CUSTOMS VALUATION & TRANSFER PRICE PRACTICE

Transcription

1 CVTP CUSTOMS VALUATION & TRANSFER PRICE PRACTICE

2 Observers speak with one voice in proclaiming it one of the most respected and reliable practices in Korea. Chambers Global : The World s Leading Lawyers for Business CONTENTS What is CVTP service? 2 Why is it needed? 3 What services are provided? 4 Why Yulchon CVTP team? 7

3 2 3 What is CVTP service? Why is it needed? *CVTP : Customs Valuation and Transfer Pricing Yulchon's CVTP Service Solution Our CVTP service is a comprehensive legal service to simultaneously analyze both customs valuation and transfer pricing methods regarding products imported by a multinational firm from its foreign affiliates in order to design the most effective customs valuation and transfer pricing methods. By identifying risk factors under the customs law and the income tax law in advance, exposure can be minimized and the best possible result may be obtained in case of audits by the authorities. Tax Risk Difference in customs valuation and transfer pricing rules Possibility of transfer pricing audit Burden on Companies Duplicate assessment of customs duty and income tax Risk of customs duty assessment and dispute with tax authorities [Recent customs duty assessment on multinational companies] Issue Assessment Threats to stability in business TP monitoring by tax authority Regular tax and customs audits Exposure to assessment risk Lengthy appeal process Solution through CVTP Service Company A Company B USD 15 million duty drawback request based on adjustment of operational profit Underreporting of customs value of products subject to high duty rate Request denied Assessment of USD 346 million Difficulty in establishing reasonable price-setting policy due to inaccurate cost analysis regarding customs duties, etc. Company C Underreporting of customs value of products manufactured on consignment Assessment of USD 2.5 million

4 4 5 What services are provided? Through an advance checkup, risks are first identified, and then the optimal solutions are provided after reviewing the options of refund request, application for Advance Pricing Arrangement (APA), application for Advance Customs Valuation Arrangement (ACVA), application for review by the Tax Base Adjustment Review Committee, etc. What is an ACVA? *Advance Customs Valuation Arrangement Advance Review Analysis from customs TP and domestic tax perspectives Establishment of TP policy and structuring of transactions Review of potential TP-related risks Decision on application for APA or ACVA Upon taxpayer request, the customs value of products transferred between a foreign parent company and its Korean subsidiary is agreed upon in advance through consultation between KCS and the taxpayer. Defending Tax or Customs Audits Legislative support to amend unreasonable provisions Application for ruling by the Ministry of Strategy and Finance (MOSF), Korea Customs Service (KCS) and National Tax Service (NTS) Defending TP audits by the NTS and KCS Defending investigation of TP manipulation (customs duty evasion/tax evasion using TP) Defending foreign exchange investigation (violation of Foreign Currency Transaction Act) Benefits of ACVA Customs audit is suspended upon ACVA application. Customs audit is suspended for 3 years as to customs value of approved products. Trust between consumers and the customs authority on the import price of products. Waiver of penalty upon filing amended returns after provisional reporting is made. Penalty for underreporting (10% of underpaid customs duty) is waived when amended returns are filed for imports prior to ACVA application. Benefits when Authorized Economic Operator status is applied for. Mutual recognition by NTS in TP area (execution of MOU). Appeal Procedure Upon assessment by KCS or NTS, application for refund on adjusted TP Upon different TP adjustment under customs and tax law, application for adjustment by MOSF Administrative appeal or litigation in case adjustment by MOSF cannot be made Appeals including litigation against other dispositions by KCS or NTS Major Review Area Effect of related-party relationship on transaction value. Appropriateness of customs valuation method applied (Method 1~6). Appropriateness of customs value, additions and subtractions. Acceptability of APA application and approval from customs perspective.

