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Laws of the Republic of Korea |
1
ENFORCEMENT DECREE OF THE ADJUSTMENT OF INTERNATIONAL TAXES ACT
Presidential Decree No. 14870, Dec. 30, 1995
Amended by Presidential Decree No. 15196, Dec. 31, 1996 Presidential Decree No. 15325, Mar. 29, 1997
Presidential Decree No. 15970, Dec. 31, 1998
Presidential Decree No. 17045, Dec. 29, 2000
Presidential Decree No. 17832, Dec. 30, 2002
Presidential Decree No. 18312, Mar. 17, 2004
Presidential Decree No. 18628, Dec. 31, 2004
Presidential Decree No. 18706, Feb. 19, 2005
Presidential Decree No. 19650, Aug. 24, 2006
Presidential Decree No. 20331, Oct. 23, 2007
Presidential Decree No. 20494, Dec. 31, 2007
Presidential Decree No. 20720, Feb. 29, 2008
CHAPTER GENERAL PROVISIONS
Article 1 (Purpose)
Article 2 (Detailed Standards concerning Special Relationship) Article 3 (Scope of Foreign Controlling Shareholder) Article 3-2 (Applicable Scope of Rejection of Unfair Act and Calculation) CHAPTER ADJUSTMENT OF TAXATION ON TRADES WITH FOREIGN RELATED PARTY
Article 4 (Arm s Length Price Computation Method) Article 5 (Selection of Arm s Length Price Computation Method) Article 6 (Supplement to Arm s Length Price Computation Method, etc.) Article 6-2 (Arm s Length Price for Service Transactions) Article 7 (Submission, etc. of Arm s Length Price Computation Method) Article 8 (Calculation of Normal Profits)
Article 9 (Application for Prior Approval, etc. of Arm s Length Price Computation Method) Article 10 (Examination of Application for Prior Approval) Article 11 (Procedures of Prior Approval by Mutual Agreement) Article 11-2 (Procedures for Unilateral Prior Approval) Article 12 (Submission, etc. of Annual Report)
Article 13 (Cancellation, etc. of Prior Approval) Article 14 (Utilization of Prior Approval, etc. by Contracting State) ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
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Article 14-2 (Computation, etc. of Allotted Arm s Length Cost for Joint Development of Intangible Assets, etc.)
Article 14-3 (Scope and Computation Method of Expected Benefits) Article 14-4 (Adjustment of Shares of Participants and Allotments of Cost or etc. Following Change in Expected Benefits)
Article 14-5 (Determination, etc. on Tax Base for Price Received from or Paid to Later Participants or Early Withdrawers)
Article 14-6 (Submission of Statement of Allotted Cost or etc.) Article 15 (Disposition of Temporary Suspension)
Article 15-2 (Verification of Return of Amount Included in Gains) Article 16 (Disposition, Adjustment, etc. of Amount Not Verified Whether Returned) Article 17 (Application Procedures, etc. for Special Cases of Income Calculation) Article 18 (Method of Tax Adjustment in Special Cases of Income Calculation) Article 19 (Scope of Data Requested by Tax Authorities, and Method of Submission) Article 20 (Application for Extension of Time Limit to Submit Specifications, etc. of International Trades, and Notification Thereof)
Article 21 (Causes for Extension of Time Limit to Submit Specifications, etc. of International Trades)
Article 22 (Imposition and Collection of Fine for Negligence) Article 23 (Judgment on Whether Taxpayer is Liable for Negligence) CHAPTER TAX ADJUSTMENT ON INTEREST PAID TO FOREIGN CONTROLLING SHAREHOLDER
Article 24 (Scope of Borrowings)
Article 25 (Calculation Method of Non-deductible Expenses)
Article 26 Deleted.
Article 28 (Adjustment of Withholding Tax Amount)
Article 28-2 (Submission of Forms)
CHAPTER TAX ADJUSTMENT CONCERNING INCOME OF
CORPORATION RETAINED IN TAX HAVEN
Article 29 (Scope of Corporation s Actually Accrued Income)
Article 30 (Determination of Tax Haven)
Article 31 (Computation of Distributable Retained Earnings)
Article 32 (Computation of Amount Deemed to be Dividend)
Article 33
(Conversion of Amount Deemed to be Dividend by Foreign Currency)
Article 34 (Decision on Share Ownership, etc.)
Article 34-2 (Computation of Amount Excluded from Scope of Actually Accrued Income)
Article 35 (Requirements for Decision on Scope
of Application)
Article 36 (Decision of Primary Business)
Article 36-2 (Special Exception to Scope of Application to Wholesale Business)
Article 36-3 (Requirements, etc. for Affiliated Company)
Article 36-4 (Request for Rectification)
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
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Article 36-5 (Method to Exclude Actual Dividends from Gross Income)
Article 37 (Submission of Taxation Data)
CHAPTER SPECIAL CASE OF GIFT TAX ON OVERSEAS GIFT
Article 38 (Market Price Computation of Overseas Gift Property)
CHAPTER MUTUAL
AGREEMENT PROCEDURES
Article 39 (Application, etc. for Commencement of Mutual Agreement Procedures)
Article 40 (Special Exception to Deferment of Collection,
etc.)
Article 41 (Calculation Method of Additional Amount Equivalent to Interest)
Article 41-2 (Notification of Fact of Deferring
Notifications, etc.)
Article 42 (Report on Terms and Conditions Mutually Agreed, and Notice Thereof)
Article 42-2 (Extended Application
of Terms and Conditions Mutually Agreed, etc.)
CHAPTER TAX COOPERATION BETWEEN STATES
Article 43 (Procedure for Issuance of Resident Certificate)
Article 44 (Procedure for Entrustment of Tax Collection)
Article 45
(Procedures for Entrusted Tax Collection)
Article 46 (Remittance of Collected Taxes)
Article 47 (Exchange of Tax Information and Financial Information)
Article 48 (Cooperation in Tax Audit)
CHAPTER GENERAL PROVISIONS
Article 1 (Purpose)
The purpose of this Decree is to provide matters delegated by the
Adjustment of International Taxes Act and matters necessary to
enforce
said Act.
1. A relationship between a domestic corporation or domestic business
place, and a foreign shareholder, under which the person residing
or
located in a foreign state (including a shareholder and an investor;
hereinafter referred to as a "foreign shareholder") owns
directly or in-
directly 50% or more of the voting shares (including equities in invest-
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
4
ment; hereinafter the same shall apply) of the domestic corporation
or the foreign corporation having the domestic business place;
2. A relationship between a resident, domestic corporation or domestic
business place, and another foreign corporation, under which
the resi-
dent, domestic corporation, or foreign corporation having the domestic
business place owns directly or indirectly 50%
or more of the voting
shares of another foreign corporation;
3. A relationship between a domestic corporation or a domestic business
place, and a third party foreign corporation (including a
domestic business
place of a third party foreign corporation), under which a person, who
directly or indirectly owns 50% or more
of the voting shares of the
domestic corporation or the foreign corporation having the domestic
business place, also owns directly
or indirectly 50% or more of the voting
shares of the third party foreign corporation;
4. A relationship between a resident, a domestic corporation, or a domestic
business place and a nonresident, a foreign corporation
or its overseas
business place, under which they have common interest in adjusting
income through investments in capital between
either party and the
other party, trades of goods or service, grant of loans, etc., and either
party has a power to make a decision
on the whole or essential part
of the other party's business policy by any of the following means:
(a) The representative director
or the officers corresponding to the ma-
jority of all officers of one corporation shall assume the positions
of officers or employees
of the other corporation, or shall have
assumed the said positions within 3 years retroactively from the end
of the pertinent business
year;
(b) One party shall own 50% or more of the voting shares of the other
party, through an association or a trust;
(c) One party shall depend on the trades with the other party for 50%
or more of its business activities;
(d) One party shall borrow 50% or more of its funds required for business
activities from the other party, or shall raise them through
a payment
guarantee of the other party; and
(e) One party shall depend on the incorporeal property right provided
by the other party for 50% or more of its business activities;
or
5. A relationship between a resident, a domestic corporation, or a domestic
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
5
business place and a nonresident, a foreign corporation or its overseas
business place, under which they have common interest in
adjusting
income through investments in capital between either party and the
other party, trades of goods or service, grant of
loans, etc., and where
the relationship between one party, the other party, and a third party
falls under any of the following
items:
(a) A relationship between one party, 50 percent or more of whose voting
shares are owned directly or indirectly by a resident,
a domestic
corporation, or a domestic business place, and the other party who
has a relationship set forth in any item of subparagraph
4 with
the resident, domestic corporation, or domestic business place;
(b) A relationship between one party, 50 percent or more
of whose voting
shares are owned directly or indirectly by a nonresident, a foreign
corporation, or its overseas business place,
and the other party
who has a relationship set forth in any item of subparagraph 4
with the nonresident, foreign corporation, or
its overseas business
place;
(c) A relation between one party, which is an affiliated company of
a conglomerate as defined in any of subparagraphs of Article
3 of
the Enforcement Decree of the Monopoly Regulation and Fair Trade
Act, and the other party, 50 percent or more whose voting
shares
are owned directly or indirectly by another affiliated company of
the said conglomerate; or
(d) A relationship between parties to a trade, in cases where a third
party has a power to make a decision on the whole or essential
part of the business policies of both parties by means set forth in
any of items of subparagraph 4.
(2) The indirectly-owned ratio of shares provided in paragraph (1) 1
through 3 and 5 shall be calculated according to the classifications
falling
under any of the following subparagraphs:
1. Where one corporation owns 50% or more of voting shares of a corporation,
which is a shareholder of the other corporation (hereinafter
referred
to as the "shareholding corporation"), the ratio occupied by the voting
shares of the other corporation, which are owned
by the shareholding
corporation, in the voting shares of the relevant other corporation
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
6
(hereinafter referred to as the "shareholding ratio of the shareholding
corporation") shall be the indirectly-owned ratio of one
corporation against
the other corporation: Provided, That where there exist two or more share-
holding corporations, the ratio
obtained by summing up that calculated
by shareholding corporation shall be the indirectly-owned ratio of one
corporation against
the other corporation;
2. Where one corporation owns less than 50% of voting shares of the share-
holding corporation of the other corporation, the ratio
obtained by multi-
plying the relevant owning ratio by shareholding ratio of the share-
holding corporation shall be the indirectly-owned
ratio of one corpo-
ration against the other corporation: Provided, That where there exist
two or more shareholding corporations,
the ratio obtained by summing
up that calculated by shareholding corporation shall be the in-
directly-owned ratio of one corporation
against the other corporation;
and
3. The calculation methods under subparagraphs 1 and 2 shall also be
applicable mutatis mutandis where there interpose one or more
corpo-
rations between one corporation and a shareholding corporation of the
other corporation, and where these corporations are
linked through
the share ownership.
Article 3 (Scope of Foreign Controlling Shareholder)
(1) The scope of a foreign controlling shareholder of a domestic corporation
under Article 2 (1) 11 (a) of the Act, shall be any which falls under
any of the following subparagraphs as of the end of each
business year:
1. A foreign shareholder who directly or indirectly owns 50% or more
of voting shares of a domestic corporation;
2. A foreign corporation, 50% or more of whose voting shares are directly
or indirectly owned by a foreign shareholder described
in subparagraph
1; and
3. A foreign shareholder who has a relationship under Article 2 (1) 4
with a domestic corporation.
