The National Tax Service (“NTS”) announced plans to support foreign invested companies operating in Korea reflecting the suggestions collected from the companies. Key contents of the plans are as follows:
■ Introduction of Simplified Advance Pricing Agreement (“APA”) Program
NTS plans to introduce simplified APA program which aims to alleviate burden of the foreign invested Small and Medium-sized Enterprises (“SME”) operating in Korea in tax audit preparation from 2015.
APA is an arrangement between a taxpayer and the NTS regarding application of transfer pricing methodology under which an arm’s length price of intercompany transactions with a foreign related party is determined. Taxpayers filing the corporate income tax returns in compliance with the agreed APA can reduce the risk from the tax audit on transfer pricing issues for 3 to 5 years.
APA is usually considered by large foreign invested corporations because it requires an in-depth review of NTS on nature of intercompany transactions, functions performed and risk taken by each of the parties, and determination of comparables. To prepare for this review of NTS, the applicant has to engage APA experts and wait for up to 2 years maximum for the review process to be completed.
Under the simplified APA program, however, foreign invested SMEs with annual revenue of KRW 50 billion or below will be allowed to apply for the APA with minimum documentation, and NTS will complete the review within one year from the submission date.
■ Tax Audit Guidebook for Foreign Companies
NTS announced its plan to provide new Tax Audit Guidebook in English for the foreign invested companies in Korea by re-editing the existing tax audit guidebook. The new guidebook elaborates tax audit and related appeal procedures protecting the taxpayers’ rights, and explain Mutual Agreement Procedures and APA. Hard copy of the book will be furnished to the taxpayers when a tax audit is performed, but it will also be available on the NTS website (English).
■ Allowing Direct Interview with the Head of Tax Audit
NTS has provided taxpayers with opportunities to meet up with the head of tax audit department while tax investigation is conducted since October 2014. This allows taxpayers of direct communication with the head of tax audit department over various tax audit issues such as disagreements regarding transfer pricing methodologies between the auditor and the taxpayer.