5 6 7 Why Yulchon CVTP team? What is an APA? *Advance Pricing Arrangement Yulchon's CVTP team is composed of Korean and foreign attorneys, customs attorneys, CPAs and tax accountants, and the team has been meeting the needs of its clients in all of the areas of Transfer Pricing and Customs Valuation including TP consulting, defending audits, conducting litigation and assisting with ACVA and APA. Notably, Yulchon obtained for its client the firstever comprehensive ACVA in Korea. Upon taxpayer request, the NTS and taxpayer agree in advance on a transfer pricing methodology for intercompany transactions of a multinational corporation. Elimination of TP audit risk. Benefits of an APA Effective allocation of corporate assets and human resources by putting manpower and financial resources required to handle a tax audit, retain outside counsel, conduct litigation, etc. to more productive use. No double taxation for taxpayer in case of bilateral APA because compensatory and correlative adjustments are made in accordance with the APA. Because the APA application is handled by the tax authority s TP experts with assistance from tax advisors, international tax standards are strictly applied. Reasonable decision-making is possible because the negotiation with the foreign tax authority is conducted on equal footing. Representative Matters Consulting on Customs Valuation Obtained ACVA for major multinational consumer product company. Consulting on subsidiary incorporation and structuring of cross-border transactions for duty optimization for multinational luxury goods company. Legislative service for amendment to customs law on behalf of overseas contract manufacturer, jewelry company and e-commerce company. Consulting on customs valuation of automobile parts manufactured overseas. Protection of rights of the APA applicant All documents submitted are returned to applicant in case an APA is not entered into. Documents submitted may only be used to review the APA application and for subsequent management after execution of an APA and cannot be used to conduct tax audits, etc. [Section 9(4) and (5) of the Law for Coordination of International Tax Affairs Enforcement Decree]. Customs audit defense Customs audit of multinational restaurant company. Customs audit of multinational pharmaceutical company. Customs audit of multinational medical equipment company. Customs audit on valuation of semi-conductor inspection equipment for repairs.

6 8 9 Representative matters Customs duty appeal related to customs valuation Appeal of customs duty assessment on multinational energy company and theme park company. Appeal of denial of customs duty drawback request related to buying commission paid by multinational trading company. Appeal of customs duty assessment on oil refineries' forfeiting expense. Appeal of customs duty assessment on pharmaceutical companies and auto parts companies in relation to payment of royalties. APA / Mutual Agreement Procedure (MAP) Bilateral APA on transactions between Korean chemical company and its Chinese subsidiary. Bilateral APA on transactions between Korean automobile company and its U.S. subsidiary. Unilateral APA for multinational pharmaceutical company. MAP between Korea and Hungary for multinational semi-conductor company. MAP between Korea and U.S. for multinational credit card company and consumer product company. Pre-TP audit and TP audit defense Defense of TP audit of Korean multinational heavy industries company. TP documentation TP documentation work for multinational luxury goods company. TP documentation work for multinational semi-conductor companies. TP documentation work for multinational investment bank. TP documentation work for Korean multinational company (in relation to transactions with its Vietnamese affiliate, etc.). Consulting on establishing TP policy and business restructuring Establishment of global royalty-setting policy of Korean automobile maker. Business restructuring of multinational semi-conductor company and multinational production material company. Establishment of TP policy of multinational automobile parts company. Administrative TP appeal and TP litigation Obtained favorable decision for movie distribution company in first TP litigation in Korea (Supreme Court, October 23, 2001, 99 Du 3423). Obtained favorable decision for Korean and foreign multinational companies in TP administrative appeal and litigation. Administrative TP appeal by multinational luxury goods company based in France. Administrative TP appeal by U.S. automobile maker. Mock TP audit of multinational luxury goods company and defense of its TP audit. Defense of TP audit of multinational electrical product company. Defense of TP audit of global hedge fund and multinational life insurance company. Mock TP audit of multinational financial company and defense of its TP audit. Legislative services to amend TP rules Conduct research on amendment of TP rules in 2010 upon request of the MOSF. Participated in the MOSF s 2011 Task Force to amend Law for Coordination of International Tax Affairs.

