)

Based on the Market Price

* Market Price is stipulated on Enforcement Decree Article 89.

Discretionary of Tax Authority

The Tax Authority has a range of discretion power based their judgments from Advance Price Agreement, Judgment of arm's length Price and proper judgments from data submission.

No discretion power from Tax Authority because the example of illegal tax evasion from denial of wrongful calculation is stipulated on the Tax Act.

Obligation of data submission

Company have to bear the obligation of special information and if do not, have to pay the penalty. Data submission is compulsory.

Generally give an obligation of information submission however it's coordination process.

Income disposition

Applied Tax Act Article 9.

Local company is applied only case if the transferred income is not returned to Korea. Foreign entity is applied only Corporation Tax Act Article 67.

Applied the Corporation Tax Act Article 67.

Surtax of understated income amount

Surtax Exemption of understated report if the both parties are proved that they do not have any misleading activities based on the mutual agreement.

Imposed on the surtax of understated amount.


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