Republic of Korea Dispute Resolution Profile. (Last updated: 30 August 2017) General Information

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1 1 Republic of Korea Dispute Resolution Profile (Last updated: 30 August 2017) General Information Korea tax treaties are available at: [Please see Resources-Tax Law/Treaty] MAP request should be made to: [Anyone in APA/MAP Team or International Cooperation Div. of International Taxation Bureau] International Cooperation Div.: Asian Countries, APA/MAP Team: non-asian Countries 8-14, Noeul 6-ro, Sejong City, Republic of Korea Tel.: (APA/MAP Team), (International Cooperation Div.) Fax: (APA/MAP Team), (International Cooperation Div.) APA request should be made to: As above.

2 Korea Dispute Resolution Profile Preventing Disputes 2 s/n Response Detailed explanation Where publicly available information and guidance can be found A. Preventing Disputes 1. Are agreements reached by your competent authority to resolve difficulties or doubts arising as to the interpretation or application of your tax treaties in relation to issues of a general nature which concern, or which may concern, a category of taxpayers published? See detailed information Though no competent authority meetings as to the mentioned case have been held for the last 10 years, the Minister of Strategy and Finance may, if necessary, publicly notify the contents of relevant agreements to the public. Paragraph 2 of the Article 27 of the Adjustment of International Taxes Act ( AITA ) 2. Are bilateral APA programmes implemented? a. b. c. d. If yes: Are roll-back of APAs provided for in the bilateral APA programmes? Are there specific timeline for the filing of an APA request? Are rules, guidelines and procedures on how taxpayers can access and use bilateral APAs, including the specific information and documentation that should be submitted in a taxpayer s request for bilateral APA assistance, publicly available? Are there any fees charged to taxpayers for a bilateral APA request? - BAPA : up to 5 years; - Uni-APA : up to 3 years. - Paragraph 2 of the Article 6 of AITA and Section IV of the APA Annual Report 1 (See footnote) No later than the end of the first taxable year. - No - Paragraph 3 of the Article 6 of AITA and Section IV of the APA Annual Report Paragraph 1 of the Article 6 of AITA Article 9 and 11 of the Enforcement Decree of AITA and Section IV of the APA Annual Report Article 9 of the Enforcement Decree of AITA and, Section IV of the APA Annual Report 1 The APA Annual Report is published on a yearly basis and can be downloaded on NTS website ( See [Resources-Publication])

3 Korea Dispute Resolution Profile Preventing Disputes 3 s/n Response Detailed explanation Where publicly available information and guidance can be found e. Are statistics relating to bilateral APAs publicly available? 7 types of statistics are provided : - No. of cases (received, concluded, ongoing) - Period for APA completion - Covered transactions - APA term - APAs by Industry - TPM - APAs by country Section VII of the APA Annual Report 3. Is training provided to your officials involved in the auditing /examination of taxpayers to ensure that any assessments made by them are in accordance with the provisions of your tax treaties? The NTS operates a training program for 80 trainees lasting for consecutive 8 weeks. The program covers almost every topics of international taxation and all kinds of rulings from Korean laws to important judicial precedents. The training also covers important or disputed audit cases in order to give references to field auditors. - Its training materials are not publicly available. 4. Is other information available on preventing tax treaty-related disputes? Advance Ruling and Q&A programs are provided to taxpayers sp (Written in Korean only) Notes: 1. An APA is an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the transfer pricing for those transactions over a fixed period of time. (see definition of APA in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ( Transfer Pricing Guidelines )). 2. Situations may arise in which the issues resolved through an APA are relevant with respect to previous filed tax years not included within the original scope of the APA. The concept of rollback is further elaborated in paragraph of Section F (Advance pricing arrangement) of Chapter IV of the Transfer Pricing Guidelines and in paragraph 69 of Section D.4.2 (Possible retrospective application ( Roll back )) of the Annex to Chapter IV (Guidelines for Conducting Advance Pricing Arrangements under the Mutual Agreement Procedure ( MAP APAs )) of the Transfer Pricing Guidelines. Simply put, the roll-back of the APA is understood to mean that the outcome of the APA is applied to previous filed tax years not included within the original scope of the APA.

