SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
However, unlike the district court or the High Court, the Supreme Court does not have origi - nal jurisdiction, and its role is limited to review - ing the technical accuracy 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 peti - tion 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 dismissed, 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. 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 followed by lower courts, Supreme Court decisions do not create law in the form of legally binding 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 generally acquiesce after several consistent and uniform Supreme Court deci - sions have been issued.
Moreover, in practice, tax auditors are generally reluctant to progress cases to the court level unless there is some particular reason to do so, and prefer to negotiate and settle at a tax audit level. Hence, a majority of disputed cases involv - ing 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 O
Company O is a domestic corporation and a member of a multinational group headquartered in the USA. Around 2003, Company O and other affiliates of the group entered into a master ser - vice agreement, under which Company O pro - vides and receives various services, including management services. The multinational group settles service fees between affiliates using an indirect charge method via group affiliate A. Company O selected the TNMM as the most appropriate method for transfer pricing. The tax authorities, however, rejected the TNMM and instead selected the PSM as the most appropriate transfer pricing method. They determined the profits subject to profit split by combining Company O’s operating profit and the management fees (so-called LOB charges) paid to affiliate A during the fiscal years 2011–2013, resulting in a total of KRW305.6 billion. The tax authorities then allocated the profit based on the relative contributions of each party, based on labour costs and other selling and administra - tive expenses: Company O with 73.7% and the relevant group affiliates with 26.3%. As a result, the tax authorities determined a transfer pricing adjustment amount of KRW78.3 billion (partially reduced pursuant to the principle of prohibition of adverse change) and assessed additional cor - porate income tax on Company O.
329 CHAMBERS.COM
Powered by FlippingBook