Transfer Pricing (TP) in Korea

Transfer Pricing refers to the pricing of international transactions between two “associated” enterprises. Due to the special relationship between related parties, the transfer price may be different than the price that would have been agreed between unrelated parties. A price between unrelated parities is known as the “arm’s length” price.

Under Korea’s transfer pricing rules, the Korean tax authorities have a power to adjust the transfer price based on an arm’s-length price and to determine or recalculate the taxable income of a domestic company (including PE of a foreign company) when the transfer price for the transaction between the domestic company and its foreign related party is either below or above an arm’s-length price.

Korean Law for Coordination of International Tax Affairs (LCITA) lists the eligible methods for determining an arm’s-length price and submit a report on the adoption of one of the following TP methods: the comparable uncontrolled price (CUP) method, the resale price method, the cost-plus method, the profit-split method, the transactional net margin method, and other reasonable methods.

If you have an entity in Korea and have transactions with its foreign related parties, please consider Korea has a strong TP regulations and documentation requirements.

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