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Korea: Transfer pricing-related proposals in 2019 tax revision legislation

Korea: Transfer pricing-related proposals

Proposed tax revision legislation for 2019—unveiled in late July 2018 and then approved by the Cabinet Council in late August 2018—includes measures relating to transfer pricing.


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The legislation would be enacted with passage by the National Assembly (expected in September 2018), and once enacted, most of the legislative measures would be effective 1 January 2019.

Under current measures in the Korean tax law, transactions with related parties must be conducted at arm’s length prices (defined as the price that would be acceptable to a transaction between unrelated parties, taking into account certain conditions of the transaction such as the nature of the goods or services, economic circumstances, and other related matters).

The proposed tax revision would add the following requirements in order to enhance the effectiveness of the arm’s length principle:

  • The tax authorities are to have a clear understanding of the transaction by considering the commercial or financial relationship, contract conditions, and other related matters between a Korean domestic taxpayer and its foreign related parties and are to determine whether such a transaction is reasonable.
  • If the related-party transaction lacks reasonable commercial grounds (compared to transactions with non-related third parties), such a transaction must either be excluded or substituted with another transaction in determining the arm’s length price.

KPMG observation

It is expected that the tax authority would apply strict standards in determining the arm’s length price under the proposed tax provision. Also, there has been no announcement with regards to the effective date.

MAP proposals

Under current rules, the Minister of Strategy and Finance may publicly announce the results of a mutual agreement procedure (MAP) at closing. In an effort to enhance the transparency of the MAP process, the proposed tax revision introduces a new concept that would require the public disclosure and announcement of the results of MAPs related to the adoption or interpretation of a tax treaty provision.

This provision would be effective for MAP results concluded on or after 1 January 2019.


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

Jee-Won Shin |

Yoo-Jin Jung |

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