(2) The foreign shareholders who control a domestic business place of a
foreign corporation under Article 2 (1) 11 (b) of the Act
shall be as follows:
INTERNATIONAL TAXES ACT
7
1. The head office or branch offices (referring to branch offices located
overseas; hereinafter the same shall apply) of a foreign
corporation
having a domestic business place;
2. A foreign shareholder who directly or indirectly owns 50% or more
of the voting shares of a foreign corporation under subparagraph
1;
and
3. A foreign corporation, 50% or more of whose voting shares are directly
or indirectly owned by a head office or foreign shareholder
described
in subparagraph 1 or 2.
(3) Article 2 (2) shall apply mutatis mutandis with respect to the in-
directly-owned ratio of shares described in paragraphs (1)
and (2).
1. Conveying an asset without consideration (excluding a case of conveying
it at a significantly low price) or discharging an obligation;
2. Deleted; 3. Purchasing assets which do not yield any profit, receiving the contribution
of such assets in kind, or bearing expenses for such
assets;
4. Bearing contributions by proxy; or
5. Other trades of capital which fall under any of items of Article 88 (1)
8 of the Enforcement Decree of the Corporate Tax Act.
[This Article Newly Inserted by Presidential Decree No. 17832, Dec. 30, 2002]
CHAPTER ADJUSTMENT OF TAXATION
ON TRADES WITH FOREIGN
RELATED PARTY
Article 4 (Arm's Length Price Computation Method)
The term "other methods deemed to be reasonable, as prescribed by
Presidential
Decree" as referred to in Article 5 (1) 4 of the Act, means
the methods as provided in any of the following subparagraphs:
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
8
1. Profit sharing method: In the international trades between a resident
(including a domestic corporation and a domestic business
place; here-
after in this Chapter, the same shall apply) and a foreign related party,
the net trade profits realized by both parties
[the amount obtained
by deducting sales cost and sales expenses (which mean the expenses
for sales and general administration;
the same shall apply hereinafter
for the purposes of this Article) from the sales proceeds realized in
trades with a third party]
are allocated according to the level of relative
contribution between the parties to trades, which has been measured
by the allocation
criteria provided in each of the following items (including
the case where an appropriate basic income of the parties to trade is
preferentially allocated by trade type; hereinafter the same shall apply),
and then the trade price, which has been computed on
the basis of
the profits allocated in such a way, shall be deemed the arm's length
price. In this case, the level of relative contribution
shall be measured
on the basis of the level of contribution attained ordinarily in the trades
between the unrelated independent
parties in a similar situation:
(a) Expenses paid or payable for the acquisition of assets, manufacturing,
sales, or the provision
of services;
(b) Capital expenditures required to develop assets or to provide services,
total amount of assets used, or the level of risks assumed;
(c) Level of importance of skills performed at each phase of transactions;
and
(d) Other measurable rational allocation criteria;
2. Net trade profit ratio method: In the international trades between
a resident and a foreign related party, the trade price, which
has been
computed on the basis of the net trade profit ratio as provided in each
of the following items, realized in trades similar
to the relevant trades
from among trades between a resident and an unrelated party shall
be deemed the arm's length price: Provided,
That the ratio of net
profit from a trade, in which terms and circumstances are similar to
those of the relevant trade out of trades
with an unrelated third party,
may be applied in cases where there is no trade similar to the relevant
trade made with the unrelated
party:
(a) The net trade profit ratio to the sales;
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
9
(b) The net trade profit ratio to the assets;
(c) The net trade profit ratio to sales cost and sales expenses; and
(d) Other net trade profit ratio deemed to be reasonable;
3. Ratio of gross trade profit to sales expenses method: In the international
trades between a resident and a foreign related party,
the price calculated
by applying the ratio of gross trade profit realized from a trade similar
to the relevant trade out of trades
between a resident and an unrelated
person, in case of international trades between the resident and the
unrelated person, to sales
expenses therefor shall be deemed the arm's
length price: Provided, That the ratio of gross trade profit from a trade,
in which
terms and circumstances are similar to those of the relevant
trade out of trades with an unrelated third party, to sales expenses
may be applied in cases where there is no trade similar to the relevant
trade made with the unrelated person; and
4. Other methods deemed rational in view of the substance and practice
of trades.
Article 5 (Selection of Arm's Length Price Computation Method)
(1) In computing the arm's length price under Article 5 (1) of the
Act,
the most rational method shall be selected by taking the criteria provided
in any of the following subparagraphs into account:
1. Possibility for comparison shall be high between the international
trades among the related parties and the trades among the unrelated
parties. In this case, "high possibility for comparison" means the cases
falling under any of the following items:
(a) Where a difference in the compared circumstances has no serious
effect upon the price or net profit of the trades; and
(b)
Where a rational adjustment, which is capable of removing a differ-
ence due to the relevant effects, is possible even in the case
where
a difference in the compared circumstances has a serious effect upon
the compared price or net profit;
2. Possibility shall be high for the securing and use of the data to be used;
3. The level of correspondence to the reality shall be high for an assump-
tion on the economic conditions or business environment,
etc. estab-
lished in order to compare the international trades between the related
parties with the trades between the unrelated
parties; and
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
10
4. The defects in the data to be used or in the established assumption
shall have a little effect on the calculated arm's length
price.
(2) In assessing whether or not a high comparability exists pursuant to
paragraph (1) 1, such constituents shall be analyzed
as the function of
business activities that may affect the price or profit, the contractual
terms, the risks accompanying the trades,
the kinds and features of the
goods or services, the fluctuation in market conditions, and the economic sit-
uations, etc.
(3) The method under subparagraph 3 of Article 4 may be applied to the
cases where a resident carries on simple sales activities
or performs a
service without a burden to have goods in stock.
(4) In cases where the computing method of arm's length price is applied
in accordance with each subparagraph of Article 4, the
method under subpara-
graph 4 of the same Article shall be applied only when the methods under
subparagraphs 1 through 3 of the
same Article are not applicable.
(5) The tax authorities may, where a trade between the unrelated parties
shall not be treated as a normal trade because it is fabricated
at will by
the parties involved, not select the said trade as a comparable trade.
Article 6 (Supplement to Arm's Length Price Computation Method, etc.)
(1) The computing method of arm's length price falling under
each subpara-
graph of Article 4 may be used in order to supplement the computing method
of arm's length price under Article 5
(1) 1 through 3 of the Act.
(2) In computing an arm's length price under Article 5 of the Act, if any
difference occurs in the
price, profit margin, or net trade profit, which
is applicable on account of the differences in functions performed, risks as-
sumed, or trade terms, etc. between the relevant trades and those between
the unrelated parties, the relevant difference in the
price, profit margin,
or net trade profit shall be rationally adjusted.
(3) The method with a resale price under Article 5 (1)
2 of the Act may,
where deemed necessary for computing a rational arm's length price, be
applied to the service trades and other
international trades.
(4) In computing an arm's length price under Article 5 of the Act, the
ENFORCEMENT DECREE OF THE ADJUSTMENT
OF
INTERNATIONAL TAXES ACT
11
scope of arm's length prices may be computed on the basis of two or
more trades between the unrelated parties, and it may be applied
to an
adjudication of whether the tax adjustment is to be made pursuant to the
arm's length prices under Article 4 of the Act.
(5) Where the tax authorities make a tax adjustment under Article 5 of
the Act to the trade price deviating from the scope of arm's
length price,
it shall be based on the average price, median price, mode price and other
rational specific prices, which have been
computed in trades within the
relevant scope of arm's length price.
(6) In computing the arm's length price for an intangible asset, the following
elements shall be considered according to its characteristics:
1. Scale of revenues added or expenses reduced which are expected with
such an intangible asset;
2. Whether there is a limitation on the exercise of rights therein; and
3. Whether it is allowable to convey such an intangible asset to other
person or grant a license to reuse it.
(7) The normal interest rate for money transactions applicable to interna-
tional trades between a resident and a foreign related
party shall be the
interest rate applicable or deemed as applicable to ordinary money trans-
actions between unrelated persons,
taking the following matters into consid-
eration: 1. Amount of the obligation:
2. Maturity of the obligation:
3. Whether the obligation is secured; and
4. Credit rating of the debtor.
Article 6-2 (Arm's Length Price for Service Transactions)
(1) Where the price for a transaction
of service deemed necessary for business
management, financial advising, payment guarantee, support to an elec-
tronic system or
technical support, or any other service (hereafter referred
to as a "service transaction" for the purposes of this Article) between
a
resident and a foreign related party is the one for a transaction of service
that meets all the following requirements, such
a price shall be deemed
as the arm's length price and recognizable as a loss:
1. The service provider shall make an agreement in advance and actually
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
12
provide such a service in accordance with the agreement;
2. There shall exist an additional benefit or a reduction in expenses, which
the person who has such service provided expects from
the service;
3. The price for the service provided shall be computed in accordance
with Article 5 of the Act and Articles 4 through 6 of this
Decree. In
this case, it shall be computed in accordance with the following guidelines,
when the cost plus method under Article
5 (1) 3 of the Act or the net
trade profit ratio to sales cost and sales expenses under subparagraph
2 (c) of Article 4 of this
Decree is applied:
(a) The cost incurred shall include all expenses incurred directly or in-
directly for providing the service;
(b) In cases where the service provider requests another foreign related
party other than the service provider or an unrelated third
party
to perform the service vicariously, in whole or in part, pays the
price therefor in a lump sum, and then claims such expenses
to
the person to whom the service is provided, the service provider
shall add an ordinary profit only to the cost incurred from
the activities
that the service provider performs on his/her own in connection
with the service: Provided, That the foregoing shall
not apply, if
deemed reasonable in the light of the substance of the service, status
of the transaction, and customary practices;
and
4. There shall be documents prepared and preserved for proving the facts
set forth in subparagraphs 1 through 3.
(2) Notwithstanding paragraph (1), it shall not be deemed as a service
transaction under paragraph (1), in cases where other foreign
related party
itself performs the same service as the one provided to the person who
has the service provided, or in cases where
an unrelated person provides
the service for other foreign related party; Provided, That the foregoing
shall not apply where the
service provided is temporarily overlapped on
any reasonable ground such as reorganization of the business or organiza-
tional
structure, restructuring, an effort to reduce errors in making decision
on business management.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 7 (Submission, etc. of Arm's Length Price
Computation Method)
(1) A resident shall select the most rational computing method of arm's
length price in accordance with the
criteria under Article 5, and shall submit
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
13
the selected method and the reasons therefor to the head of a tax office
having jurisdiction over the tax payment place at the time
of a final return
on tax base and tax amount: Provided, That the foregoing shall not apply
where the total amount of transactions
of goods out of the amount of interna-
tional trades during the pertinent business year is not more than five billion
won and the
total amount of service transactions is not more than 500
million won.
1. Time limit for filing a return under Articles 70 through 74 of the Income
Tax Act, or Article 60 (1) of the Corporate Tax Act;
2. Time limit for filing a revised return under Article 45 of the Framework
Act on National Taxes; and
3. Time limit for filing a request for rectification under Article 45-2 (1)
of the Framework Act on National Taxes.
Article 8 (Calculation of Normal Profits)
(1) For the purpose of Article 5 (1) 2 of the Act, the term "normal profits
of the purchaser" means the amount calculated by multiplying
the sale
price of assets, which is charged by the purchaser to an unrelated party, by
a sale-basis normal profit ratio. In this
case, the term "a sale-basis normal
profit ratio" means the gross profit ratio of sales realized in the trades,
whose level of
functions performed, assets used and risks assumed are similar
to the relevant trade, from among the trades between the purchaser
and
the unrelated parties.
