SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
formed by each entity in the value chain. The focus is on the practical use and maintenance of the intangible asset; that is, economic ownership rather than legal ownership. This is consistent with the OECD Guidelines. 4.2 Hard-to-Value Intangibles Classification of Hard-to-Value Intangibles (HTVI) Intangible assets that satisfy all the following requirements are classified as HTVI: • when there is no comparable transaction between third parties at the time of the trans - action involving intangible assets; and • the intangible assets are under development, and they are expected to take a long time to be used commercially, or there is a high degree of uncertainty about the economic benefits expected from the intangible assets at the time of the transaction (this could be due to the level of innovation involved, or other similar unforeseen factors). Ex Post Outcomes: Presumptive Evidence In situations involving the transfer of HTVI or rights in HTVI, an outcome where the actual price exceeds 120% of the price agreed upon by related parties prior to the transaction can create a rebuttable presumption. Specifically, the NTS will be entitled to presume and able to claim that the price agreed in advance did not appropri - ately take into account reasonably foreseeable developments. Therefore, the presumption will be that the transfer price is unreliable. Taxpayers can rebut this presumption by pro - ducing evidence showing that: • they appropriately took into account the relevant factors when reaching their pricing arrangement; and
• the difference in the actual outcome was due to unforeseeable developments. 4.3 Cost Sharing/Cost Contribution Arrangements A cost contribution arrangement (CCA) regime was initially codified into the LCITA in 2006, and since then, there have been several revisions to the provision. The NTS’s Authority to Re-Determine the Arm’s Length Deduction The NTS has the authority to re-determine the tax base and tax liability of a resident company if: • a resident business enters into a CCA with a foreign-related party, in order to jointly develop or acquire intangible assets; and • the resident’s actual share of costs is higher or lower than an arm’s length share. The NTS will then adjust the resident’s share of the costs, based on the arm’s length principle. The NTS is especially likely to wield this authority if there is a 20% or more difference between the benefit that is expected: • at the time of executing the CCA agreement; and • after the joint development. Methods of Measuring the Expected Benefit The expected benefit can be calculated by con - sidering one of the following as a proxy for the benefit received. • Costs saved. • An increase in any of the following items due to the use of intangible assets: (a) sales;
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