|Kim & Chang|
|Lee & Ko|
|Yoon & Yang|
|Firms to wach|
|Bae, Kim & Lee|
Korea has one of the most advanced tax and transfer pricing regimes in the region, where many of the regulations addressed in the BEPS project have already been functioning in the market and enforced by the government. However, the importance of transfer pricing has only increased in the Korean market as a result of the BEPS discussions.
Korea is very active in implementing major BEPS recommendations, particularly Action 13 requiring local and master files, which has been effective since January 1 2016, with the first submissions due March 31 2017.
"The challenge here is the short deadline for filing tax returns, within three months of fiscal year end, and the requirement for documentation to be submitted in Korean. While taxpayers may request extensions, it's unclear what criteria will apply to grant an extension," said Henry An of Samil PwC.
"It's safe to say that many of the companies subject to the new documentation requirements have not prepared transfer pricing documentation contemporaneously in the past. Hence, there's a significant amount of transfer pricing documentation work being performed in the market with a strong sense of urgency," he added.
The Korean Ministry of Strategy and Finance is planning additional legislation both this year and in the future to adopt additional BEPS guidelines. "Major accounting firms have newly recruited more transfer pricing staff, expecting the increased work burden related to transfer pricing documentation preparation," said Shin Jong Kang, transfer pricing leader at Yoon & Yang.
The Korean tax authorities have continued to be aggressive in tax audits and disputes, and transfer pricing seems to be one of the largest issues affecting audits and disputes. "Advance pricing agreements (APAs) have been very popular in recent years as a means to avoid unreasonable tax assessments from increasingly aggressive tax auditors. This has led to complaints by field auditors in search of revenue sources and higher hurdles to obtain National Tax Service approval to proceed with unilateral APAs," said Jeremy Everett of Kim & Chang.
Transfer pricing is a major concern for taxpayers from both a corporate income tax perspective as well as customs perspective, as it is difficult to align TP policies with the differing rules and objectives of both. However, Kang suggested another option in Korea is to obtain advance customs valuation agreements (ACVA) which are the customs equivalent of APAs.
(As of January 1 2016)
|Corporate income tax rate||22% (a)(b)|
|Capital gains tax rate||22% (a)(b)(c)|
|Branch income tax rate||22% (a)(b)|
|Branch profits tax rate||n.a. (d)|
|Royalties from patents, know-how, etc.||0 (e)|
Net operating losses (years)
Source: EY 2016 Worldwide Corporate Tax Guide