SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing Korea is not a common law country that follows the doctrine of precedent (or stare decisis). Instead, Korea has adopted the continental legal system. Hence, although in practice Supreme Court decisions are generally followed by lower courts, Supreme Court decisions do not create law in the form of legally bind - ing precedents, as would be the case in a common law system. Accordingly, although Supreme Court decisions are influential, the NTS is not obliged to follow them and sometimes differs from the Supreme Court in its interpretation of the law. However, the NTS will gen - erally acquiesce after several consistent and uniform Supreme Court decisions have been issued. Moreover, in practice, tax auditors are generally reluc - tant to progress cases to the court level unless there is some particular reason to do so, and prefer to negoti - ate and settle at a tax audit level. Hence, a majority of disputed cases involving TP issues are resolved at a tax audit level, and this results in relatively few TP court cases compared to common law countries. 14.2 Significant Court Rulings Company Y Company Y is a Korean corporation engaged in domestic and international import/export business, agency services, and the manufacture and sale of clothing. Company Y established several subsidiar - ies in Vietnam (hereinafter referred to as “Vietnamese Subsidiaries”), in which it holds 100% of the issued shares. Company Y received orders from approximately 40 famous international outdoor and sports brand buyers (hereinafter referred to as “Buyers”). Company Y then requested the Vietnamese Subsidiaries to manufac - ture the products, purchased the finished garments (such as woven clothing) from these subsidiaries and sold them to the Buyers (hereinafter referred to as the “Transaction at Issue”). The NTS selected the TNMM to calculate the arm’s length price for the Transaction at Issue. The NTS des -
Judicial Litigation Once a written decision has been issued and received by the taxpayer, the statute of limitations for filing a petition to the court is 90 days. In addition, as noted previously, as long as the appeal has been filed with the Tax Tribunal for at least 90 days, the taxpayer has the option to file a petition to the district court without waiting for a decision from the adjudicators. Both the plaintiff and the defendant have the right to appeal decisions of the district courts that are wholly or partially unfavourable, and, in practice, the losing party is virtually certain to appeal a district court’s decision to the High Court that has competent juris - diction. For example, a plaintiff appealing the deci - sion of the Seoul Court for Administrative Matters can appeal to the Seoul High Court for Administrative Mat - ters. The appeal period is two weeks from receipt of the written decision (unless extended due to a national holiday) and must be strictly adhered to. Under the Korean judicial appeal system, all decisions of the High Court can be appealed to the Supreme Court within two weeks from receipt of a written deci - sion by the appealing party. At all stages of tax litiga - tion, the right of appeal is automatic, without having to seek permission, either from the original court or from the appeal court. However, unlike the district court or the High Court, the Supreme Court does not have original jurisdiction, and its role is limited to reviewing the technical accu - racy of the legal analysis that formed the basis for the decisions rendered by the High Court. Moreover, after reviewing legal issues raised in the petition for appeal, the Supreme Court can decide to dismiss the petition without considering the merits of the appeal, on the basis that the same issue has already been decided several times by the Supreme Court or simply lacks technical merit. Generally, this initial review process takes about four months; if the appellant’s petition has not been dis - missed, it is an indication that the Supreme Court will undertake a substantive review of the case, and it may take up to two or even three years before a decision is rendered.
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