(2) For the purpose of Article 5 (1) 3 of the Act, the term "normal profits
of the seller of asset or the service provider" means
the amount calculated
by multiplying the costs required for the purchase, construction or
ENFORCEMENT DECREE OF THE ADJUSTMENT
OF
INTERNATIONAL TAXES ACT
14
manufacture of the relevant property at the arm's length prices by the
seller of assets, or the costs incurred at the arm's length
prices in the
course of providing the relevant services by the service provider by a
cost-basis normal profit ratio. In this case,
a cost-basis normal profit ratio
means, in the trades between the seller of assets or the service provider and
the unrelated parties,
the ratio of gross sales profits to the costs incurred
in the trades whose level of functions performed, assets used and risks
assumed are similar to the relevant trade.
(3) Where the purchaser of assets under Article 5 (1) 2 of the Act, or
the seller of assets or the service provider under subparagraph
3 of the
same paragraph is unable to pertinently compute the normal profit ratio
from the trades with the unrelated parties, the
normal profit ratio realized
in the trades whose level of functions performed, assets used and risks
assumed are similar to the
relevant trades from among the third trades between
the unrelated parties, may be used as the sale-basis normal profit ratio
in
paragraph (1) or the cost-basis normal profit ratio in paragraph (2).
(1) A resident who intends to apply for a prior approval of his/her arm's
length price computation method to the Commissioner of
the National Tax
Service under Article 6 (1) of the Act (hereafter in this Chapter, referred
to as the "applicant") shall submit
to the said Commissioner four respective
copies of the documents falling under each of the following subparagraphs
as to the whole
or part of his/her international trades not later than the
end of the first taxable year during the term subject to an application
for
the arm's length price computation method: 1. A written application for a prior approval of arm's length price computa-
tion method as provided by Ordinance of the Ministry
of Strategy and
Finance, indicating the subjected period, the subjected international
trades, the parties to trades and the arm's
length price computation
method, etc.;
2. Explanatory data on the business history, business details, organization,
and investment relationships, etc. of the parties to
trades;
3. Financial statements, copies of tax returns, and copies of contracts
for international trades and other accompanying documents
of the parties
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
15
to trades for the latest three years;
4. Data falling under each of the following items, explaining concretely
the details of the arm's length price computation method
applied for:
(a) The methods to assess the comparability, and to adjust the difference
by factor, under Articles 5 (2) and 6 (2);
(b) Where the financial statements of enterprises subject to comparison
are employed, the difference in the accounting standards
employed
and the adjustment method therefore;
(c) Where the financial data or cost data by classification of transactions
are employed, the criteria for preparing them;
(d) Where two or more trades subject to comparison are employed, the
scope deemed to be an arm's length price and its inducing method;
and
(e) Explanatory data on the conditions or assumptions to form a
premise of the arm's length price computation method;
5. Where the provision of Article 7 (2) is applied, the explanatory data
on how to adjust the difference between the actual trade
price and
the arm's length price;
6. Where an application is filed for a mutual agreement with the Contracting
State for the arm's length price computation method
applied for an appro-
val, a written application for commencing the mutual agreement proce-
dures as provided by Ordinance of the
Ministry of Strategy and Finance;
and
7. Other data attesting the propriety of the arm's length price computation
method applied for a prior approval.
(2) Where the documents submitted to the competent authority of the
Contracting State are different from those submitted under paragraph
(1),
the documents submitted to the competent authority of the Contracting
State shall be additionally submitted.
(3) The period subject to an application for prior approval of the arm's
length price computation method shall be the period during
which the tax-
payer intends to obtain a prior approval of the arm's length price computa-
tion method.
INTERNATIONAL TAXES ACT
16
acquiring a prior approval of the Commissioner of the National Tax Service.
In this case, the Commissioner of the National Tax Service
shall, when
the application is withdrawn, return to the applicant all data submitted
under paragraph (1) or (2).
(5) The Commissioner of the National Tax Service shall not use the data
submitted under paragraph (1) or (2) for other purposes
than an examina-
tion of prior approval and an ex post facto management.
Article 10 (Examination of Application for Prior Approval)
(1) The Commissioner of National Tax Service may, in examining an applica-
tion for prior approval, refer to the opinion of the head of tax office having
jurisdiction over the tax payment place of the applicant
and the director
of the regional tax office.
(3) The specialist under paragraph (2) shall not provide or disclose any
information related to an application for prior approval
to other persons
than the applicant, his/her agents and the Commissioner of the National
Tax Service.
Article 11 (Procedures of Prior Approval by Mutual Agreement)
(1) The Commissioner of National Tax Service shall, where he/she does
not grant a prior approval as he/she deems that the application for prior approval
is inappropriate, return to the applicant all
data submitted under Article
9 (1) or (2).
(3) The Commissioner of the National Tax Service shall, where an agreement
is achieved with a Contracting State in the procedures
of mutual agreement
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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17
under paragraph (2), notify the applicant of the details of agreement within
15 days from the day following the completion of mutual
agreement
procedures. In this case, the applicant shall submit in writing whether
he/she consents thereto to the Commissioner of
the National Tax Service
within 2 months from the date of receiving a notification on the details
of agreement.
(4) Where the applicant fails to notify the Commissioner of the National Tax
Service of whether he/she consents thereto within the
term under paragraph
(3), it is deemed that he/she has not consented, and the original application
for prior approval is deemed
to have been withdrawn by the applicant.
(5) Even if the agreed details under the mutual agreement procedures
are not identical
with the original content of application for prior approval,
if the applicant consents to the agreed details under paragraph (3),
it
shall be deemed that the applicant has applied for the relevant details
from the outset.
(6) The Commissioner of the National Tax Service shall, when he/she accepts
the submission of whether the applicant consents to
the contents of mutual
agreement under paragraph (3), grant a prior approval for the arm's length
price computation method within
15 days from the date of accepting such
submission, and notify the applicant thereof.
(7) The Commissioner of the National Tax Service shall, where falling
under any of the following subparagraphs, notify the applicant
of suspension
of the mutual agreement procedures within 15 days:
1. Where the Commissioner of the National Tax Service suspends ex
officio the mutual agreement procedures, because the mutual agreement
has not been reached within 3 years from the date of accepting the
application for prior approval; and
2. Where it is agreed to complete the mutual agreement procedures with
a Contracting State, because an agreement under the mutual
agreement
procedures is impossible.
(8) A resident who has obtained a prior approval of an arm's length price
computation method in accordance with paragraph (6) shall
file an revised
return or an application for rectification pursuant to Article 17 (1). In
this case, the provisions of Articles
15, 15-2, 16 and 18 shall apply mutatis
mutandis to the income amount to be adjusted.
INTERNATIONAL TAXES ACT
18
(9) Deleted. 1. Where a taxpayer fails to request the mutual agreement procedures
at the time of applying for prior approval of an arm's length
price compu-
tation method under Article 9 (1); and
2. Where the mutual agreement procedures for an arm's length price compu-
tation method are suspended due to the causes falling under
any subpara-
graph of Article 11 (7).
(2) The Commissioner of the National Tax Service may, in a case falling under
any subparagraph of paragraph (1), grant a prior approval
of the arm's
length price computation method without proceeding the mutual agreement
procedures (hereinafter referred to as the
"unilateral prior approval"). In
this case, the Commissioner of the National Tax Service may, where the
mutual agreement procedures
are commenced, attach the condition that
the unilateral prior approval may be cancelled.
(3) A taxpayer shall, where he/she intends to obtain an unilateral prior
approval as he/she falls under paragraph (1) 2, present
his/her intention
in writing to the Commissioner of the National Tax Service within 15 days
from the day on which he/she is notified
thereof. In this case, the original
application for prior approval shall, where the applicant fails to present
his/her opinion
in writing, be deemed to be withdrawn.
(4) The Commissioner of the National Tax Service shall, where the applicant
applies for
an unilateral prior approval, decide upon whether to grant
a prior approval within 2 years from the date of application.
(5) The
provisions of Article 11 (1), (3) through (6) shall apply mutatis
mutandis respectively to the return of documents submitted as
regards
an unilateral prior approval, the notification of details of a decision on
prior approval and whether to consent, the withdrawal
of an application
for prior approval, the validity of modified approval of prior approval,
and the notification of prior approval.
(6) A resident who has obtained a prior approval for an arm's length price
computation method shall file a revised return or an
application for rec-
tification pursuant to Article 17 (2). In this case, the provisions of Articles
ENFORCEMENT DECREE OF THE
ADJUSTMENT OF
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19
15, 15-2, 16 and 18 shall apply mutatis mutandis to the income amount
to be adjusted.
(1) A resident shall, where he/she has obtained a prior approval of an
arm's length price computation method, file an annual report
reflecting
the details of approval with the head of a tax office having jurisdiction
over the tax payment place within the time
limit under Article 7 (2) 1,
and submit four copies of the annual report containing the matters falling
under any of the following
subparagraphs to the Commissioner of the National
Tax Service, within 6 months from the date following the date when the
time limit
for such report expires. In this case, the provisions of Articles
15, 15-2, 16 and 18 shall apply mutatis mutandis to the income
amount
to be adjusted:
1. Whether or not the grounds or assumptions are realized, which form
a premise for the arm's length price computation method approved
in advance;
2. The arm's length price computed by the arm's length price computation
method approved in advance, and the relevant computation
process;
3. Where the actual trade price differs from the arm's length price, the
details of dealing with the relevant difference; and
4. Other matters stipulated to be contained in the annual report at the
time of a prior approval.
(2) The Commissioner of the National Tax Service may, where any additional
data are needed in reviewing the annual report pursuant
to paragraph
(1), request the relevant resident to furnish them.
Article 13 (Cancellation, etc. of Prior Approval)
(1) For the
purpose of the proviso to Article 6 (4) of the Act, the term
"cases as prescribed by Presidential Decree" means the cases falling
under
any of the following subparagraphs:
1. Where the important portions of data pursuant to Article 9 or 12 are not
submitted or falsely prepared;
2. Where the resident fails to comply with the details of prior approval
or the conditions thereof;
3. Where the important portions of conditions or assumptions are not
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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20
realized which form a premise for the arm's length price computation
method approved in advance; and
4. Where the content of the prior approval has become improper due to
the changes in the relevant Acts and subordinate statutes or
the tax
treaties.
(2) The Commissioner of the National Tax Service may, where it falls
under any subparagraph of paragraph (1), cancel or withdraw
the prior
approval.
(3) A resident may, in the case of paragraph (1) 3 or 4, apply for a change
in the details of the original prior approval not later
than the deadline
for a final return on tax base and tax amount for a taxable year in which
the relevant causes occur, with respect
to the remaining subjected period
thereafter including the relevant taxable year. In this case, the provisions
of Articles 9 through
12 shall apply mutatis mutandis, but the data to
be furnished under Article 9 (1) shall be limited to the changed portions.
(4)
The Commissioner of the National Tax Service shall, where he/she
cancels or withdraws a prior approval, notify the competent authority
of a Contracting State, without delay, of such facts.
Article 14 (Utilization of Prior Approval, etc. by Contracting State)
Where
a resident or a foreign related party applies for a prior approval
of an arm's length price computation method corresponding to
Article 6
of the Act to the competent authorities of a Contracting State, and where
it is necessary to commence the mutual agreement
procedures with the
Republic of Korea, the relevant resident shall without delay apply for the
prior approval of such arm's length
price computation method under Article
9 to the Commissioner of the National Tax Service.
