SOUTH KOREA Law and Practice Contributed by: Heejun Choi, Kyoung-Ho Kim, Sungsok Yang, Eunjee Kim and Kwang-Chun Park, Dentons Lee
• the profit split method; • the transactional net margin method (TNMM); and • other appropriate methods where these cannot be reliably applied. The most appropriate method is selected having regard to the nature of the transaction and the availa - bility, reliability and comparability of data. The Korean tax authorities bear the burden of justifying a trans - fer pricing adjustment, although taxpayers may be required to substantiate their pricing once an arm’s- length range has been established. Korea also operates an Advance Pricing Agreement (“APA”) programme. APAs may be unilateral, bilateral or multilateral, with bilateral and multilateral APAs generally pursued through mutual agreement proce - dures under applicable tax treaties. Depending on the size of the multinational group and the volume of related-party transactions, taxpayers may be required to submit transfer pricing disclosures, a Master File, a Local File and a Country-by-Country Report (CbCR), while maintaining supporting docu - mentation. Although the OECD Transfer Pricing Guidelines do not have direct legal force in Korea, they are frequently relied upon by the tax authorities and courts as per - suasive guidance. 5.7 Anti-Evasion Rules Korea has a comprehensive anti-avoidance regime comprising both a general anti-avoidance rule (“GAAR”) and specific anti-avoidance rules (“SAARs”). At the general level, Korean tax law applies the sub - stance-over-form principle under the Framework Act on National Taxes. Taxation is based on the economic substance of income, assets, transactions and legal arrangements rather than their legal form. Where the nominal recipient differs from the true economic beneficiary or transactions are structured primarily to obtain inappropriate tax benefits, the tax authorities may recharacterise the arrangement according to its economic substance. In practice, this principle func - tions as Korea’s principal GAAR.
Specific anti-avoidance rules apply to both domes - tic and international transactions. Domestically, the Corporate Income Tax Act permits the tax authorities to disregard related-party transactions that unreason - ably reduce the taxpayer’s tax burden and recompute taxable income on an arm’s-length or objectively rea - sonable basis. For international transactions, the International Tax Coordination Law provides for: • transfer pricing rules; • thin capitalisation rules; • earnings-based interest limitation rules; • controlled foreign corporation (CFC) rules; and • anti-treaty-shopping and other anti-abuse provi - sions. Korea also applies anti-avoidance rules to nominee arrangements and beneficial ownership, including deemed-gift and beneficial ownership provisions designed to prevent tax avoidance through nominal ownership structures. In addition, Korea has implemented OECD BEPS measures, including transfer pricing documentation requirements, interest limitation rules and the Pillar Two global minimum tax framework. Although the tax authorities may challenge arrange - ments lacking genuine economic substance or busi - ness purpose, taxpayers remain free to organise their affairs in a tax-efficient manner. 5.8 Tariffs Korea imposes customs duties primarily under the Customs Act. Duties are generally levied on imported goods based on tariff classification, customs value and country of origin. The tariff regime comprises basic statutory tariffs, adjusted and seasonal tariffs, tariff-rate quotas, safe - guards, anti-dumping, countervailing and retaliatory duties, together with preferential rates under free trade agreements (“FTAs”). Where multiple rates apply, pri - ority is determined under the Customs Act and related regulations.
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