Worldwide transfer pricing reference guide 2014

South Korea (Republic of Korea) (continued)
Penalty relief (continued)
The underreporting penalty may also be waived in a mutual agreement procedure (MAP) if the result confirms that the taxpayer
is not guilty of negligence. In the case of a unilateral APA, the NTS may decide whether or not the taxpayer is guilty of negligence.
If the taxpayer can show that it (i) selected and reported the most reasonable transfer pricing method specified in the LCITA, (ii) actually
applied the selected method, and (iii) maintained supporting documentation, then there is no negligence.
Documentation requirements
At the time of filing the corporate income tax return, a taxpayer is required to submit certain transfer pricing reporting forms (refer to
return disclosures/related party disclosures below for more details).
Under the contemporaneous transfer pricing documentation rules, in order to receive relief from the underreporting penalty, taxpayers
are required to prepare and maintain transfer pricing documentation by the due date of filing the annual corporate income tax returns.
Also, documents are generally required to be submitted in the Korean.
Documentation deadlines
A taxpayer must submit documents and information requested by the NTS within 60 days of the NTS’ request. A one-time extension
of 60 days may be granted if reasonable circumstances specified in the LCITA exist. Contemporaneous transfer pricing documentation
should be submitted to the NTS within 30 days of the request.
The NTS may also request that a taxpayer submit certain information (including transfer pricing documentation) during a tax audit.
In that case, the taxpayer may be given a shorter notice, e.g., 10 days, to submit the information.
Statute of limitations on transfer pricing assessments
The statute of limitations on transfer pricing adjustments is generally five years. It extends to 10 years in case of a fraud or other
wrongful act, and seven years if a taxpayer does not submit the tax filing on the due date.
Return disclosures/related party disclosures
At the time of filing the corporate income tax return, the LCITA requires a taxpayer to submit the following transfer pricing
reporting forms:
• A form stating the transfer pricing method selected and the reason for the selection of the method for each related party transaction.
There are different forms for tangible property transactions, intangible property transactions, service transactions and cost-sharing
arrangements
• A summary of cross-border transactions with foreign related parties
• Summary income statements of foreign related parties having cross-border transactions with the Korean entity
There are certain minimum threshold exemptions for the first and third forms mentioned above.
Transfer pricing-specific returns
The transfer pricing reporting forms discussed above is a part of the corporate income tax return which is filed with the tax authority.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
Companies should expect to be audited every four to five years, depending on the size of the company, or more frequently if
other special factors exist. The risk of transfer pricing being reviewed during a tax audit is high. The NTS requests transfer pricing
documentation as a matter of policy, and such requests can be made separately from a tax audit. The NTS closely monitors companies
whose profitability suddenly drops and companies whose profits fluctuate substantially over a number of years. These companies are
likely to be subject to tax audits.
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