Article 14-2 (Computation, etc. of Allotted
Arm's Length Cost for Joint
Development of Intangible Assets, etc.)
(1) The term "intangible asset" in Article 6-2 (1) of the Act means what
falls under any of the following subparagraphs:
1. The one falling under any of the following items:
(a) Patent right under the Patent Act;
(b) Utility model right under the Utility Model Act;
(c) Design right under the Design Protection Act;
(d) Trademark right or service
mark right under the Trademark Act;
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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21
(e) Copyright under the Copyright Act; or
(f) Computer program work under the Computer Programs Protection
Act; or
2. Any other intangible asset including a plan, a model, and knowhow,
which can be used as it is or can be conveyed or licensed for
use to
other person.
(2) The term "allotted arm's length cost" in Article 6-2 (1) of the Act
means an allotted amount applicable or deemed as applicable
in an agree-
ment that a resident makes with a foreign unrelated person on the allotment
of ordinary cost, expenses, and risks
(hereinafter referred to as "cost or
such"), and the cost or etc. for the development of an intangible asset,
which shall be allocated
in proportion to the expected benefits from the
intangible asset: Provided, That the price for using the intangible asset
and the
interest incurred and paid at the time of borrowing the allotted
amount shall not be included in the allotted arm's length cost.
(3) The allotted arm's length cost shall be included in losses at the time
of computing the taxable income of the resident, only
where the resident
makes an agreement on the allotted arm's length cost and subsequently
bears the allotted cost or etc..
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 14-3 (Scope and Computation Method of Expected
Benefits)
(1) The term "expected benefits" in Article 6-2 (2) of the Act means benefits
expected from an intangible asset and falling
under any of the following
subparagraphs:
1. Cost reduction; or
2. Increase of any of the following by making use of the intangible asset:
(a) Sales;
(b) Trade profit; or
(c) Quantity consumed, produced, or sold.
(2) Expected benefits shall be computed by applying the benefits under
each subparagraph of paragraph (1), which are estimated to
be realized
after joint development of the intangible asset.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 14-4 (Adjustment of Shares of Participants
and Allotments of Cost
or etc. Following Change in Expected Benefits)
(1) The expression "in cases where subsequently changed at a rate......
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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22
equivalent to or more than as specified by Presidential Decree" in Article
6-2 (2) of the Act means the case where the resident's
expected benefits
out of the total benefits expected originally at the time of making an agree-
ment increase or decrease by 20/100
or more in comparison with the
benefits realized after the development of the intangible asset.
(2) In cases where the share of
the residents as a participant is adjusted
in accordance with Article 6-2 (2) of the Act, the allotted cost or etc. borne
excessively
by computing again the total allotted cost or etc. borne by the
resident in proportion to the resident's share as adjusted shall
be adjusted
at the time of calculating the tax base for the business year during which
such change occurred.
(3) In the event that another change under paragraph (1) occurs after
the allotted cost or etc. was adjusted in accordance with
paragraph (2),
a report or a request for rectification may be filed within the time limit
falling under any of the following subparagraphs.
In this case, Articles
15, 15-2, 16, and 18 shall apply mutatis mutandis to the income so ad-
justed:
1. Time limit for filing a return under Articles 70 through 74 of the Income
Tax Act, or Article 60 (1) of the Corporate Tax Act;
2. Time limit for filing a revised return under Article 45 of the Framework
Act on National Taxes; or
3. Time limit for filing a request for rectification under Article 45-2 (1)
of the Framework Act on National Taxes.
(4) No tax authority shall, when it intends to determine or rectify a resident's
tax base or tax amount pursuant to Article 6-2
(2) of the Act, adjust the
resident's tax base and tax amount after the lapse of five years from the
day immediately following
the time limit for filing a return on tax base
for the taxable year on which the day when the joint development of an
intangible
asset is completed falls.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 14-5 (Determination, etc. on Tax Base for
Price Received from or
Paid to Later Participants or Early Withdrawers)
With regard to the price received for expected benefits that a person, who
participates later in an agreement on the cost allotment
under Article 14-2
(2), gets through such participation or the price paid for expected benefits
that other participants get as
a consequence of a participant's early with-
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
23
drawal from such an agreement, tax authorities may, determine or rectify
the resident's tax base and tax amount based on the arm's
length price,
if the price is less than or exceeds the arm's length price.
[This Article Newly Inserted by Presidential Decree
No. 19650, Aug. 24, 2006]
Article 14-6 (Submission of Statement of Allotted Cost or etc.)
A resident, who desires to become eligible
for the application of Article
14-2 or 14-4, shall submit to the competent tax authority a statement
of allotted cost or etc.,
as prescribed by Ordinance of the Ministry of Strategy
and Finance, along with the return under Article 70 of the Income Tax
Act
or Article 60 of the Corporate Tax Act.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 15 (Disposition of Temporary Suspension)
(1) Tax authorities shall, whenever they intend to make an income dis-
position or tax adjustment pursuant to Article 9 of the Act,
make a disposition
of temporary suspension until it is verified that the return under Article
15-2 has been properly done.
(2) Tax authorities shall, whenever they make a disposition of temporary
suspension under paragraph (1), give notice of such disposition
by serving
a notice of the disposition of temporary suspension as prescribed by
Ordinance of the Ministry of Strategy and Finance,
applying Article 192
(1) of the Enforcement Decree of the Income Tax Act mutatis mutandis.
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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Returned interest = Amount to be returned Period from the day immedi-
ately following the end of the business year on which the
transaction
date falls to the day when the certificate of the return of transferred
income is submitted interest rate determined
and publicly notified
by the Commissioner of the National Tax Service, considering the prevail-
ing interest rate in the international
financial market.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 16 (Disposition, Adjustment,
etc. of Amount Not Verified Whether
Returned)
(1) If the return under Article 15-2 is not verifiable, the amount of which
the return has not been verified may be disposed of
or adjusted in accordance
with the following subparagraphs:
1. If the foreign related party, who is a party to an international trade,
is one of shareholders of the relevant domestic corporation
[including
the cases where the party falls within Article 2 (1) 1], it shall be treated
as the dividend imputed to the foreign
related party;
2. If the foreign related party, who is a party to an international trade,
is a corporation in which the relevant domestic corporation
invests
[including the cases where the party falls within Article 2 (1) 2], it
shall be treated as the increase of investment in
the foreign related
party;
3. If the foreign related party, who is a party to an international trade,
is a domestic business place of a foreign corporation
under Article 94
of the Corporate Tax Act or a domestic business place of a nonresident
under Article 120 of the Income Tax Act,
it shall be treated as a drain
out of the entity; and
4. If the foreign related party, who is a party of an international trade,
is a person other than those under subparagraphs 1 through
3, it shall
be treated as the dividend imputed to the foreign related party.
(2) Tax authorities shall, whenever they make the
disposition or adjustment
under paragraph (1), issue notice of such disposition or adjustment by
serving a notice of the transferred
income, as prescribed by Ordinance
of the Ministry of Strategy and Finance, within 15 days from the expiry
of the time limit for
the submission of the certificate of the return of trans-
ferred income under Article 15-2, applying Article 192 (1) of the Enforcement
Decree of the Income Tax Act mutatis mutandis. In this case, it shall be
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
25
deemed that the dividend is paid on the day when the notice is delivered.
(1) A resident who intends to be subjected to the adjustment of his/her
income amount and final tax amount under Article 10 (1)
of the Act, shall
file a revised return or an application for rectification (including an applica-
tion by the national tax information
and communications networks), within
two months from the date of receiving a notification under Article 27 (2)
of the Act, with
the head of a tax office having jurisdiction over the tax
payment place by presenting a written application for special cases of
income
calculation as provided by Ordinance of the Ministry of Strategy and Finance,
together with a notice of the conclusion of
mutual agreement procedures
issued by the Commissioner of the National Tax Service pursuant to Article
42 (2).
Article 18 (Method of Tax Adjustment in Special Cases of Income Calculation)
(1) The amount obtained by a reduced adjustment of
a domestic corpo-
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
26
ration's income under Article 10 (1) of the Act, and retained in the corpo-
ration without returning to the foreign related party
shall be treated as
the carried-over profit as provided in subparagraph 2 of Article 18 of the
Corporate Tax Act, and shall not
be included in gains of the domestic
corporation.
(2) The income amount to be reduced as a result of an adjustment of the
income amount of a resident who is not a domestic corporation
under Article
10 (1) of the Act, and not returned to a foreign related party shall not
be deemed to be an income amount of the
relevant resident.
Article 19 (Scope of Data Requested by Tax Authorities, and Method of
Submission)
(1) The scope of materials which tax authorities may demand a taxpayer
to submit pursuant to Article 11 (2) of the Act shall include
the materials
concerning the taxpayer or his/her foreign related party, which shall fall
under any of the following subparagraphs:
1. Various relevant contract documents concerning the transfer or purchase
of assets;
2. Price list of products;
3. Statement of manufacturing costs;
4. Specification of trades by item, discriminating between the related par-
ties and the unrelated parties;
5. Documents corresponding to subparagraphs 1 through 4, in the cases
of the offer of services or other trades;
6. Organizational chart of a corporation and a table of division of office
duties;
7. Data for determination of international trade prices;
8. Internal guidelines for pricing among the related parties;
9. Accounting standards and methods relating to the relevant trades;
10. Details of business activities of the parties involved in the relevant
trades;
11. Current status of mutual investments with the specially related parties;
12. Forms or items omitted at the time of returns on the corporate tax
and income tax;
13. Materials with which it is possible to grasp the details of a transaction
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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27
in connection with a service transaction under Article 6-2, as specified
by Ordinance of the Ministry of Strategy and Finance;
14. Materials specified further by Ordinance of the Ministry of Strategy
and Finance including an agreement on cost allotment in
connection
with the tax adjustment by the allotted arm's length cost under Article
6-2 of the Act; and
15. Other data necessary for computing proper prices.
(2) The data falling under paragraph (1) shall be prepared and submitted
in
Korean: Provided, That the data prepared in English may be submitted
in cases where the tax authorities permit to do so.
Article
20 (Application for Extension of Time Limit to Submit
Specifications, etc. of International Trades, and Notification Thereof)
(1)
A person who applies for an extension of the time limit to submit
the data under Article 11 (1) (proviso) and (3) (proviso) of the
Act, shall
submit (including a submission by the national tax information and commu-
nications networks) to the tax authorities
a written application for an
extension of the time limit for submission as provided by Ordinance of
the Ministry of Strategy and
Finance, not later than 15 days before the
time limit of data submission.
(2) The tax authorities shall, within 7 days from the date of receiving
an application for extending the time limit of data submission
under para-
graph (1), notify the applicant of whether such an extension is to be granted.
In this case, where no notification
has been given within 7 days, the time
limit of data submission shall be deemed to have been extended up to the
time limit requested
for extension.
Article 21 (Causes for Extension of Time Limit to Submit Specifications, etc.
of International Trades)
For the purpose of the proviso of Article 11 (1) of the Act, the term
"justifiable reasons as prescribed by Presidential Decree",
and of Articles
11 (3) (proviso), (4) and 12 (1) of the Act, the term "justifiable reasons
as prescribed by Presidential Decree",
mean respectively the cases falling
under any of the following subparagraphs:
1. Where a person requested to submit the data is unable to submit such
data due to a fire, disaster and robbery, etc.;
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
28
2. Where a person requested to submit the data is in a serious business
crisis, and the submission of data is extremely difficult;
3. Where the relevant books and documents are seized or held provisionally
by an agency of authority;
3-2. Where the closing date of taxable year of a foreign related party
does not arrive yet;
4. Where it is impossible to submit the data within the time limit, as
it takes a considerable time to collect and prepare the data;
and
5. Where deemed that it is impossible to submit the data within the
time limit, due to the causes corresponding to subparagraphs
1
through 4.