4 Korea Dispute Resolution Profile Availability and Access to MAP 4 s/n Response Detailed explanation Where publicly available information and guidance can be found B. Availability and Access to MAP 5. Are transfer pricing cases covered within the scope of MAP? 6. Are issues relating to the application of treaty anti-abuse provision covered within the scope of MAP? 7. Are issues relating to the application of domestic anti-abuse provision covered within the scope of MAP? Paragraph 1(2) of the Article 22 of AITA Paragraph 1(2) of the Article 22 of AITA Paragraph 1(2) of the Article 22 of AITA 8. Are issues where there is already an audit settlement between the tax authority and the taxpayer covered within the scope of MAP? See detailed information Korea does not have the audit settlement system Are double taxation cases resulting from bona fide taxpayer initiated foreign adjustments covered within the scope of MAP? - Paragraph 1(2) of the Article 22 of AITA 10. Are there any other treaty related issues not covered under s/n 5 to 9 which are not within the scope of MAP? 11. Are taxpayers allowed to request MAP assistance in cases where the taxpayer has sought to resolve the issue under dispute via the judicial and administrative remedies provided by the domestic law of your jurisdiction? - Taxpayers are allowed to request MAP even where administrative remedies has been provided (e.g. Tax Tribunal decision, etc.); - Taxpayers are not allowed to request Paragraph 2 of the Article 22 of AITA

5 Korea Dispute Resolution Profile Availability and Access to MAP 5 s/n Response Detailed explanation Where publicly available information and guidance can be found 12. Are taxpayers allowed to request for MAP assistance in cases where the issue under dispute has already been decided via the judicial and administrative remedies provided by the domestic law of your jurisdiction? See detailed information MAP where the final juridical decision has been made by a domestic or foreign court; - Taxpayers are allowed to request MAP where the court decision has not yet been finalized. Paragraph 2(1) of the Article 22 and Paragraph 4 of the Article 23 of AITA 13. Are rules, guidelines and procedures on how taxpayers can access and use MAP, including the specific information and documentation that should be submitted in a taxpayer s request for MAP assistance, publicly available? Within 3 years from the date on which the taxation became known to taxpayer. Chapter 6 of the AITA/Enforcement Decree of AITA 14. Are there specific timeline for the filing of a MAP request? - Paragraph 2(4) of the Article 22 of AITA 15. Are guidance on multilateral MAPs publicly available? 16. Are tax collection procedures suspended during the period a MAP case is pending? Deferment of Collection in Korea is only applicable where a contracting state also allows the deferment of tax collection. Paragraph 2 & 3 of the Article 24 of AITA 17. Are there any fees charged to taxpayers for a MAP request? 18. Is there any other information available on availability and access to MAP?

6 Korea Dispute Resolution Profile Resolution of MAP Cases 6 s/n Response Detailed explanation Where publicly available information and guidance can be found C. Resolution of MAP Cases 19. Are there any model timeframes for the steps taken by your competent authority from the receipt of a MAP case to the resolution of the case provided to taxpayers? 20. Are statistics relating to the time taken to resolve MAP cases publicly available? Can be found on the OECD website Is interest or penalties resulting from adjustments made pursuant to a MAP agreement waived or dealt with as part of the MAP procedure? See detailed information Tax penalties are waived under certain conditions indicated in Korea Tax Law. Article 13 of AITA 22. Are the roles and responsibility of the MAP office publicly available, for example, is the mission statement of the MAP office available in the annual report of the organisation? 23. Is MAP arbitration a mechanism currently available for the resolution of tax treaty related disputes in any of your tax treaties? a. b. If not: Are there any legal limitations in your domestic law (for example in your constitution) to include MAP arbitration in your tax treaties? Does your treaty policy allow you to include MAP arbitration in your tax treaties?

