SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
• The parties have a common interest through an investment in capital, trade in goods or services, grant of a loan, or similar financial provision, and either party has the power to substantially determine the business policy of the other by any of the following means: (a) at least 50% of the executive officers of the one party assumes the position of executive officers of the other party within three years; (b) one party owns at least 50% of the voting shares of the other party through an as - sociation or trust; (c) one party borrows at least 50% of the funds from the other party; or (d) one party depends on the intellectual property right provided by the other party for at least 50% of its business activities. • Both parties have a common interest through an investment in capital, trade in goods or services, granting of a loan, or similar finan - cial provision, and a third party has the power to substantially determine the business poli - cies of both transacting parties by any of the following means: (a) a third party owns, directly or indirectly, at least 50% of the voting shares of one party and has the power to substantially determine the business policies of the other party; (b) a third party has the power to substan - tially determine the business policies of both parties; or (c) one party is an affiliated company of a group within the context of competition law in Korea and another affiliated com - pany of the same group owns, directly or indirectly, at least 50% of the voting shares of the other party. When assessing whether one party has the power to substantially determine the business
policy of the other, the following factors should be considered under a general facts and circum - stances analysis: • the amount of borrowings; • the level of dependency of one party on the other; • the control of the board and management; and • other similar factors. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods Article 8 of the LCITA lists six methods of calcu - lating the arm’s length price, as follows: • comparable uncontrolled price method (CUP); • resale price method (RPM); • cost-plus method (CPM); • transactional net margin method (TNMM); • profit split method (PSM); and The last category in 3.1 Transfer Pricing Meth- ods , “other reasonable methods” , should be applied only when none of the first five TP meth - ods can reasonably be applied to derive an arm’s length price. In this situation, other reasonable methods can be considered if their application can be deemed reasonable in the light of the customary practice and the substance of the transaction in question. 3.3 Hierarchy of Methods CUP, RPM and CPM are categorised as “tradi- tional transaction methods” . By contrast, PSM and TNMM are categorised as “transactional profit methods” . Previously, the traditional trans - • other reasonable methods. 3.2 Unspecified Methods
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