Article 22 (Imposition and Collection of Fine for Negligence)
(1) The tax authorities shall, when imposing a fine for negligence
pursuant
to Article 12 (2) of the Act, notify the person subject to a disposition of
fine for negligence to pay the said fine,
by clarifying in writing the fact of
offense, method of objection, period of objection and amount of such fine,
after an investigation
and verification of the offenses.
(2) The tax authorities shall, where they intend to notify pursuant to para-
graph (1), provide
the person subject to a disposition of a fine for negligence
with an opportunity to state his/her opinion orally or in writing by
fixing
in advance the period of not less than 10 days. In this case, if he/she
fails to make the statement of his/her opinion by
the fixed date, he/she
shall be deemed to have no opinions.
(3) The tax authorities shall, when determining a fine for negligence, take
account of the motive of offense and consequences thereof,
etc.
(4) The tax authorities may, where the person requested to submit the
data fails to submit a part of data or causes some mistakes
in a part of
items due to a minor error, waive the imposition of a fine for negligence, after
receiving the supplementary data.
(5) Where failing to submit the data falling under Article 19 (1) 15, the
fine for negligence shall not be imposed.
Article 23 (Judgment on Whether Taxpayer is Liable for Negligence)
(1) In judging whether or not a taxpayer is liable for negligence
under
Article 13 of the Act, he/she shall be deemed not to be liable for negligence,
if he/she meets the requirement falling under
any of the following subpara-
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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29
graphs:
1. The taxpayer shall demonstrate the process to have selected the most
rational method, from among those as provided in Article
5 (1) 1 through
3 of the Act and Article 4 of this Decree, by means of the documents
prepared at the time of the final return on
tax base and tax amount;
2. The taxpayer shall actually apply the method selected under subpara-
graph 1; and
3. The taxpayer shall keep and store the data required in connection with
the arm's length price computation method under subparagraphs
1 and
2.
(2) Where a resident who has obtained a prior approval of the arm's length
price computation method under Articles 11 (6) and
11-2 (2) files a revised
return on the tax base and tax amount of the corporate tax under Article
17, an additional tax shall not
be imposed pursuant to Article 13 of the
Act.
INTEREST PAID TO FOREIGN
CONTROLLING
SHAREHOLDER
Article 24 (Scope of Borrowings)
(1) The scope of borrowings under Article 14 (1) of the Act shall be the
liabilities which generate the interest and discount fees:
Provided, That
the amount borrowed in foreign currency by a domestic branch of a foreign
bank under the Banking Act upon request
of the Government (including
the Bank of Korea under the Bank of Korea Act), or the amount deposited
by and borrowed from, in foreign
currency, the head office or branch office
of the relevant foreign bank in order to use it by one of the following methods,
shall
be excluded: 1. Method to deposit or loan out in foreign currency to a nonresident
or a foreign exchange bank under the Foreign Exchange Transactions
Act; and
2. Method to accept or trade the bonds in foreign currency issued by a
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
30
nonresident or a foreign exchange bank under the Foreign Exchange
Transactions Act.
(2) In applying paragraph (1), where it is unclear that the amount is deposited
by or borrowed from, in foreign currency, the head
office or branch office
of the foreign bank, and where it may be discriminated by the source ratio
of funds stated on the balance
sheet, etc. for the relevant business year
(based on the annual average balances), the amount obtained by calculating
under the
said ratio shall be treated as the amount borrowed from the
head office or branch office. In this case, the annual average balances
may
be calculated by day or month.
Article 25 (Calculation Method of Non-deductible Expenses)
(1) The method of computing the amount deemed to be the non-deductible
expenses under Article 14 (1) of the Act shall be as follows:
Non-deductible expenses =
Interest and discount fees
payable by a domestic
corporation (including a
domestic business place of a
foreign corporation; hereafter
in this Chapter, the same shall
apply) to its foreign controlling
shareholders (including a third
party providing loans to the
domestic corporation under the
foreign controlling
shareholder's guarantee;
hereinafter the same shall
apply)
Multiplied number of total debts of
domestic corporation from its
foreign controlling shareholder -
Three times of Multiplied number of
equity investment of foreign
controlling shareholder in the
domestic corporation
Multiplied number of total debts of
domestic corporation from its foreign
controlling shareholder
(2) The term "interest and discount fees payable by a domestic corporation
to the foreign controlling shareholder" in paragraph
(1) shall mean all interest
incomes generated from the borrowings under Article 24,
such as an amortization of differences in issuing
the bond at discount and
a discount charge of a kite bill, etc., whose economic substance corresponds
to interests: Provided, That
the interest of construction capital funds shall
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
31
be excluded from the scope of interests and discount fees.
(3) The term "equity investment of foreign controlling shareholder in
the
domestic corporation" in paragraph (1) and Article 27 (2) means an amount
obtained by multiplying the ratio of the capital
paid by the foreign controlling
shareholder to the total amount of paid-in capital as of the end of the
business year of the relevant
domestic corporation: Provided, That in the
case of the domestic business place, such amount means the amount that
is obtained
by deducting the total liabilities from the total asset amount
on the balance sheet of the business place as of the end of each
business
year:
1. An amount obtained by deducting the total liabilities (including reserves
and excluding the unpaid corporation tax) from the total
asset amount
on the balance sheet as of the end of the relevant business year; and
2. The paid-in capital as of the end of the relevant business year (an amount
obtained by adding capital in excess of par value of
shares issued and
gains from capital reduction to the capital and subtracting discount on
capital stock and loss arising from the
reduction of legal capital from
the capital.
(4) If there is any change in capital due to a merger or division, or increase
or reduction of capital during the relevant business
year, the sum of multi-
plied numbers, which are calculated separately into the period starting
from the first day of the relevant
business year to the day before the date
of any change, and the period starting from the date of such change to
the last day of
the relevant business year, shall be the multiplied amount
as referred to in paragraph (3) 1, or the multiplied paid-in capital
as
referred to in subparagraph 2 of the same paragraph.
(5) In applying paragraph (3), where the foreign controlling shareholder in-
directly owns the shares of a domestic corporation,
the calculation of the
ratio occupied by the foreign controlling shareholder's paid-in capital
in the total paid-in capital shall
be based on one of the following methods:
1. Where one or more corporations interpose between a foreign controlling
shareholder and a domestic corporation by means of a stock
ownership,
and all of them correspond to the relationship connected in tandem
(hereinafter referred to as the "tandem investment
relationship"), the
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
32
ratio of foreign controlling shareholder's paid-in capital in the domestic
corporation shall be computed by multiplying all equity
ratios in every
phase; and
2. Where there exist two or more tandem investment relationships
between a foreign controlling shareholder and a domestic corporation,
the
ratio of foreign controlling shareholder's paid-in capital in the domestic
corporation shall be computed by adding up all paid-in
capital ratios
computed in a respective tandem investment relationship.
(6) In applying Article 14 (1) of the Act, the interest
on the debt from a
foreign controlling shareholder which is not included in deductible expenses
shall be deemed to have been disposed
of as a dividend under Article 67
of the Corporate Tax Act, and the interest on the debt from a third party
under a payment guarantee
of a foreign controlling shareholder which
is not included in deductible expenses shall be deemed to have been
disposed of as an
outflow of income under Article 67 of the Corporate Tax
Act.
(7) In applying paragraph (6), where the interest on the debt from a foreign
controlling shareholder and the interest on the debt
from a third party
under a payment guarantee of a foreign controlling shareholder have con-
currently incurred within the identical
tax period, the non-deductible inter-
ests shall be divided in proportion to the ratio of the borrowings from
a foreign controlling
shareholder versus the debt from a third party under
a payment guarantee of a foreign controlling shareholder, and be deemed
to
have been disposed as a dividend and an outflow of income, respectively
under Article 67 of the Corporate Tax Act.
Article 26 Deleted.
(1) Where a domestic corporation, whose multiplier of borrowings against a
foreign controlling shareholder's equity in investment
exceeds as much
as three times, intends to be subjected to the application of Article 14 (3)
of the Act, it shall submit the data
falling under any of the following subpara-
graphs to a tax authority within the time limit for filing a return under
Article 60
(1) of the Corporate Tax Act:
33
15970, Dec. 31, 1998; Presidential Decree No. 17045, Dec. 29, 200; Presidential Decree No.
19650, Aug. 24, 2006; Presidential Decree
No. 20494, Dec. 31, 2007>
1. Data attesting that the relevant borrowings shall actually not corre-
spond to the capital contribution, when taking account of
the interest
rate, maturity, payment method, possibility of conversion into capital,
priority over other claims, etc.; and
2. Data on the multiplier of borrowings against the equity capital of a
comparable corporation carrying on the same business type
as that
of the relevant domestic corporation (hereinafter referred to as the
"comparable multiplier"). In this case, the term "comparable
corpo-
ration" means the corporation having a representative nature in its
multiplier of borrowings from among the domestic corporations
having
a business size and managerial conditions, etc. similar to those of the
relevant domestic corporation.
(2) Where the multiplier of borrowings against a foreign controlling
shareholder's equity in investment in a domestic corporation
exceeds
the comparable multiplier, the computing method of the non-deductible
expense of the domestic corporation shall be as follows:
Non-deductible expenses =
Interest and discount
fees payable by a
domestic corporation
to its foreign
controlling
shareholder
Multiplied number of total debts of a domestic
corporation from its foreign controlling
shareholders - Multiplied number of the foreign
controlling shareholder s investment amount in
a domestic corporation comparable multiplier
Multiplied number of total debts of a domestic
corporation from its foreign controlling
shareholders
Article 28 (Adjustment of Withholding Tax Amount)
A domestic corporation shall, where it has a payable tax amount after
offsetting
the withholding taxes under Article 14 (4) of the Act, it shall
pay the tax amount to the head of a tax office having jurisdiction
over
the tax payment place not later than the tenth of the month next to that
on which the time limit for filing a return under
Article 60 (1) of the Corporate
Tax Act falls, and where it has a refundable tax amount, it may ask the
ENFORCEMENT DECREE OF THE
ADJUSTMENT OF
INTERNATIONAL TAXES ACT
34
head of a tax office having jurisdiction over the tax payment place for a
refund of the relevant amount.
A domestic corporation which has borrowed funds from a foreign controlling
shareholder (including a payment guarantee) shall submit
a specification
of adjustment of interests payable to a foreign controlling shareholder
and a specification of adjustment of withholding
taxes as provided in
Ordinance of the Ministry of Strategy and Finance, to the head of a tax
office having jurisdiction over the
tax payment place at the time of a final
return of tax base and tax amount of corporate tax under Article 60 (1)
of the Corporate
Tax Act.
