Comprehensive transfer pricing – 15 Asia Pacific countries – 400 pages: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, Vietnam.
Transfer Pricing ASIA
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Transfer Pricing Asia Overview

Transfer Pricing Asia
Robert Feinschreiber, Esq.
Attorney and Counselor
Margaret Kent, Esq.
Attorney and Counselor
TransferPricingConsortium.com

South Korea Transfer Pricing

Related-party transfer pricing relationships in Korea are based on stock ownership or the presence of economic interest and control, both termed “special relationships.” Stock ownership related-party transfer pricing relationships apply through direct ownership, i.e. to have 50 percent ownership of one party over the other party, or through indirect ownership, i.e. 50 percent ownership through a johap (partnership) or trust. Korea provides for “substantial control” though the “equity ownership test” or, at the same time, the parties share the same interest.

The taxpayer must apply these transfer pricing methods in secquencial order. Korea applies “strict priority” to these transfer pricing methods. Korea does not apply the “best method” selection process, but instead requires the taxpayer to select the “most reasonable method applicable to the situation.”

  • Korea previously permitted the Berry method (gross profit divided by operating expenses) as a transfer pricing methods
  • Korea applies the profit split method: a proportion based on the contribution that each party makes toward profits.
  • The transactional net margin method is based on the following three ratios: profits to assets, operating profits to turnovers, and profits to equity

The NTS has an international tax division, that has a transfer pricing team of experts. The NTS has its own database, makes use of the country’s Customs data and VAT data, and makes use of secret comparables. The taxpayer might obtain the components of the secret comparables.

The Korea’s transfer pricing selection is based in the “most reasonable method:”

  • The “level of comparability” or actual economic situation” standard applies to address economic assumptions.
  • The Korea’s National Tax Service, unlike many other tax jurisdictions, does not look at for comparative purposes the assets the taxpayer employs.
  • The party is to examine economic considerations, both the “economic environment” of the market and the “degree of change in market conditions.”

Consider also:

  • Korea permits a taxpayer to have a unilateral APA or a bilateral APA. The NTS may grant an APA without undergoing an MAP for the taxpayer’s convenience.
  • The Law for the Coordination of International Tax Affairs applies to failure to provide specific data.
  • The NTS contains thin capitalization rules.
  • The Korean anti-tax haven provisions contain a shareholder percentage requirement (20 percent), a definition of a “tax haven (a rate of 15 percent or less)” an active business requirement, and a size requirement (actual accrued income of 100 million or won or less).
  • Inheritance and Gift Tax Law in Korea imposes a gift tax on certain transfers.


Feinschreiber & Associates
Robert Feinschreiber & Margaret Kent

1121 Crandon Blvd. F301
Key Biscayne, FL 33149
Primary Phone: 305.361.5800
or 305.505.9200
Fax: 305.365.2276
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