7 Korea Dispute Resolution Profile Resolution of MAP Cases 7 s/n Response Detailed explanation Where publicly available information and guidance can be found 24. Is the explanation of the relationship between the MAP and domestic law administrative and judicial remedies publicly available? If yes: Taxpayers should file a complaint on a tax assessment to Tax Tribunal (administrative remedy stage) before they seek juridical relief. Until the final decision is made by a court, MAP procedure is available to taxpayers. Once the court decision is finalized, the date of final decision will be the closing date of MAP. Paragraph 2(1) of the Article 22, Paragraph 4 of the Article 23 and Paragraph 1 of the Article 24 of AITA a. Does the guidance specifically address whether the competent authority considers that it is legally bound to follow a domestic court decision in the MAP or will not deviate from a domestic court decision as a matter of administrative policy or practice? - Paragraph 2(1) of the Article 22 of AITA 25. Are taxpayers allowed to request for multi-year resolution through the MAP of recurring issues with respect to filed tax years? See detailed information - In practice, NTS enters into MAP discussion only for the filed period by taxpayers among the years for which any assessment was made by tax authority; Paragraph 1(2) of the Article 22 of AITA - In AITA, it is stipulated that taxpayers can request for multi-year resolution where any taxation is likely to be assessed by tax authorities that are not in accordance with related tax treaty.

8 Korea Dispute Resolution Profile Resolution of MAP Cases 8 s/n Response Detailed explanation Where publicly available information and guidance can be found 26. Do all your jurisdiction s tax treaties contain a provision which would oblige your jurisdiction to make corresponding adjustments or to grant access to the MAP with respect to the economic double taxation that may otherwise result from a primary transfer pricing adjustment (i.e. is paragraph 2 of Article 9 of the OECD Model Tax Convention or the UN Model Double Taxation Convention included in all of your jurisdiction s tax treaties)? See detailed information 49 among 85 countries contain the provision. However, the NTS allows corresponding adjustment to most of its tax treaty partners according to the result of CA meeting. mer/law/statutepact.jsp?gubun=3 27. Is there any other information available on resolution of MAP cases?

9 Korea Dispute Resolution Profile Implementation of MAP Agreements 9 s/n Response Detailed explanation Where publicly available information and guidance can be found D. Implementation of MAP Agreements 28. Where the agreement reached by your competent authority through the MAP process leads to additional tax to be paid by your taxpayer, is there publicly available information on the timeframe the taxpayer could expect its tax position to be amended to reflect the agreement reached by the competent authority and/or for the additional tax to be paid? 29. Where the agreement reached by your competent authority through the MAP process leads to a refund of the tax due or paid by your taxpayer, are there publicly available information on the timeframe the taxpayer could expect its tax position to be amended to reflect the agreement reached by the competent authority and/or for a refund of the tax paid? - Paragraph 2 of the Article 27 and Paragraph 1 of the Article 25 of AITA - Paragraph 2 of the Article 27 and Paragraph 1 of the Article 25 of AITA 30. Are all mutual agreements reached through MAP implemented notwithstanding any time limits in your domestic law? Even where the closing date of MAP exceeds the statute of limitation 2, one more additional year is given to implement the MAP conclusion. Article 25 of AITA 31. Is there any other information available on the implementation of MAP agreements? 2 Details of the statute of limitation are prescribed in the paragraph 1 of the Article 26-2 of the Framework Act on National Taxes

10 10 Annex A Details of Korean Tax Laws 1. Adjustment of International Taxes Act I. Article 6 i. Paragraph 1 : A resident may, where he/she intends to apply the arm's length price computation method to the taxable years for a specific period, file an application for approval with the Commissioner of the National Tax Service not later than the end of the first taxable year for a specific period in which he/she intends to apply the arm's length price computation method, as prescribed by Presidential Decree. ii. Paragraph 2 : The Commissioner of the National Tax Service may, where a resident applies for approval for the arm's length price computation method under paragraph (1), grant approval for such method, if agreed with the competent authority of the Contracting State through mutual agreement procedures as prescribed by Presidential Decree: Provided, That in such cases as prescribed by Presidential Decree, he/she may grant prior approval (hereinafter referred to as "unilateral prior approval" in this Article) for the arm's length price computation method without going through the mutual agreement procedures. iii. Paragraph 3 : The Commissioner of the National Tax Service may, when a resident files an application for the retroactive application of the arm's length price computation method to the taxable year before the period subject to the application for approval, grant approval for the retroactive application to no longer than five years preceding the period subject to the application for approval: Provided, That approval for the retroactive application to within three years preceding the period subject to the application for approval may be granted in cases where a unilateral prior approval has been given.

