Korea: Transfer pricing-related amendments in tax legislation

Korea: Transfer pricing-related amendments

Transfer pricing-related measures are included in tax legislation approved by the National Assembly in December 2020, and implementing measures that are scheduled to be finalized in February 2021.


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Among the transfer pricing amendments are the following items:

  • The definition of a foreign related party has been expanded to take into consideration family affiliation for purposes of calculating third-party ownership. In addition, shares directly or indirectly owned by relatives of a third party are to be included in third-party ownership calculation. For these purposes, “related party” is defined as a party to a transaction who directly or indirectly owns 50% or more of voting shares of the other party to the transaction, or a third party who directly or indirectly owns 50% or more of voting shares of both parties to a transaction. This is effective for business years beginning on or after 1 January 2021.
  • There is an extension of the retroactive application period for advance pricing agreements (APAs). These are effective for APAs submitted on or after 1 January 2021.
    • For bilateral APAs, the extension is increased to seven years (from five years).
    • For unilateral APAs, the extension is increased to five years (from three years).

Concerning mutual agreement procedure (MAP) measures:

  • Under the prior tax law, if a final court decision is rendered, a MAP cannot be initiated, and a MAP in progress is automatically terminated. According to the amendment, even if a final court decision is rendered, to the extent the tax authorities of the other contracting state need to make a corresponding tax adjustment regarding the related party in that country, a MAP can be initiated and a MAP in progress is not automatically terminated. This is effective for a MAP initiated or a MAP for which final court decision is rendered on or after 1 January 2021.
  • Under the prior tax law, even if a mutual agreement is reached through a MAP, a tax appeal for the relevant issue can separately progress. According to the amendment, in order for a mutual agreement to be reached, the taxpayer who has applied for the MAP must accept the mutual agreement and withdraw any tax appeal regarding the relevant issue.
  • Under the amendment, a taxpayer can apply for arbitration by an arbitration committee if the matter is not resolved after initiating a MAP and during the period specified in the applicable treaty. However, in order to enforce the amendment, the revision of the tax treaty may be required.

Read a February 2021 report [PDF 936 KB] prepared by the KPMG member firm in Korea

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