[This Article Newly Inserted by Presidential Decree No. 15196, Dec. 31, 1996]
CHAPTER TAX ADJUSTMENT
CONCERNING INCOME OF
CORPORATION RETAINED IN
TAX HAVEN
Article 29 (Scope of Corporation's Actually Accrued Income)
(1) The scope of a corporation's actually accrued income under Article
17 (1) of the Act shall refer to the net income per books before deducting
the corporate tax, which has been computed under the
generally accepted
accounting principles applied to the preparation of financial statements
in a state or region where the head
or main office of the relevant corporation
is located (hereafter in this Chapter, referred to as the "resident state"):
Provided,
That where the accounting principles generally accepted in
the resident state are remarkably different from the Korean corporate
accounting principles, the net income per books before deducting the
corporate tax on the financial statements computed by applying
the Korean
corporate accounting principles shall be deemed the actually accrued income.
INTERNATIONAL TAXES ACT
35
imposed on the corporate income computed under the tax laws of the resident
state of the relevant foreign corporation, and other
taxes incidental to
them.
Article 30 (Determination of Tax Haven)
(1) For the purpose of Article 17 (1) of the Act, the term "a state or a
region where taxes are not imposed on the entire or a substantial
part
of a corporation's actually accrued income" means a state or a region des-
ignated and publicly notified by the Commissioner
of the National Tax
Service with a prior approval of the Minister of Strategy and Finance,
taking into consideration the states
or regions designated and publicly
notified as tax havens by the Organization for Economic Cooperation and
Development (OECD) or
any of its member states.
INTERNATIONAL TAXES ACT
36
three business years including the relevant business year (or it shall be
the period until the relevant business year, if the period
is less than three
business years; hereinafter referred to as the "latest three business years").
In this case, the tax amount
actually borne shall include the tax amount
on the corporation's actually accrued income paid to other states than
the relevant
resident state.
(3) Deleted.
1. Distribution of profits or surplus appropriation pursuant to the appropri-
ation of surplus earnings executed in the relevant
business year;
2. Bonus, severance pay and any other outflow of incomes pursuant to
the appropriation of surplus earnings executed in the relevant
business
year;
3. Obligatory reserve or obligatory appropriation of surplus earnings as
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
37
determined by the Acts and subordinate statutes of the relevant resident
State in the relevant business year;
4. The amount yet subjected to the appropriation of surplus earnings under
subparagraphs 1 and 2, out of those already taxed by deeming
to have
been distributed to the relevant national under Article 17 (1) of the
Act before the date of commencing the relevant business
year;
5. The amount of surplus earnings under subparagraphs 1 and 2 not appro-
priated yet out of the surplus earning (excluding the amount
under
subparagraphs 6 and 7) accrued when Article 17 of the Act was not
applied;
6. The amount of surplus earnings under subparagraphs 1 and 2 not
appropriated yet out of the appraised gains under Article 29 (3);
7. The appraised loss under Article 29 (3); and
8. The amount under Article 34-2.
(2) In cases where a specific foreign corporation has retained any income
distributable, as computed
in accordance with paragraph (1), before the
enforcement date of the amendment to the Enforcement Decree of the
Adjustment of International
Taxes Act (Presidential Decree No. 15196)
and the amount under paragraph (1) 4 through 6 before the commencement
date of the pertinent
business year, it shall be deemed that the said amounts
have been appropriated preferentially as surplus earnings, when the surplus
earnings under paragraph (1) 1 and 2 are appropriated.
Article 32 (Computation of Amount Deemed to be Dividend)
(1) The amount deemed to be a dividend under Article 17 (1) of the Act
shall be calculated by multiplying the distributable retained earnings of
a specific foreign corporation by a shareholding ratio
of relevant national
in a specific foreign corporation.
(2) Where one or more corporations interpose between a national and a
specific foreign corporation by means of a stock ownership,
and all of
them are connected in the tandem investment relationship, the share-
holding ratio of a national in a specific foreign
corporation shall be computed
by multiplying all equity ratios in every phase.
(3) When there exist two or more tandem investment relationships be-
tween a national and a specific foreign corporation, the shareholding
ratio
of a national in a specific foreign corporation shall be computed by summing
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
38
up all shareholding ratios computed at the respective tandem investment
relationship.
(4) Where one or more domestic corporations interpose between a national
and a specific foreign corporation by means of a stock
ownership in applying
paragraph (2), the amount deemed to be a dividend shall not be computed
among the nationals.
In applying Article 32, the amount deemed a dividend shall be converted
by applying the exchange rate as of the 60th day next to
the end of each
business year of the relevant specific foreign corporation, but the said
exchange rate shall be governed by Ordinance
of the Ministry of Strategy
and Finance.
Article 34 (Decision on Share Ownership, etc.)
In applying Article 17 (2) of the Act, the provisions of Article 2 (2)
shall apply mutatis mutandis to the calculation of the indirect
shareholding
ratio.
Article 34-2 (Computation of Amount Excluded from Scope of Actually
Accrued Income)
The term "the amount specified by Presidential Decree" in Article 17 (3)
of the Act means the amount obtained by converting an amount
computed
in accordance with Article 29 (1) through (3) by the reference exchange
rate or the arbitrated exchange rate under the
Foreign Exchange
Transactions Act as of the end of each business year, which shall not exceed
100 million won. In this case, the
amount shall be computed by dividing
100 million won by 12 and multiplying the sum by the number of months
of the pertinent business
term, if the pertinent business term is less than
one year.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 35 (Requirements for Decision on Scope of
Application)
(1) For the purpose of Article 18 (1) 1 of the Act, the term "requirements
prescribed by Presidential Decree" refers
to those falling under any of
the following subparagraphs:
1. The aggregate of the revenue amount or of the purchase cost generated
from the business lines listed in Article 18 (1) 1 of the
Act shall exceed
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
39
50/100 of the total revenue amount or the total purchase cost: Provided,
That it shall be based on the aggregate for the latest
three business
years, in case of a wholesale business; or
2. The amount of trades with a specially-related party, out of the aggregate
of the revenue amount or of the purchase amount generated
from the
business lines listed in Article 18 (1) 1 of the Act, shall exceed 50/100
of the aggregate of the revenue amount or of
the purchase cost generated
from the said business lines.
(2) For the purpose of Article 18 (1) 1 of the Act, the term "business
services as prescribed by Presidential Decree" means other
business services
than those as described in the following subparagraphs:
1. Data processing-and computer operation-related services; and
2. Construction technology and engineering services.
[This Article Wholly Amended by Presidential Decree No. 15196, Dec. 31, 1996]
Article 36 (Decision of Primary Business)
For the purpose of Article 18 (1) 2 of the Act and the part above subpara-
graphs of Article 18-2 of the Act, the term "primary
business" means
the business which generates the revenue amount exceeding 50/100 of
the total revenue amount of the relevant specific
foreign corporation.
The expression "where a specific foreign corporation ...... meets the require-
ments prescribed by Presidential Decree by purchasing
products from a
related party who engages in a manufacturing business in the same area
as where the corporation is situated or
in any other way" in Article 18
(4) of the Act means the case where the following requirements are all
met. In such case, a domestic
corporation shall be deemded as a specific
foreign corporation, in applying Article 2 to special relationships as referred
to in
the following subparagraphs: 1. The amount purchased from the related party who engages in a manu-
facturing business situated in the same region or state (hereinafter
referred to as the "same region, etc.") as specified by Ordinance of
the Ministry of Strategy and Finance shall exceed 50 percent
of total
purchase cost; and
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
40
2. The amount sold to an unrelated person situated in the same region,
etc. shall exceed 50 percent of total sales.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 36-3 (Requirements, etc. for Affiliated Company)
(1) The expression "a foreign corporation that meets the requirements pre-
scribed by Presidential Decree" in Article 18-2 of the
Act, with the exception
of its subparagraphs, means a foreign corporation that meets all the following
requirements:
1. It shall have its head office or principal place of business in the same
region, etc. as the one of a specific foreign corporation;
2. The specific foreign corporation shall own 50 percent or more of total
number of its outstanding stocks or total amount of its
investment;
and
3. It shall not be subject to the application of Article 17 (1) of the Act.
(2) The term "ratio specified by Presidential Decree"
in subparagraph 2
of Article 18-2 of the Act means 90 percent.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 36-4 (Request for Rectification)
(1) A person, who desires to be eligible for the application of Article 19
(2) of the Act, shall compute again the tax base and
tax amount of income
tax or corporate tax for the year for which the deemed dividend was included
in gains according to Article
19 (1) of the Act, and shall file a request
for rectification concerning the refund of the same amount along with an
accompanying
statement of the tax credit for the taxes paid in a foreign
state, as prescribed by Ordinance of the Ministry of Strategy and Finance,
at the time of filing a return on income tax or corporate tax for the taxable
year during which the dividend was actually received.
(2) A person who intends to request the rectification under paragraph (1)
may file a request for rectification along with evidencing
documents within
45 days from the day on which a foreign government notifies him of the
determination of tax amount for the overseas
dividend income, if it is impos-
sible to file a request for rectification at the time of filing the return on
income tax or corporate
tax because of delay in determination and notice
of the tax amount for the dividend income by the foreign government,
difference
in the taxable period, etc.
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
41
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
Article 36-5 (Method to Exclude Actual Dividends from
Gross Income)
(1) Where a specific foreign corporation has paid dividends actually
(including dividends or distributions under
any subparagraph of Article
16 (1) of the Corporate Tax Act) to a national, it shall be deemed that
the actual dividends have been
paid from retained earnings in the order
of accrual of the distributable retained earnings.
(2) Where a national has invested in a foreign corporation, and the said foreign
corporation (hereinafter referred to as the "intermediate
corporation") has
in turn invested in a specific foreign corporation, if the intermediate corpo-
ration pays dividends actually
to the national, such dividends shall be
treated as the earnings carried forward under subparagraph 2 of Article
18 of the Corporate
Tax Act or the one that does not fall within the
dividend income under Article 17 (1) of the Income Tax Act (hereinafter
referred
to as "carried forward earnings, etc."): Provided, That such car-
ried forward earnings, etc. shall not exceed the lesser amount
of the
following subparagraphs:
1. The amount calculated by deducting the actual dividends, which have
been already paid by the intermediate corporation to the national
during
the bygone business year, from the aggregate of the amount obtained
by multiplying the actual dividends paid by a specific
foreign corporation
to the intermediate corporation (including the dividends or distributions
under each subparagraph of Article
16 of the Corporate Tax Act) by
the shareholding ratio of the national to the intermediate corporation
at the time of actual dividends;
or
2. The amount calculated by deducting the amount already treated as
the carried forward earnings, etc. from the aggregate of the
amount
deemed to be a dividend to the relevant national for ten years retro-
spectively from the date of commencing the relevant
business year.
(3) The provisions of paragraph (2) shall apply mutatis mutandis to the
case where two or more intermediate corporations
interpose between the
national and the specific foreign corporation.
[This Article Newly Inserted by Presidential Decree No. 15196, Dec. 31, 1996]
Article 37 (Submission of Taxation Data)
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
42
(1) A national subject to Articles 17 through 20 of the Act shall submit
to the head of a tax office having jurisdiction over the
tax payment place
the related documents, such as financial statements, corporate tax return
and supplementary documents, basis
for computing distributable retained
earnings of the specific foreign corporation, and other documents as
prescribed by Ordinance
of the Ministry of Strategy and Finance, at the
time of final return on tax base and tax amount of corporate tax for respective
business years, or of final return on tax base and tax amount of composite
income tax for respective taxable years.
