SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
varies from 30% to 90% depending on how soon such measure is taken. Request for the Submission of a TP Report During a Tax Audit and Contemporaneous TP Documentation The NTS may request certain information relat - ing to the basis of the arm’s length price calcu - lation for TP purposes – ie, TP documentation – when a taxpayer is audited. If so, the taxpayer must submit it within 60 days of the request. If any part of the requested data is not submitted or is false, a fine of KRW30 million to KRW70 mil - lion may be imposed, depending on the level of non-submission. As with the CRIT, the NTS can request the submission of missing reports with a 30-day notice period, where failure to comply within such timeframe can trigger interest, which could add up to KRW200 million. If the NTS recognises that TP documentation is completed and maintained contemporaneously with a corporate tax return, and if the NTS also considers that the TP method has been care - fully selected and applied in a reasonable man - ner (which sometimes could be quite subjective and contentious), a taxpayer can receive a 10% under-reporting penalty exemption, if at some point that taxpayer is audited and additional tax is assessed based on TP. When contemporane - ous TP documentation is requested by the NTS, a taxpayer must submit it within 30 days. In order to avoid penalties arising from the NTS’s request for TP-related information, it is very important to comply with the submission dead - line, and it is essential to include a reasonable explanation of the TP method applied by the tax - payer. This explanation should be supported by documentation and corroborating data. Moreo - ver, the format of the TP documentation, and the database used for benchmarking, should be in
line with local practice and the NTS’s expecta - tions, to ensure that it is considered to be sub - stantial and persuasive. 8.2 Transfer Pricing Documentation Threshold Requirements Taxpayers with sales of KRW100 billion or more and KRW50 billion or more in cross-border transactions with their related parties in a given year are required to submit a master file and a local file. Foreign parent companies with sales of KRW1 trillion on a consolidated basis in the immediately preceding year should submit a CbC report, provided that: • there is no CbC report submission require - ment in their home country; and • their home country has not executed a CbC report exchange treaty with Korea. Submission Deadline The CRIT – consisting of the local file, master file and CbC report – should be submitted within 12 months from the end of each fiscal year. Contemporaneous TP Documentation For those taxpayers not subject to the CRIT, there is still merit in having TP documentation ready, as the NTS may request it in the course of a tax audit; if so, it should be submitted within 60 days of the request. Besides, by virtue of preparing contemporaneous TP documentation, taxpayers could benefit from the 10% under-reporting pen - alty exemption in the event that additional tax is assessed based on TP considerations.
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