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Korea: Country-by-country reporting, transfer pricing reporting proposed changes

Korea: CbC reporting, transfer pricing reporting

South Korea’s Ministry of Strategy and Finance on 28 December 2016 released a proposal of details with respect to country-by-country (CbC) reporting.


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The proposal is known in English as: “Proposed presidential enforcement decree of the law for the coordination of international tax affairs” or “PED of LCITA”. It would provide certain additional rules as well as penalty provisions relating to the Master file, Local file, and CbC reporting requirements (collectively, these are referred to as the “combined report of international transactions”). 

The proposal also would introduce a deemed interest rate for intercompany loan transactions.

CbC reporting, entity notification form requirement

Article 21-2 of the proposed enforcement decree would require that there be a “reporting entity notification form” filed concerning the CbC report. 

Under Article 21-2, multinational entities (MNEs) operating in Korea would be required to submit a “reporting entity notification form” in advance, and on that form, the MNEs would need to specify what entity, and in what jurisdiction, the CbC report would be submitted. While the final CbC report would be due within 12 months of the fiscal year-end, the reporting entity notification form would be required to be submitted within six months of the fiscal year-end (i.e., for fiscal years ending 31 December, the deadline would be 30 June of the following year) by the “ultimate parent company” located in Korea (outbound) and a domestic entity or branch whose parent company resides in a foreign country (inbound).

If the parent company resides in a country that does not require a CbC report, or does not facilitate the exchange of the CbC report, the Korean entity would be required to submit the CbC report.

Proposed amendment to penalties, Master file, Local file, CbC reporting

Under current rules, if any part of the required “combined report of international transactions” was required but not submitted and/or was falsely described, a penalty in the amount of KRW 30 million would apply. Under the proposal, this penalty provision would be revised so that each report would be subject to a separate penalty of KRW 10 million. For example, if the MNE satisfied the threshold requirement for submitting the Master file and Local file, but only submitted the Local file, the penalty would be KRW 10 million (instead of KRW 30 million).

Detailed statement of cross-border transaction penalties

Under current rules, there is a requirement for a detailed statement of cross-border transactions. The penalty for not submitting one or for falsely providing any information in the statement has been KRW 10 million. As proposed, if a taxpayer is missing a detailed statement of cross-border transactions for one entity, the taxpayer would be subject to a separate penalty of KRW 5 million. In other words, a taxpayer would be separately subject to a penalty in the amount of KRW 5 million per each missing entity. The penalty for both the “combined report of international transactions” and a detailed statement of the cross-border transactions could not be more than KRW 100 million in total.

Deemed interest rate for intercompany loan transactions

Article 6-7 would be updated with respect to intercompany loan transactions. Originally, the measure stated that the arm’s length interest rate for intercompany loan transactions is an interest rate applicable or deemed as applicable to ordinary monetary transactions between unrelated parties, taking the following matters into consideration: (1) the amount of the obligation; (2) maturity of the obligation; (3) whether the obligation is secured; and (4) the credit rating of the debtor. 

As proposed, the measure would be revised to reflect that a deemed interest rate, as stipulated in the enforcement rules, could be applied considering the country standard interest rate and procurement interest rate. As a result, a taxpayer could select either approach to apply an arm’s length interest rate, and this treatment would allow taxpayers to diversify the calculation methods available for an arm’s length interest rate.

This proposed change would be effective for an intercompany loan transaction after the date of enforcement.

Outline of proposed requirements

Details of the proposed legislation are outlined as follows: 

  • Affected provisions: Article 11 of LCITA, Article 21-2 and 51-1 of PED of LCITA.
  • Scope of application: Domestic and foreign corporations with permanent establishments in Korea, and those conducting cross-border related-party transactions of an amount above a certain threshold would be subject to the filing requirements.
  • Required documents: A full report of “cross-border related-party transactions” would include the Master file, Local file, and CbC report. The threshold for the Master and Local file would be: (1) cross-border related party transactions (including financial transactions; i.e. intercompany loan) in excess of KRW 50 billion; and (2) sales revenue in excess of KRW 100 billion. The threshold for CbC reporting would be consolidated sales of KRW 1 trillion (approximately U.S. $1 billion).
  • Due date: The reports would be due within 12 months of the fiscal year-end (i.e., for fiscal years ending 31 December, the deadline would be 31 December of the following year). The CbC reporting entity notification form would be due within six months of the fiscal year-end (i.e., for fiscal years ending 31 December, the deadline would be 30 June of the following year).
  • Penalties: Failure to submit the Master file, Local file, and CbC report would incur a KRW 10 million penalty for each report that was to have been submitted.
  • Detailed statement of cross-border transaction penalties: Failure to include detailed transactions for any entity upon corporate tax filing would result in a penalty of KRW 5 million per entity.


For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in South Korea:

Gil Won Kang | +82-2-2112-0907 | gilwonkang@kr.kpmg.com

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