(2) A national who has directly or indirectly invested in a foreign corporation
setting up the head or main office or the substantial
management venue of
the business described in Article 18 (2) of the Act in the state or region
under Article 30 (1) or (2) (applicable
only to a national to whom Articles
17, 18, 18-2, 19, and 20 of the Act shall apply), shall submit to the head
of tax office having
jurisdiction over the tax payment place a specification
of overseas investment as determined by Ordinance of the Ministry of
Strategy
and Finance at the time of final return on tax base and tax amount
of corporate tax for respective business years, or of final return
on tax
base and tax amount of composite income tax for respective taxable years.
ON OVERSEAS GIFT
Article 38 (Market Price Computation of Overseas Gift Property)
(1) In computing the market price of the gift property pursuant
to the
purview of Article 21 (2) of the Act, where any value falling under any
of the following subparagraphs is verified, such
value shall be treated as
the market price of the relevant gift property:
1. Actual sale price, realized within 6 months before and after the date
of donation of a gift property;
2. Appraised value by an appraisal institution with public confidence,
evaluated within 6 months before and after the date of donation
of
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
43
a gift property; and
3. Compensation price for a gift property, fixed through an expropriation,
etc. within 6 months before and after the date of donation
of a gift
property.
(2) For the purpose of the proviso to Article 21 (2) of the Act, the term
"method as specified by Presidential Decree" means an
evaluation of the
value of a gift property by applying mutatis mutandis Articles 61 through
65 of the Inheritance Tax and Gift
Tax Act: Provided, That where it
is inappropriate to evaluate the value of a gift property by applying mutatis
mutandis Articles
61 through 65 of the Inheritance Tax and Gift Tax Act,
it shall refer to an evaluation by the land appraisal corporation incorporated
pursuant to the Public Notice of Values and Appraisal of Real Estate Act.
(3) The evaluation method pursuant to Article 63 of the Inheritance Tax and
Gift Tax Act shall be applied mutatis mutandis to the
computation of the
value of securities.
CHAPTER MUTUAL AGREEMENT
PROCEDURES
Article 39 (Application, etc. for Commencement of Mutual Agreement
Procedures)
(1) Any taxation that is not coinciding with the provisions of the tax
treaty under Article 22 (1) 2 of the Act shall contain the
taxation falling
under any of the following subparagraphs:
1. Unjustifiable taxation by a Contracting State, which fails to coincide
with the tax laws or the method of tax imposition is in
error; and
2. Unjustifiable taxation by a Contracting State, which is remarkably
inequitable or imposed discriminately.
(2) Any national, resident or domestic corporation intending to apply for com-
mencing the mutual agreement under Article 22 of
the Act (hereafter
in this Chapter, referred to as the "applicant") shall submit the documents
falling under any of the following
subparagraphs to the Minister of Strategy
and Finance or the Commissioner of the National Tax Service:
44
by Presidential Decree No. 17045, Dec. 29, 2000; Presidential Decree No. 20720, Feb. 29,
2008>
1. A written application for commencing the mutual agreement procedures
as provided by Ordinance of the Ministry of Strategy and
Finance;
2. Financial statements and tax returns relevant to an application for
commencing the mutual agreement procedures;
3. An appeal, in cases where the applicant or his/her foreign related party
files an appeal for dissatisfaction;
4. A confirmation note of a special case application to imposition limitation
periods as provided by Ordinance of the Ministry of
Strategy and
Finance; and
5. A written opinion of the applicant on the period of the mutual agreement
procedures as provided by Ordinance of the Ministry of
Strategy and
Finance.
(3) The Commissioner of the National Tax Service shall, pursuant to Article
22 (3) and (5) of the Act, submit to the Minister of
Strategy and Finance
a quarterly report on the current status of applications for commencement,
and progresses, of the mutual agreement
procedures (including the current
status of progress of the mutual agreement procedures, whose commence-
ment has been requested
by the Contracting State) within 15 days from
the expiration of each quarter.
1. Whether or not to fall under Article 22 (1) 1 through 3 of the Act;
and
2. Whether or not the tax authorities are able to make a rational adjustment
by taking necessary measures, without bothering with
commencing the
mutual agreement procedures.
(5) The Minister of Strategy and Finance or the Commissioner of the
National Tax Service may, when it fails to meet the requirements
for an
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
45
application for the mutual agreement procedures as a result of reviews
under paragraph (4), request the applicant to supplement
it and refile
the said application.
(6) The Minister of Strategy and Finance or the Commissioner of the National
Tax Service may, where the applicant consents thereto
even after filing
an application for commencing the mutual agreement procedures, refrain
from requesting a Contracting State to
commence the mutual agreement
procedures, or discontinue the mutual agreement procedures which have
already commenced.
Article 40 (Special Exception to Deferment of Collection, etc.)
(1) and (2) Deleted.
1. A written application for the special exception to deferment of collection,
etc., as provided by Ordinance of the Ministry of
Strategy and Finance;
and
2. A copy of the notification of commencing the mutual agreement proce-
dures issued by the Commissioner of the National Tax Service.
(4) The head of a tax office having jurisdiction over the tax payment place
or the head of a local government in receipt of an
application under paragraph
(3) shall, in applying Article 24 (2) and (3) of the Act, not grant to the
deferment of tax payment
notice, of collection of taxes, or of disposition
in the arrears in the case falling under any of the following subparagraphs.
In this case, where the deferment of tax payment notice, of collection of
taxes, or of disposition in arrears has been already granted,
such deferments
shall be canceled without delay, and the tax amount and delinquent taxes
related to such deferments shall be at
once collected:
1. Where the applicant has defaulted on his/her taxes in the past;
2. Where the applicant fails to comply with an obligation to submit the
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
46
data under Article 11 of the Act; and
3. Where there exists a remarkable possibility for losing a taxation right.
Article 41 (Calculation Method of Additional Amount Equivalent
to
Interest)
Where any deferment of collection of taxes or of disposition in arrears is
granted under Article 24 (5) of the Act, the method of
calculating the
additional amount equivalent to the interest to be added to the national
taxes or local taxes, shall be as follows:
Additional amount equivalent to interest = Relevant national tax or
local tax subjected to the deferment of collection or of disposition
for
arrears (where an adjustment is made under the mutual agreement proce-
dures, the relevant adjusted amount) Number of days
until the closing
day of mutual agreement from the day arriving later between the day
next to the deadline of tax payment, and
the commencing day of mutual
agreement the rate provided in subparagraph 4 of Article 27 of the
Enforcement Decree of the Framework
Act on National Taxes.
Article 41-2 (Notification of Fact of Deferring Notifications, etc.)
Where any deferment of notification,
notification of installed payment,
deferment of tax collection, or deferment of disposition for arrears (hereafter
in this Article,
referred to as the "deferment of notification, etc.") is applied
on the income tax amount or the corporate tax amount under Article
24
(7) of the Act, the fact of the deferment of notification, etc. shall, when
the taxpayer is notified of the deferment of notification,
etc., be notified
to the head of a local government having jurisdiction over the local taxes
to be added to the relevant income
tax amount or corporate tax amount,
by applying mutatis mutandis Article 24 of the Enforcement Decree of the
National Tax Collection
Act.
[This Article Newly Inserted by Presidential Decree No. 17045, Dec. 29, 2000]
Article 42 (Report on Terms and Conditions Mutually
Agreed, and Notice
Thereof)
(1) The Commissioner of the National Tax Service shall, when the mutual
agreement procedures are concluded, submit without delay
to the Minister
of Strategy and Finance a copy of the mutual agreement under Article
27 (1) of the Act.
47
Decree No. 20720, Feb. 29, 2008>
(2) A notification of a conclusion of mutual agreement procedures under
Article 27 (2) of the Act shall be made by the notification
form of a conclusion
of mutual agreement procedures as provided by Ordinance of the Ministry
of Strategy and Finance.
(3) The heads of tax authorities or of local governments shall, where they
have made a tax imposition, revised decision, and taken
the measures
required under tax laws under Article 27 (3) of the Act, notify the Minister
of Strategy and Finance or the Commissioner
of the National Tax Service
of the said fact, within 15 days from the day next to that on which such
measures have been taken.
(1) A person who intends to apply for the extended application of the terms
and conditions mutually agreed upon in accordance with
Article 27-2 (1)
of the Act shall file an application with the head of the competent tax
authority or local government along with
the following documents:
1. Application for the extended application of terms and conditions mu-
tually agreed upon, as prescribed by Ordinance of the Ministry
of
Strategy and Finance; and
2. Documents proving that the requirements under subparagraphs of Article
27-2 (1) of the Act are all met.
(2) The term "requirements prescribed by Presidential Decree" in Article
27-2 (1) 3 of the Act means that the ordinary profit or
net income rate
from the transaction as applied at the time of computing the arm's length
price shall be identical.
[This Article Newly Inserted by Presidential Decree No. 19650, Aug. 24, 2006]
CHAPTER TAX COOPERATION BETWEEN
STATES
Article 43 (Procedure for Issuance of Resident Certificate)
(1) A person who intends to submit the resident certificate to a Contracting
State in order to be subjected to the application of limited tax rate in a
Contracting State under Article 29 (2) of the Act, shall
submit a written
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
48
application for an issuance of resident certificate as provided in Ordinance
of the Ministry of Strategy and Finance to the head
of tax office having
jurisdiction over the tax payment place.
1. A written request to entrust the tax collection between the states as
provided by Ordinance of the Ministry of Strategy and Finance;
2. Documents related to the nationality and current status of residence
of the person liable for tax payment, a person jointly and
severally
liable for tax payment under Article 25 of the Framework Act on National
Taxes or Article 18 of the Local Tax Act, and
a person secondarily
responsible for tax payment under Articles 38 through 41 of the
Framework Act on National Taxes or Articles
19 through 24 of the
Local Tax Act; and
3. Documents related to the current status of properties owned home and
abroad by a person liable for tax payment, a person jointly
and severally
liable for tax payment, and a person secondarily responsible for tax
payment.
(2) The Commissioner of the National Tax Service shall, upon receipt of
a request to entrust the tax collection under paragraph
(1), decide whether
or not to comply with such request for tax entrustment, after reviewing
matters falling under any of the following
subparagraphs:
1. The nationality, residence and property ownership of the person liable
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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49
for tax payment;
2. Current status of the joint and several tax liability and of a security
for tax payment;
3. Possibility for losing the taxation rights;
4. Extinctive prescription of taxation right; and
5. Other matters necessary for tax collection.
(3) The Commissioner of the National Tax Service shall, where he/she
makes a decision
on the entrustment of tax collection under paragraph
(2), request the competent authority of a Contracting State to collect
such
tax.
(4) The Commissioner of the National Tax Service shall, upon receipt of
a notification of disposition results of tax collection
from a Contracting
State, immediately notify the head of tax office having jurisdiction over
the tax payment place or of local
government of the details of such
notification.
Article 45 (Procedures for Entrusted Tax Collection)
(1) The Minister of Strategy and Finance shall, upon receipt of an entrust-
ment of tax collection from the competent authority of a Contracting State,
delegate the disposition thereof to the Commissioner
of the National Tax
Service. In this case, the Commissioner of the National Tax Service shall
make a report on the results of such
disposition to the Minister of Strategy
and Finance.
(2) The Commissioner of the National Tax Service shall, where he/she
is entrusted with a tax collection by the competent authority
of a
Contracting State or is delegated to dispose of the tax collection by the
Minister of Strategy and Finance under paragraph
(1), without delay
notify the person subject to a tax collection who resides in Korea of the
fact of being entrusted with such
tax collection. In this case, the
Commissioner of the National Tax Service may demand the said subjected
person to submit the vindicating
data thereof.
