2011 Proposals for Transfer Pricing(TP) Regulations and Recent TP Developments

We summarized below some of the major proposals for TP regulations and recent TP developments. 

 

Recent Proposals for TP Regulation Changes 

■  For the purpose of corresponding corporate tax adjustment resulting from the customs duty assessment by the customs offices, it is expected that a new corporate tax regulation allowing taxpayers to revise their corporate income tax returns previously declared in order to reflect the result of customs duty assessment will be introduced [Article 10-2 of the Law for Coordination of International Tax Affairs and Article 36-2 of the Customs Acts].   

[Excerpt of proposed law changes]   

• Provided that the Korean tax authorities or the customs offices consent  certain import prices adjusted for taxes or customs duties, the adjusted import prices at issue will be recognized by both government bodies. 
• If necessary, the tax authorities and the customs offices hold a mutual agreement procedure. 

Effective Date: taxes or customs duties to be assessed on or after January 1, 2012.  

■  Establishment of a Committee for Corporate Tax and Customs Duty [Article 10-3 of the Law for Coordination of International Tax Affairs and Article 36-3 of the Customs Acts] 

[Excerpt of proposed law changes] 

In case there are discrepancies between corporate taxes and customs duties with respect to the same import transactions with overseas related parties, the Committee for Corporate Tax and Customs Duty (the “Committee”) will be held in order to resolve related issues.  

[Operation of the Committee]  

• The Committee will be held upon the taxpayers’ request. 
• The Committee will consist of the members from government bodies such as the Ministry of Strategy and Finance, the National Tax Service and the Customs Office as well as the civil members.  
• The proposal (decision) to be made by the Committee will be treated as an advisory opinion. 

Effective Date: From July 1, 2012 

 

Domestic TPDevelopments 

■  Decision by the Tax Tribunal: The Tax Tribunal states that, when the transfer prices applied to the cross-border intercompany import transactions are below the arm’s length prices, the tax authorities may be required to make a reciprocal action (i.e., tax refund decision) on the transactions at issue provided that the taxpayer did not intentionally adjust the taxable base for the concerned year [Josim2009 Jong1189(2010.11.18)]. 

 

 Overseas TP Developments 

■  The Obama administration’s plan to propose a revision on TP regulations  

The Obama administration plans to make a tighter control over the companies who have overseas operations with excessive profit generation through intangible assets and the companies who have overseas related parties in the tax haven areas. 

 

■  Public hearing on the post customs price adjustment (U.S.A.) 

The IRS announced that it welcomes public comments on the post adjustment of customs prices after importation for TP adjustment purposes. 

 

■  2010 Transfer Pricing Annual Report by Norway  

The Norwegian tax authority published 2010 transfer pricing annual report, and it is said that Norway puts stronger and stricter measures on transfer pricing issues.   

 

■  Transfer pricing policy on the outbound transactions by the Chinese Tax Authority  

The Chinese tax authority announced the transfer price taxation policy focused on the Chinese corporations which have overseas related parties.