South Korea’s Ministry of Strategy and Finance released draft legislation that would amend existing provisions of Korean law—specifically, Article 11 of the law known in English as the “Law for the Coordination of International Tax Affairs” (LCITA) and Article 21-2 of the “Presidential Enforcement Decree of the LCITA” (PED of LCITA)—to implement certain OECD base erosion and profit shifting (BEPS) initiatives.
The draft legislation amends previously approved measures regarding the Master file and the Local file, as well as introducing rules for a country-by-country (CbC) report.
The draft legislation (released 28 July 2016) would provide new requirements regarding the CbC report and modify the existing transfer pricing documentation requirements. The draft legislation aims to bring the Korean regulations more in line with Action 13 of the BEPS project, as well as to address taxpayer concerns that were raised after the release of the initial Master file and Local file requirements.
Under the newly released draft legislation, the CbC report has been added to the scope of the “Combined Report of International Transactions” (CRIT). The CbC report would be required for any multinational entity (MNE) with consolidated sales of over one trillion KRW, and would be required to be submitted by the ultimate parent company of the MNE. If the parent company resides in a country that does not require a CbC report, or does not facilitate the exchange of the CbC report, it would be the obligation of the domestic entity to submit the CbC report. Once the draft legislation is approved, the CbC report would be required for fiscal years starting on or after 1 January 2016.
In consideration of the similarity of the advance pricing agreement (APA) application documents and the content of the Local file, the draft measures would exempt some MNEs from preparing the Local file. This exemption would apply for MNEs that have relevant transactions covered by an already completed APA and considered to be at an arm’s length price. This exemption would not extend to MNEs that have submitted, but not finalized, an APA.
Under the previously provided proposals, the Master file and Local file would need to be submitted by the filing date of the corporate tax return. Under the proposed rules, the required filing deadline for fiscal year 2016 would now be within 12 months of the fiscal year-end, affording MNE additional time to prepare the Master file and Local file.
Details of the draft legislation are summarized as follows:
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Korea:
Gil Won Kang | +82-2-2112-0907 | email@example.com
Sang-Hyun Shin | +82-2-2112-6819 | firstname.lastname@example.org
Kevin Alloway | +82-2-2112-7447 | email@example.com
<p>© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.</p> <p>Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.</p>
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.