KITA News and Reports
  • Companies Operating Overseas Need to Manage Transfer Pricing Risk
    2017-11-10

    Companies Operating 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. 

     

    A movement 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 countermeasures.

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