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South Korea National Tax Service Issues Notice on Changes in Arm's Length Price Determination and APA Procedures

The South Korea National Tax Service has published English-language tax news for April 2018 on certain changes resulting from the 2018 tax reform (previous coverage), including in relation to arm's length price determination and APA procedures:

  • Non-price related conditions to be considered when calculating arm’s length price for tax years beginning on or after  1 January 2018: When determining the arm’s length price, non-price related transaction conditions shall be considered as well to enhance the effectiveness of transfer pricing methodology, including characteristics and functions of goods or services, contract conditions, economic environment, business strategy, etc.;
  • Change in timing of application for advance pricing agreements (APAs):
    • For tax years beginning before 1 January 2019, APA applications must be filed with the relevant tax office no later than the end of the first taxable year in the specific period of taxable years the APA is to apply; and
    • For tax years beginning on or after 1 January 2019, APA applications must be filed no later than the day before the first day of the first taxable year in the specific period of taxable years the APA is to apply;
  • Expanded scope of use of application documents for prior approval of advance pricing agreements:
    • Prior to 13 February 2018, documents used for application for prior approval of advance pricing agreement should only be used for examination and ex post facto management of prior approval;
    • From 13 February 2018, exchange of information with the advance pricing agreement counterpart country is permitted to enhance transparency in taxation.

The April tax news also notes changes in the scope of "other income" of individuals to include income from the placement or lease of easement or superficies that are unrelated to public works as taxable business income from 1 January 2018. It also notes a reduction in the expense rate deduction for other income payments from 80% to 70% from 1 April 2018 and to 60% from 1 January 2019.

Note – Other income includes specific categories of income that do not fall within the main categories of interest, dividend, business, employment, capital gains, and pension and retirement.

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