Procedures for Prior Approval of Arm's Length Price Computation Method

under the Adjustment of International Taxes Act in Korea

1.      Purpose

The system for Prior Approval of Arm's Length Price Computation Method under the Adjustment of International Taxes Act in Korea is intended to execute the transfer price taxation that the proper standard (Arm's Length price computation method, comparable parties, optimal adjustment, etc.) regarding the decision-making of arm's length price between related-parties transaction is regarded as an arm's length price which is pre-approved from National Tax Service (“NTS”), In other word, if the company is satisfied with the prerequisites required the standard assumption or conditions during the approval's period, it'll be approved as the optimal method which was approved by Commissioner of NTS.

2.      Required Documents for Prior Approval

2.1.Subjected Transaction: All of the transaction subjected to transfer price tax system as an international trade. However, if applied it, the applicant is no need to include their entire international trade, it's possible to apply their partial business only.

2.2.Subjected Documents for Prior Approval:

①   The most reasonable Arm's Length Price Computation Method which is adopted by company

②  The relevant and necessary documents which will prove the most reasonable Arm's Length Price

2.3.Due date of submission: The last day of initial taxable year during the application period of Arm's Length Price computation method.

2.4.Applied Period for Prior Approval: It depends on the applicant which can be chosen by company(Ex. 5 years or 10 years )

2.5.Notice of Approval ( Approval Period ): within 2 years after the application

2.6.Follow-up measures

① the portion for the lapse of the time period: If the prior reported portion with unilateral Arm's Length Price, company have to submit the claim of reassessment or the Amended Tax Return within two months after the notice of Prior Approval

② the portion for the unexpired time period: It have to reflect and report the approval notice within the due date of Final Return. The four (4) copies of annual TP report have to submit to NTS's commissioner within six (6) months after the due date of filing return.

2.7.Required Documents

  ① Prior Approval Application form which was written the subjected period, subjected international transaction, trading parties and arm's length price computation method.

  ② The explanation information regarding the business history of trading parties, Business overview, organizational chart, shareholding structure and etc.

  ③ The last three year's Financial statement of trading parties, the copies of tax filing report, the contract copies of international trade and the related documets.

     ④ The information which are supported specifically as bellows for the detailed computation method of the applied arm's length price

a)      Comparable evaluation method and the adjustment method of each factor's difference.

b)      If company want to use the comparable party's financial statement, company have to explain the difference of Accounting Standards and it's adjusting method.

c)      To describe the composition standard if it's used financial data and costing date which are separated by each transaction.

d)      If the comparable price are more than two (2) entities, have to explain the identified scope of arm's length price and the computation methods.

e)      The explanation date for the prerequisite conditions or assumption of arm's length price computation method

⑤ The explanation date for the adjustment method of difference between the actual transaction price and arm's length price.

⑥ If the arm's length price for the prior approval application is started both countries as a mutual agreement, it's required the application of mutual agreement.

⑦ Other relevant documents for the arm's length price computation which are applied for the prior approval.

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