SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
administration, and has joined a joint declaration rec - ognising ICAP as an official framework. However, the Korean tax administration appears to express reservations regarding the efficacy of ICAP, primarily due to its non-binding nature. In addition, Korean taxpayers generally tend to refrain from vol - untarily disclosing their positions in the absence of a mechanism that provides legally binding certainty from the tax authorities. 7. Advance Pricing Agreements (APAs) 7.1 Programmes Allowing for Rulings Regarding Transfer Pricing History of the Korean APA Programme Korea launched its APA programme in 1995, and its first APA case was concluded with the USA in May 1997. Since then, of 1,047 APA applications (both uni - lateral and bilateral), 809 cases had been concluded as of 31 December 2024. As is apparent from these statistics, the Korean APA programme has been very active since its inception, and it is expected that the demand for APAs will gradually increase, as many Korean companies set up their manufacturing and distribution entities in other parts of the world. Types of APAs Korean taxpayers can apply for a unilateral or bilat - eral APA, depending on the objective of the taxpay - ers and availability of a MAP provision (ie, a bilateral APA) per pertinent tax treaty. However, it is noteworthy that, even though the NTS still accepts unilateral APA applications due to the shorter processing time, etc, unilateral APAs are somewhat less favoured due to their limitation as a double tax prevention measure, unless taxpayers have a particular reason to pursue a unilateral APA. 7.2 Administration of Programmes A starting point for processing APAs in Korea is to file an application for a pre-filing meeting with the NTS officers at the APA/MAP office, which sits within the International Taxation Bureau of the NTS Head Office. After successfully completing a pre-filing meeting and receiving a go-ahead sign from the APA/MAP office, taxpayers become eligible to file an official APA appli -
cation to the APA/MAP office. Once an APA applica - tion is filed and the negotiation with the competent authority of the other contracting state is completed, the commissioner of the NTS has the final authority to approve APAs. 7.3 Co-Ordination Between the APA Process and Mutual Agreement Procedures As with many other countries, APA and MAP cases are assigned to sub-units within the APA/MAP team of the NTS, based on the counterparty’s jurisdiction. Usually, one sub-unit is responsible for a few different jurisdictions in relation to APAs and MAPs. Since APA and MAP cases are assigned within the APA/MAP office based in the counterparty jurisdic - tion, APA and MAP matters may, in appropriate cases, be reviewed in parallel. Where the fact pattern and issues materially overlap, the matters are sometimes co-ordinated and in some instances effectively con - solidated, which can result in a more efficient timeline. Although there is no statutory requirement that man - dates co-ordination between NTS officials handling APAs and those handling MAPs, as a practical matter co-ordination within the APA/MAP office does occur. In particular, where the counterparty jurisdiction is the same, the matter is typically handled by the same country team, which facilitates internal alignment and reduces duplication of fact-finding. 7.4 Limits on Taxpayers/Transactions Eligible for an APA Technically, there is no restriction on which taxpay - ers or transactions are eligible for an APA, as long as the taxpayer in question is a Korean legal entity or a branch/permanent establishment of a foreign corpo - ration. In practice, however, only taxpayers with a material amount of cross-border related-party transactions find APAs useful, in light of the potential tax exposure that could arise from TP-based assessment. There is no rule of thumb as to what constitutes a “mate - rial amount”, as there can be substantial variation, depending on the industry and individual companies.
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