7 10 11 Professionals Soh, Soon Moo (Partner) Chief Judge, Seoul Central District Court Research Judge, Supreme Court of Korea Arbitrator, Korean Commercial Arbitration Board Adjunct Professor, Faculty of Law, Korea University President, Tax Law Association of Korea Legal Advisor, Ministry of Strategy and Finance Member, Legal Interpretation Committee, National Tax Service Legal Advisor, Seoul Regional Tax Office Non-standing Commissioner, Korea Independent Commission Against Corruption Member, Sanctions Committee, Financial Supervisory Service Honorary Judge, Tax Tribunal Member, Tax Development Committee, Corporate Tax Division Vice President, Korean Bar Association Yun, Sai Ree (Partner) Associate, Baker & McKenzie (New York/Chicago) Associate, Lee & Ko Public Prosecutor, Busan District Prosecutor's Office Arbitrator, Korean Commercial Arbitration Board Member of the Financial Advancement Council, Financial Services Commission Consultant of Competition Policy, Korea Fair Trade Commission Legal advisor to the City of Seoul, Korea Fair Trade Commission, Ministry of Trade Industry and Energy, Public Procurement Service, and Korean Broadcasting Commission Member of the Financial Advancement Council Advisor, the Korea Chamber of Commerce & Industry Policy Advisor, District Tax System, Ministry of Public Administration and Security; Member of Self-regulation Committee, Asset Management Association of Korea Kim, Dong Soo (Partner) Associate, Woo & Partners Judge Advocate, Republic of Korea Army Consultant, Korea Institute of Public Finance Policy Advisor to the Minister, Ministry of Public Administration and Security Member, Quality Improvement Committee for Taxable Items, National Tax Service Legal Advisor, Jungbu Regional Tax Office Member of the Review Board for International Tax Laws, National Tax Service Member of the Review Board, Written Enquiries, National Tax Service Customer Satisfaction Center Lecturer of Tax Law, Seoul National University Member of the Tax Assessment Review Board, Samseong District Tax Office Member of the Enterprise Taxation Division, Tax Development Committee Cho, Jeong Cheol (Partner) Prosecutor, Pusan District Public Prosecutors' Office Prosecutor, Seoul Central District Public Prosecutors' Office Chief Prosecutor, Suwon District Public Prosecutors Office Chief Prosecutor, Seoul Central District Public Prosecutors' Office Lee, Kyung Geun (Senior Tax Attorney) Director, Corporate Income Tax Division, Ministry of Finance and Economy Director, International Tax Division, Ministry of Finance and Economy Director, Individual Income Tax Division, Ministry of Finance and Economy Director, National Tax Tribunal Principal Administrator, CAPT, OECD Deputy Director, Department of Foreign Capital Policy, Ministry of Finance and Economy Member, Transfer Pricing Subcommittee, UN Tax Expert Committee Korean Mediator, International Centre for Settlement of Investment Disputes, World Bank Non-standing Editorialist, Joseilbo Vice-Chairman, UN Tax Expert Committee Jung, Un Sang (Senior Customs Attorney) Hwang Mok Park LLC Screening Division, Seoul Main Customs Office National Tax Tribunal, Ministry of Finance and Economy Korea Customs Service (Busan, Seoul, Gimpo, and Incheon office) Honorary Editorialist, Joseilbo Advisor, Korea Institute of Science and Technology Information Shin, Min Ho (Customs Attorney) Hwang Mok Park LLC Joyang Logistics International Co., Ltd. Daemoon Customs & Express Networks Inc. Mirai Industries Korea Co., Ltd. Asia Investment and Development

8 12 Lee, Hyeon Joo (Senior Consultant) International Audit Division, National Tax Service International Tax Division, Seoul Regional Tax Office International Tax Division, National Tax Service Kim, Hyung Bae (Customs Attorney) Korea Customs Service, Customs Valuation & Classification Institute Clearance, Incheon Airport Customs; Audit Office, Seoul Main Customs Office Hong, Joseph (Foreign Attorney, USA) Consultant, Pricewaterhouse Coopers Korea, Seoul Ernst & Young, New York BNA Tax Management, Washington, DC Kwak, John Jangwoon (Foreign Attorney, USA) Ernst & Young, New York Pricewaterhouse Coopers, Florham Park, NJ KPMG, New York Suh, Duk Won (CPA) Manager, Samil Pricewaterhouse Coopers, Seoul Advisor, International Tax Division, Ministry of Strategy and Finance Advisor, International Affairs Division, National Tax Service Sohn, Dong-June (Customs Attorney) Yijung Customs Corporation Bridge Customs Office Lee, Sang Woo (CPA) Pricewaterhouse Coopers Korea, Seoul Kang, Yu Jeong (CPA) Pricewaterhouse Coopers Korea, Seoul Contact Information Lee, Kyung Geun (Senior Tax Attorney) Phone Jung, Un Sang (Senior Customs Attorney) Phone Shin, Min Ho (Customs Attorney) Phone Suh, Duk Won (CPA) Phone

9 Yulchon- Worldwide Office Contacts Korea Textile Center 12F, Daechi 2-dong, Gangnam-gu, Seoul , Korea Tel: Fax: Vietnam Ho Chi Minh City Unit 03, 4th Floor, Kumho Asiana Plaza, 39 Le Duan St., Ben Nghe Ward, Dist.1, Ho Chi Minh City, Vietnam Tel: Fax: Hanoi Suite 2502, Keangnam Hanoi Landmark Tower, Pham Hung Street, Tu Liem District, Hanoi, Vietnam Tel: Fax: China 9F, SK Tower, 6A Jianguomenwai Avenue, Chaoyang District, Beijing , P.R. China Tel: Fax: