SOUTH KOREA Law and Practice Contributed by: Steve M Kim, Philje Cho, Gijin Hong and Kyu Bin Kang, Lee & Ko
15. Foreign Payment Restrictions 15.1 Restrictions on Outbound Payments Relating to Uncontrolled Transactions Restrictions on outbound payments relating to uncontrolled transactions apply to payments made both to related parties and to third parties. A Korean resident or corporation intending to make outbound payments to any recipient, in a controlled or uncontrolled transaction, in excess of USD50,000 per transaction, must submit doc - uments to a foreign exchange bank, proving the reason and amount of the payment. However, the reverse does not apply: foreign funds remitted to Korea by a non-resident or foreign corporation are not subject to this regu - lation. 15.3 Effects of Other Countries’ Legal Restrictions Upon the request of a taxpayer, the MOEF or the NTS can request that the competent authori - ties of another jurisdiction should initiate a MAP where: • there is a tax treaty between Korea and the other jurisdiction; • the other jurisdiction has made a TP adjust - ment in a related-party transaction; 15.2 Restrictions on Outbound Payments Relating to Controlled Transactions • the related-party transaction is between a Korean resident and a resident of that other jurisdiction; and • from the taxpayer’s perspective, a corre - sponding adjustment is required to avoid double taxation.
ent third parties in the Chinese market based on the different level of volume. With this, the court opined that the average sales volume of these internally comparable transactions differed sig - nificantly from that of Company P’s sales to C1 and C2. The court held that this discrepancy was not reasonably adjusted and reconciled. On the other hand, for the transaction between Company P and T, the court noted that, in the Thai market, unlike in China, there was one inter - nally comparable transaction where Company P transacted with a third-party buyer based in Thailand, and such internally comparable trans - action is highly comparable to the tested trans - action in terms of sales volume. Therefore, the comparable transactions selected by the tax authorities were deemed reasonable. Despite there being only one comparable transaction for the transaction between Company P and T, the court ruled that determining the arm’s length price based on this single transaction was suf - ficient and appropriate. Based on these findings, the first-instance court concluded that the tax assessment resulting from the transfer pric - ing adjustment for Company P’s transactions with C1 and C2 was inappropriate, while the tax assessment for the transaction with T was deemed appropriate. The recent ruling by the second-instance court (Seoul High Court, 7 July 2023, Case No 2021Nu37641) upheld the first- instance court’s judgment. This case is significant as it highlights that the consideration of sales volume in evaluating the appropriateness of selecting comparable trans - actions depends on the target market. Addi - tionally, the ruling affirms that, in certain cases, determining the arm’s length price based on a single comparable transaction could be suffi - cient and appropriate.
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