The National Tax Service on Thursday outlined new guidelines for easing the tax and audit burdens for foreign corporations.

The following is a summary of the guidelines provided by the tax agency. 


Simplified Advance Pricing Arrangement System

This system is expected to ease foreign companies’ burden of being audited. In 2015, the NTS will commence operation of its Simplified APA System as a way to reduce the burden of undergoing tax audits for small and medium-sized enterprises.

An APA is an arrangement agreed between a taxpayer and the NTS on the application of transfer pricing methodology in determining the arm’s length price in advance of future international transactions with foreign related parties. It allow taxpayers to concentrate on running their business without being distracted by tax matters, by suspending audits for an agreed term of three to five years when the taxpayer complies with what was agreed through the APA.

The Simplified APA System is expected to make APAs more accessible for foreign SMEs with an annual revenue of up to 5 million won ($4,600) by simplifying their documentation submission requirements. After a pre-filing meeting with the NTS, taxpayers will be asked to submit only a minimum level of documentation outlining its business structure and transaction, among other information.

The NTS will then review the submission and determine an arm’s length pricing for the requested transaction, which will be notified to the taxpayer. When the taxpayer agrees, an approval will be made for the taxpayer’s requested APA. The simplified system will shorten the review process so that a determination will be made within one year from application. 


Publication of a Tax Audit Guidebook tailored for foreign firms

The NTS will provide the “Tax Audit Guidebook,” which explains Mutual Agreement Procedures, APA and other information relevant to foreign companies undergoing an audit.


Request for consultation with the director in charge of tax audit

When taxpayers disagree with the auditors’ position regarding transfer pricing and other matters during a tax audit, they will be offered an opportunity to request for a meeting and consultation with the director in charge of the relevant tax audit.

By Suk Gee-hyun (monicasuk@heraldcorp.com)