Overseas Need to Manage Transfer Pricing Risk
KITA and Yulchon jointly held
‘International Seminar on Transfer Price’-
The Korea International Trade Association held an ‘International
Seminar on Transfer Price*’ at the Trade Tower in Samseong-dong on November, 2,
Thursday, in cooperation with the law firm Yulchon by
inviting transfer price* experts from major countries including the US, Japan,
China and the EU.
* The transfer price is applied when
a multinational company supplies raw materials, products, and services for
international transactions between its affiliates. Multinational corporations
often reduce taxes by applying transfer prices at higher or lower rate than
normal prices by taking advantage of different tax systems from country to
country or loopholes in existing international tax regulations.
to strengthen taxation on multinational corporations is spreading around the
world. For example, last June, the EU imposed penalties of 2.42 billion Euro
(about 3 trillion Korean won) on Google, the largest amount ever. and The world's major taxation authorities are pushing for a tax
reform in order to prevent multinational corporations from avoiding taxes or
BEPS (Base Erosion and Profit Shifting) through taking advantage of different
tax system of each country or the loopholes in the existing international tax
system. Moreover, G20 and OECD have also been working on the project to deal
with BEPS since 2012.
The revised version of transfer
pricing guidance reflecting the contents of the OECD's project to implement the
countermeasures against BEPS was issued in July this year. The main contents of
the new guidance recommend ▲ to distribute tax
income of each country depending on the actual responsibilities and contribution
to the development of intangible assets and risk taking and ▲ to
write and submit three types of transfer pricing documentations, including
local file, master file and country to country report and share information
among the countries.
Since 68 nations including Korea
signed the BEPS Multilateral Tax Treaty, countries around the world are
expected to accelerate the revision of transfer pricing and the related tax
systems and application of them.
Last year, Korean companies invested
in overseas corporations totaled 35 billion dollars (*overseas investment
statistics of the Export-Import Bank, based on the investment in local
corporations). Over the past five years, Korean companies’ expansion to abroad
has been more and more active as the average growth rate of investment in
overseas has reached 5.11 percent.
Kim Geuk-soo, head of head of KITA’s International Affairs Group, stated "In order to
overcome the limitations of the small domestic market as well as to avoid the
import regulations from the other countries, it is inevitable for Korean
companies to invest in overseas. Under the circumstances, it is critical for
Korean companies to identify such international agreements and the changes in
each country’s tax system quickly and accurately and work on appropriate