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Transfer Pricing

"Kim & Chang’s tax team provides outstanding tax services with substantial expertise
and experience in both tax and transfer pricing areas."
– Asialaw Profiles 2018

Overview

Our Transfer Pricing Practice was the first formed and is the largest among Korean law firms, with over 55 seasoned professionals comprised of certified public accountants, lawyers, economists, tax attorneys and industry experts.

Our Transfer Pricing Practice successfully built a leading position in a wide range of transfer pricing service areas, encompassing global transfer pricing policy establishment, transfer pricing documentation and Advance Pricing Agreements (APAs) in order to mitigate future transfer pricing-related risks, and also tax audit defense, tax appeal and litigation and Mutual Agreement Procedures (MAPs) in order to resolve transfer pricing disputes and double taxation.

Based on in-depth understanding of transfer pricing laws and theories, as well as extensive pragmatic experience and profound insight in both international and domestic fields of the transfer pricing practice, our Practice is equipped with the capability to devise effective defense strategies for and propose resolution of various transfer pricing issues raised by Korean or foreign tax authorities and other related matters. 

Key Servicesshow

Establishment of Global Transfer Pricing Policy

The development and implementation of a consistent transfer pricing policy from the outset is a must-do for Multi-National Enterprises (MNEs) as it will be broadly applied to domestic and foreign affiliates.  Also, as part of the OECD BEPS initiative, many taxing authorities impose disclosure on group-wide transfer pricing policies, inevitably requiring many MNEs to thoroughly review the existing transfer pricing policy and evaluate the implications arising therefrom in advance.  Our Transfer Pricing Practice has advised major domestic and foreign MNEs in developing, documenting and implementing robust new transfer pricing policies and methodologies, and also reviewing and fine-tuning existing policies consistently applied throughout group affiliates.  In addition, we have extensive experience in reviewing transfer pricing issues arising from business restructurings and advising on implementing optimized transfer pricing policies post-restructuring. 

 

Transfer Pricing Documentation

Korean and foreign taxing authorities require taxpayers to prepare and/or submit transfer pricing documentation of various kinds (including Local File and Master File), either on a regular basis or in connection with an audit.  Advance review of all such transfer pricing documentation can provide an opportunity to evaluate the taxpayers’ transfer pricing issues and prepare defense strategies, while maintaining contemporaneous transfer pricing documentation or filing of Local File may secure a waiver of certain administrative penalties under Korean law. 

 

Our Transfer Pricing Practice has carried out more than 1,000 projects involving transfer pricing analyses and tax audit defense over the last 20 years since the adoption of the transfer pricing taxation regime in Korea, and has successfully assisted our clients in building defense strategies leveraging our expertise and experience in various industries.  Currently, we are also serving a variety of domestic and foreign MNEs in preparing the Comprehensive Report on International Transactions, comprising the master file, local file and country-by-country report under the new transfer pricing documentation requirements in line with BEPS Action Plan 13.

 

Tax Audit Defense

As part of a tax audit defense, it has become critically important to fully comprehend unique facts and specific circumstances surrounding each international-related party transaction in order to effectively respond to a taxing authority’s scrutiny of its arm’s length nature.  To that end, our Transfer Pricing Practice assists our clients with defending the arm’s length nature of their international-related party transactions based on our vast and in-depth experience in industry-specific transaction types and issues.  Further, we produce the most optimized defense strategy tailored for each of our clients in conjunction with compelling legal and economic analyses, and provide full support to our clients to achieve a reasonable outcome from a tax audit by articulating the client’s transfer pricing policy and methodology to the taxing authority. 

 

Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP)

Taxpayers can avert or mitigate future transfer pricing risks through APAs, or resolve transfer pricing adjustments and double taxation through MAPs.  Since the inception of the APA program in Korea in 1997, our Transfer Pricing Practice has handled the majority (more than 200) of all APA cases in Korea, including the first APA in Korea’s history and conclusion of the APAs in all industries.  Many APAs and MAPs involve inbound transactions, but our Practice also handles outbound transactions.  One of our successful MAP projects included assisting a major MNE headquartered in Korea in successfully concluding a MAP case in 2012 concerning transfer pricing assessments made in China, which was the first ever Korea-China MAP case.  Our Transfer Pricing Practice also successfully concluded Korea’s first APA for a private equity fund in 2015.