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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50
(4) The Commissioner of the National Tax Service shall, where he/she
examines whether or not he/she cooperates in a tax collection
for a
Contracting State, take account of matters falling under any of the following
subparagraphs:
1. Documents secured under paragraphs (2) and (3);
2. Matters provided in each subparagraph of Article 44 (2); and
3. Whether or not a Contracting State provides the Republic of Korea
with a cooperation in tax collection under the principle of
reciprocity.
(5) The Commissioner of the National Tax Service may, if deemed necessary
in connection with an examination under
paragraph (4), request a
Contracting State to make a consultation thereon.
(6) The Commissioner of the National Tax Service shall,
where he/she
decides to cooperate with a Contracting State for a tax collection, without
delay instruct the head of tax office
having jurisdiction over the tax payment
place to collect the relevant taxes.
(7) The head of tax office in receipt of an instruction to collect taxes
under paragraph (6), shall collect the relevant tax under
the conditions
as provided by the National Tax Collection Act, and report the results
thereof to the Commissioner of the National
Tax Service. In this case,
any expenses incurred in excess of the regular collection expense in con-
nection with tax collection
shall be deducted from the collected taxes
and paid to the National Treasury, and the details of such calculation
shall be reported
to the Commissioner of the National Tax Service.
Article 46 (Remittance of Collected Taxes)
(1) The Commissioner of the National Tax Service in receipt of the report
from the head of tax office under Article 45 (7) shall
notify a Contracting
State of the results of tax collection under entrustment, together with
the details of deductions of collection
expenses.
(2) The method of remitting a Contracting State's taxes collected in
Korea or the Korean taxes collected in a Contracting
State shall be de-
termined by a consultation with the competent authority of the Contracting
State.
(3) The Commissioner of the National Tax Service shall, where he/she
has received a remittance of Korean taxes collected in a Contracting
State,
revert such amount to the National Treasury or to the tax income account
of a local government.
Article 47 (Exchange of Tax Information and Financial Information)
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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51
(1) The term "nonresident as prescribed by Presidential Decree" as referred
to in Article 31 (2) of the Act, excluding its subparagraphs,
means any
nonresident except for a person having the nationality of the Republic of
Korea and any resident having foreign nationality.
(2) Where the Commissioner of the National Tax Service requests the
offering of financial information pursuant to Article 31 (2)
of the Act, such
a request shall be made in accordance with the standard form as prescribed
in Article 4 (2) of the Act on Real
Name Financial Transactions and
Guarantee of Secrecy. In this case, it shall be accompanied by a copy of
a request for the offering
of financial information submitted by the
Contracting State concerned.
(3) The Commissioner of the National Tax Service shall, where he/she
provides tax or financial information of a specific taxpayer
upon request
of the competent authority of a Contracting State pursuant to Article 31
(1) or (2) of the Act, notify the relevant
taxpayer or his/her agent of the
fact that the said tax or financial information has been provided, the details
of such information
provided, etc. in accordance with the notice of the
details of information provided, as prescribed by Ordinance of the Ministry
of Strategy and Finance, within 10 days from the day of such provision
(where the notification is deferred in accordance with paragraph
(4), from
the day when the deferment period terminates).
1. Where such notification is likely to jeopardize the safety of a person's
life or body;
2. Where it is evident that such notification is likely to obstruct the fair
progress of judicial proceedings due to any such cause
as the destruction
of evidence, a threat to a witness, etc.; and
3. Where it is evident that such notification is likely to obstruct or ex-
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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52
cessively delay the progress of administrative procedures such as inquiry
and examination.
[This Article Wholly Amended by Presidential Decree No. 17832, Dec. 30, 2002]
Article 48 (Cooperation in Tax Audit)
The Commissioner of the National Tax Service or any person delegated
with his/her authorities may consult with the competent authority
of a
Contracting State on matters necessary for a cooperation in the tax audit
between the states, such as the procedure, method
and scope, etc. of the
cooperation in the tax audit.
ADDENDA
Article 1 (Enforcement Date)
This Decree shall enter into force on January 1, 1996: Provided, That
the provisions of Articles 9 through 14, and 24 through 37
shall enter
into force on January 1, 1997, but where the business year commences
on January 1, 1997, in applying Article 9 (1),
the applicant shall submit
the relevant documents within one month after the commencement of
the relevant business year.
Article 2 (Applicability concerning Income Calculation)
The provisions concerning the incomes in this Decree shall apply from the
portion first accruing on and after the enforcement date of this Decree.
Article 3 Omitted.
ADDENDA 1997.
(2) (Applicability concerning Income Calculation) The provisions concerning
the incomes in this Decree shall apply from the
portion first accruing on
and after the enforcement date of this Decree.
ADDENDA
(2) (Applicability) This Decree shall apply to the portion of the business
year first closed on or after the enforcement date of
this Decree.
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
53
ADDENDA
This Decree shall enter into force on January 1, 1999. (Proviso Omitted.)
Articles 2 through 19 Omitted.
ADDENDA
This Decree shall enter into force on January 1, 2001: Provided, That
the amended provisions of Articles 30 (3) and 37 (2) shall
enter into force
on January 1, 2002.
Article 2 (General Applicability)
This Decree shall apply to the portion of a taxable year first commencing
on or after the enforcement date of this Decree.
Article 3 (Applicability concerning Detailed Standards for Special
Relationship)
The amended provisions of Article 2 (1) 4 (a) shall apply from the cases
where an ex-officer or ex-employee of a corporation becomes
for the first
time the representative director, or an officer, of another corporation on
or after the enforcement date of this
Decree.
Article 4 (Applicability concerning Prior Approval of Arm's Length Price
Computation Method)
(1) The amended provisions of Articles 9 (1) through (3), 10 (1), 11 (8),
11-2, 13 (1), and 17 shall apply from the portion of applying
for approval
of an arm's length price computation method first on or after the enforce-
ment date of this Decree.
(2) The amended provisions of Article 23 (2) shall apply from the portion
of approval of an arm's length price computation method
first on or after
the enforcement date of this Decree.
Article 5 (Applicability concerning Return of Amounts to be Included in Gross
Income)
The amended provisions of Article 16 shall apply from the portion of the
final declaration, revised decision, revised return, or
revised application
with respect to tax base first made on or after the enforcement date of
this Decree.
Article 6 (Applicability concerning Application for Extension of Time Limit
of Submission of Specification, etc. of International
Trades)
The amended provisions of Articles 20 (1) and 21 shall apply from the
portion of taxable year first reported on or after
the enforcement date of
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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54
this Decree.
Article 7 (Applicable Cases concerning Submission of Forms by Domestic
Corporation which Borrowed Funds from Foreign Controlling
Shareholder)
The amended provisions of Article 28-2 shall apply from the portion of
taxable year first returned on or after the enforcement date
of this Decree.
ADDENDA
This Decree shall enter into force on January 1, 2003.
Article 2 (General Applicability)
This Decree shall apply to the taxable year which begins on or after the
enforcement date of this Decree.
Article 3 (Applicability concerning Scope, etc. of Special Relationship)
The amended provisions of Article 2 (1) and (2) shall apply
to the transaction
which is made on or after the enforcement date of this Decree.
Article 4 (Applicability concerning Scope of
Foreign Controlling
Shareholders)
The amended provisions of Article 3 shall apply to the loan which is obtained
on or after the enforcement date of this Decree.
Article 5 (Applicability concerning Applicable Scope of Rejection of Unfair
Act and Calculation)
The amended provisions of Article 3-2 shall apply to the trade which
is made on or after the enforcement date of this Decree.
Article
6 (Applicability concerning Notice of Amount of Transfer Income,
etc.)
The amended provisions of Article 16 (1) 1 and (4) shall apply to the
amount of income which is decided upon or revised on or after
the enforce-
ment date of this Decree.
Article 7 (Applicability concerning Applicable Scope of Tax Haven)
The amended provisions of Article 35 (2) shall apply to the trade
which
is made on or after the enforcement date of this Decree.
ADDENDUM
INTERNATIONAL TAXES ACT
55
2005.
(2) (Applicability) This Decree shall apply to the portion of a taxable year
first commencing on or after the enforcement
date of this Decree.
ADDENDA
This Decree shall enter into force on the date of its promulgation. (Proviso
Omitted.)
Articles 2 through 16 Omitted.
ADDENDA
This Decree shall enter into force on the date of its promulgation.
Article 2 (General Applicability)
This Decree shall be enforceable to the taxable year on which the enforcement
date of this Decree falls and thereafter.
Article 3 (Applicability to Computation Method of Arm's Length Price)
Subparagraph 3 of Article 4, Article 5 (3) and (4) as amended
shall be
enforceable to the transactions made on or after the enforcement date of
this Decree.
Article 4 (Applicability to Supplementation of Computation Method of
Arm's Length Price, etc.)
Article 6 (6) and (7) as amended shall be enforceable to the transactions
made on or after the enforcement date of this Decree.
Article 5 (Applicability to Matters to be Considered in Selection and
Application of Computation Method of Arm's Length Price for
Service
Transaction)
Article 6-2 as amended shall be enforceable to the transactions made on
or after the enforcement date of this Decree.
Article 6 (Applicability to Submission of Computation Method of Arm's
Length Price, etc.)
The proviso to Article 7 (1) as amended shall be enforceable to the submission
made on or after the enforcement date of this Decree.
Article 7 (Applicability to Scope of Materials Demanded by Tax Authorities
and Method of Submission Thereof)
Article 19 (1) 13 and 14 as amended shall be enforceable to the materials
demanded by tax authorities on or after the enforcement
date of this Decree.
Article 8 (Applicability to Identification of Tax Havens)
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
INTERNATIONAL TAXES ACT
56
Article 30 (1) as amended shall be enforceable to the states and regions
designated and publicly notified on or after the enforcement
date of this
Decree.
Article 9 (Applicability to Requirements for Decision on Scope of
Application)
The proviso to Article 35 (1) 1 as amended shall be enforceable from the
beginning of the business year on which the enforcement
date of this Decree
falls and thereafter.
Article 10 (Applicability to Request for Rectification)
Article 36-4 as amended shall be enforceable to the dividends actually
distributed to nationals by a specific foreign corporation on or after the
enforcement date of this Decree.
Article 11 (Applicability to Non-inclusion of Actual Dividends in Gains)
Article 36-5 (1) and (2) as amended shall be enforceable
to the dividends
actually paid to nationals by a specific foreign corporation on or after the
enforcement date of this Decree.
Article 12 (Applicability to Exchange of Tax Information and Financial
Information)
Article 47 (3) as amended shall be enforceable to the tax information or
financial information provided on or after the enforcement
date of this
Decree.
ADDENDA
This Decree shall enter into force on October 28, 2007. (Proviso Omitted.)
Articles 2 and 3 Omitted.
ADDENDA
This Decree shall enter into force on January 1, 2008.
Articles 2 (General Applicability)
This decree shall initially apply from the first taxation of a tax year after
this Decree enters into force.
Article 3 (Applicability concerning the Methods of Calculation of
Additional Amount Equivalent to Interest)
The amended provision of Article 41 shall initially apply from the first
calculation of additional amount equivalent to interest,
due to the reprieve
ENFORCEMENT DECREE OF THE ADJUSTMENT OF
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57
of collection or the reprieve of disposition for arrears of taxes, after this
decree enters into force.
ADDENDA
This Decree shall enter into force on the date of its promulgation. (Proviso
Omitted.)
Articles 2 through 8 Omitted.
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