SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
7.5 APA Application Deadlines A taxpayer may file an application for an APA to the NTS at any point up to the day before the commence - ment of the first year of the proposed covered period. For example, if a taxpayer applies for a five-year APA to run from 1 January 2027 to 31 December 2031, the application must be filed by 31 December 2026. However, in order to file the application in time, the preparation for the APA should proceed at least six months to one year before in light of the time required to complete a pre-filing meeting and secure a go- ahead sign from the NTS. 7.6 APA User Fees There is no user fee that a taxpayer is required to pay to the NTS in connection with an APA application. 7.7 Duration of APA Cover There is no statutory or other legal limit as to how many prospective years an APA can cover; however, in practice, taxpayers generally propose five-year cov - erage in their application. 7.8 Retroactive Effect for APAs Roll-Back Provision Taxpayers can request in their APA application that their APA takes retroactive effect. In the case of APA applications filed before 1 Janu - ary 2021, a roll-back provision could allow the APA to cover a period of up to five years immediately preced - ing the covered period, whereas for a unilateral APA the limit for a roll-back is up to three years. For APA applications filed after 1 January 2021, a roll- back provision for a bilateral APA could allow the APA to cover a period of up to seven years immediately preceding the covered period under the APA, whereas for a unilateral APA the limit for a roll-back is up to five years. APA and Suspension of Tax Audit In general, a tax audit is not suspended merely by vir - tue of the taxpayer under audit filing an APA applica - tion. The NTS head office, however, may suspend its audit on transactions during the APA-covered period if the taxpayer appropriately filed an APA on the trans -
actions at issue before receiving pre-notice of a tax audit. More specifically, where APA negotiations have reached a meaningful stage – for example, at least to the level of a competent authority meeting – the NTS may, through internal co-ordination at headquarters, suspend the TP audit on the transactions under APA negotiation. That said, such suspension is typically limited to the TP items within the APA’s scope, and the audit may continue with respect to all other tax issues and periods not covered by the APA. 8. Penalties and Documentation 8.1 Transfer Pricing Penalties and Defences There are three main types of TP-related information that the NTS is entitled to request for submission. TP-Related Forms A taxpayer engaged in international transactions with foreign related parties must submit the following infor - mation within six months from the end of each fiscal year: • an international transaction statement for each foreign related party (submission is waived if the transaction amount does not reach a certain threshold); • a summary income statement of each foreign related party that has cross-border transactions with a Korean taxpayer (submission is waived if the transaction amount does not reach a certain threshold); and • a form stating the TP method selected and reasons for each related-party transaction – there are sepa - rate forms for tangible property transactions, intan - gible property transactions, service transactions and CCAs (but submission is waived if the transac - tion amount does not reach a certain threshold). If any part of the international transaction statement is not submitted or is false, a fine of KRW5 million may be imposed on each foreign related party with which the Korean taxpayer had a transaction during the year.
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