SOUTH KOREA Trends and Developments Contributed by: Dong Shin Lee, Wankyu Jeon, Irene Y. Kim and Young Woong Park, Yoon & Yang LLC
• the types and characteristics of tangibles, intangibles or services that may affect the price or profit; • the function of business activities; • risks associated with transactions; • assets used; • contract terms; • economic conditions; and • business strategies. For the calculation of the arm’s length prices in accordance with Article 6 of the Enforcement Rule, it is necessary to carry out a transfer pric - ing review, including: • analysing the taxpayer’s business environ - ment and its intercompany transactions; • collecting data on internal and/or external comparable transactions; • selecting the most reasonable transfer pric - ing method and calculating the transactional profit (rate); • selecting comparable transactions; and • making reasonable adjustments to the differ - ences. In practice, when calculating arm’s length prices, comparable companies are selected according to the transfer pricing analysis stipulated in the AITA, as follows: • analysis of functions, risks and assets ( “Func- tional Analysis” ) related to the Korean domes - tic company and its foreign related party for the intercompany transaction under review; • determination of the tested party to be ana - lysed; • selection of the transfer pricing method; • selection of comparable companies; • adjustment of differences between the tested party and comparable companies (if neces - sary); and
• determination of arm’s length price (interquar - tile ranges). When the Functional Analysis of relevant compa - nies from the intercompany transaction is com - plete and the tested party is identified, potential comparable companies are reviewed in the sub - sequent step to assess the comparability with the selected tested party. For practical reasons, the AITA and administrative guidance thereunder are silent on which of the commercial databases are reliable for use. However, certain types of databases are commonly preferred and/or used when identifying comparable companies, such as VALUESearch, TP Catalyst (Orbis, Amadeus, etc) and Royalty Stat. On one hand, if a foreign affiliate is selected as the tested party, databases such as TP Catalyst (Orbis, Amadeus, etc) and Compustat are most commonly used to identify comparable compa - nies. On the other hand, if a Korean domestic company is selected as the tested party, the VALUESearch database from NICE Information Service (which contains financial information of over 400,000 Korean domestic companies, including externally audited companies) is most commonly used to identify comparable compa - nies. During transfer pricing tax audits, the Korean tax authorities commonly use VALUESearch for transfer pricing review purposes to calculate the arm’s length prices (interquartile ranges) when a Korean domestic company is selected as the tested party. Recent Case Law Tax Tribunal decision 2023jeong7780, dated 12 December 2023 One notable decision concerned whether work performed by an employee dispatched from the
336 CHAMBERS.COM
Powered by FlippingBook