 

Tax Appeal and Tax Litigation

In addition to MAPs involving discussions between the tax authorities of different countries under tax treaties, transfer pricing assessments and disputes may be resolved through domestic tax appeals and court litigation.  Our Transfer Pricing Practice, working together with trial and appellate level advocates from our Tax Audit & Tax Dispute Resolution Practice, has an outstanding record of success earned in numerous major tax appeals and litigation cases in Korea.

Key Experiencesshow

Our Transfer Pricing Practice provides advice to clients operating in virtually all industries including automotive, banking & finance, chemicals, engineering & construction, food, healthcare, industrial manufacturing, IT, pharmaceutical, retail and transportation sectors in relation to various types of intercompany transactions, including manufacturing, distribution, royalty, intangible transfers, services and financing.  As an example, the Financial Services Transfer Pricing Team within our Practice specializes in transfer pricing analyses for financial institutions and has built an unrivaled reputation in the areas of transfer pricing documentation and tax audit defense.

 

Major APA/MAP Matters
  • Represented one of Korea’s major construction equipment companies in connection with a bilateral APA.
  • Represented one of Korea’s major automotive companies in connection with a bilateral APA. 
  • Represented one of Korea’s major glass manufacturers in connection with a unilateral APA. 
  • Represented a leading global semiconductor chip manufacturer in connection with a bilateral APA. 
  • Represented a leading global software company in connection with a bilateral APA. 
  • Represented Korea’s leading consumer electronics manufacturer in connection with a bilateral APA and MAP. 
  • Represented a leading global pharmaceutical company in connection with a unilateral APA.
  • Represented Korea’s leading foreign invested financial institution in connection with a unilateral APA. 
  • Represented a leading global semiconductor equipment manufacturer in connection with a bilateral APA. 
  • Represented a leading global computer and peripherals manufacturer in connection with a bilateral APA. 
  • Represented a leading global industrial products manufacturer in connection with a bilateral APA. 
  • Represented a leading global computer storage device solution provider in connection with a unilateral APA. 
  • Represented a leading global tobacco company in connection with a MAP. 
  • Represented Korea’s leading paper and consumer goods company in connection with a MAP. 
  • Represented a leading global investment bank in connection with a MAP. 
  • Represented a leading global chemical company in connection with a MAP. 
  • Represented a leading global energy solution company in connection with a MAP. 
  • Represented a leading global household item company in connection with a MAP. 

 

Major Transfer Pricing Litigation Matters
  • Represented a global multinational pharmaceutical company in winning a landmark Supreme Court appeal in relation to a comparable uncontrolled price issue.
  • Represented a foreign fund in connection with transfer pricing litigation in relation to intercompany interest rates of asset-backed securities issued by Korean SPCs of the fund.

 

Major Cases of Transfer Pricing Policy Establishment
  • Advised on the review and establishment of a transfer pricing policy for a Korean securities company. 
  • Advised on the establishment of a global transfer pricing policy and preparation of an implementation manual for a Korean fashion company. 
  • Advised on the establishment of a transfer pricing policy and preparation of an implementation manual for a Korean heavy equipment company on the intercompany transactions with its Chinese subsidiaries. 
  • Advised on the review of a transfer pricing policy for a Korean construction equipment company. 

 

Major BEPS Project
  • Assisted in the BEPS risk assessment of one of Korea’s major automotive parts manufacturers and optimization of its global transfer pricing policy (involving around ten countries from North America, Asia, Europe and Africa).
  • Provided comprehensive BEPS consultation for Korea’s one of Korea’s major consumer electronics manufacturers (involving around 50 countries).
  • Provided comprehensive BEPS consultation for a Korean IT company (involving China).
  • Assisted in the preparation of global transfer pricing documentation in line with BEPS Action Plan 13 for Korean subsidiaries of major multinational conglomerates.

 

Other Transfer Pricing Services Credentials 
  • Provided consultation for Korean legislative proceedings to introduce a provision in the law allowing the result of a MAP with one country to be applied to similar transactions with non-MAP countries.
  • Advised Korean companies on the determination of fair market value for transactions between related parties.

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