South Korea’s Ministry of Strategy and Finance released drafted legislation that would amend existing provisions of Korean law—specifically, Articles 11 and 12 of the law known in English as the “Law for the Coordination of International Tax Affairs” or LCITA—to implement certain OECD base erosion and profit shifting (BEPS) initiatives for transfer pricing documentation. The draft legislation would require taxpayers, subject to the Korean transfer pricing rules, to submit both a master file and a local file containing information on related-party transactions.
Country-by-country (CbC) reporting is not included in the current draft of the Korean legislation at this moment; however, this could change depending, in part, on the actions of other OECD member nations.
The new legislation in Korea, if enacted, would be effective 1 January 2016. Assuming the legislation is enacted, preparation of the transfer pricing documentation would be mandatory—rather than optional—for subject taxpayers. Procedures and other guidance would be expected to be provided by the government in the near future.
The draft legislation (released 6 August 2015) would provide new requirements regarding transfer pricing documentation. According to the draft, a transfer pricing report would have to be submitted by all taxpayers that enter into cross-border related-party transactions.
The draft legislation generally follows Action 13 (Re-examine transfer pricing documentation) of the BEPS project. OECD guidance published in September 2014—Guidance on transfer pricing documentation and country-by-country reporting—introduced a three-tiered standardized approach to transfer pricing documentation:
Accordingly, the draft legislation in Korea would require taxpayers to submit a master file and a local file. As noted above, a CbC report is not required in the current iteration of the draft legislation.
Details of the draft legislation are as follows:
Although CbC reporting is currently not part of the draft legislation, tax professionals anticipate that CbC could be eventually adopted in Korea once other countries or foreign tax authorities implement CbC reporting. Certain trading partner countries—such as Singapore, Japan, China, and India—where many Korean MNEs conduct business operations, have already adopted or are expected to adopt required CbC reporting. Thus, many Korean MNEs will already need to prepare CbC reports in advance, not only to prepare for submissions to the relevant foreign tax authorities but potentially to the Korean tax authority.
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Korea:
Gil Won Kang | 82-2-2112-0907 | firstname.lastname@example.org
Seung Mok (William) Baek | 82-2112-0982 | email@example.com