11 11 II. Article 13 i. Paragraph 1 : When applying Articles 4 through 6, 6-2, and 7 through 9, the tax authorities shall not impose additional tax for under-declaration provided for in Article 47-3 of the Framework Act on National Taxes in cases falling under any of the following subparagraphs: 1 Where it is confirmed as a result of mutual agreement procedures that the taxpayer has not made a mistake with regard to the difference between trade price reported and arm's length price (referring to cases where the Commissioner of the National Tax Service determines that the taxpayer has not made a mistake if the arm's length price computation method has been approved without mutual agreement procedures in accordance with the proviso to Article 6 (2)); 2 Where the taxpayer keeps and provides data verifying the arm's length price computation method applied in declaring income tax or corporate tax and it is acknowledged that he/she has selected and applied the arm's length price computation method according to reasonable determination. ii. Paragraph 2 : Whether the taxpayer has made a mistake, or whether the determination is reasonable as provided for in the subparagraphs of paragraph (1) shall be decided by standards prescribed by Presidential Decree. III. Article 22 i. Paragraph 1 2 The Commissioner of the National Tax Service where any taxation has been or is likely to be assessed by the tax authorities of a Contracting State, that is not coinciding with the provisions of a tax treaty;

12 12 ii. Paragraph 2 : The Minister of Strategy and Finance or the Commissioner of the National Tax Service shall, upon receipt of an application for commencing the mutual agreement procedures under paragraph (1), request the competent authorities of the Contracting State to commence the mutual agreement procedures, and notify the applicant of the fact of such re quest, except for the cases falling under any of the following subparagraphs: 1 Where the final decision has been made by a domestic or foreign court; 2 Where the application has been filed by an ineligible person under the tax treaty; 3 Where it is recognized that the taxpayer intends to utilize the mutual agreement procedures for the purpose of tax evasion; 4 Where the application has been filed after the lapse of three years from the date on which the taxation became known to the applicant. IV. Chapter 6 (Article 22~Article 27-2) i. Paragraph 2 (Article 22) : The Minister of Strategy and Finance or the Commissioner of the National Tax Service shall, upon receipt of an application for commencing the mutual agreement procedures under paragraph (1), request the competent authorities of the Contracting State to commence the mutual agreement procedures, and notify the applicant of the fact of such re quest, except for the cases falling under any of the following subparagraphs: 4 Where the application has been filed after the lapse of three years from the date on which the taxation became known to the applicant. V. Article 23 iv. Paragraph 4 : Where the final decision is made by a court in the course of progressing the mutual agreement procedures, the date of the relevant final decision shall be the closing date of the mutual agreement procedures.

13 13 VI. Article 24 i. Paragraph 1 : Where the mutual agreement procedures have commenced, the period from the commencing date to the closing date of the mutual agreement procedures shall not be included in the period for request provided under Article 56(3), 61 and 68 of the Framework Act on National Taxes and Article 119 of the Framework Act on Local Taxes, and in the period for making a decision provided under Articles 65 and 81 of the Framework Act on National Taxes and Article 123 of the Framework Act on Local Taxes. ii. Paragraph 2 : The head of the tax office having jurisdiction over the tax payment place or the head of the local government may, where the mutual agreement procedures have commenced before a notice of the payable tax amount, either defer a notice of the tax amount or notify an installment payment of final tax amount, no later than the end of the mutual agreement procedures. In such cases, the head of the tax office having jurisdiction over the tax payment place or the head of the local government shall notify the payable tax amount within 30 days from the date next to the closing date of the mutual agreement procedures. iii. Paragraph 3 : The head of the tax office having jurisdiction over the tax payment place or the head of the local government may, where the mutual agreement procedures have commenced after the tax payment notice or the urge thereof is served, either defer the collection of tax amount or defer the seizure of properties due to the disposition for arrears or the sales of seized properties. In such cases, the head of the tax office having jurisdiction over the tax payment place or the head of the local government shall set a new payment term, and collect the deferred tax amount, within 30 days from the date next to the closing date of the mutual agreement procedures. VII. Article 25 i. Where the mutual agreement procedures agreed upon with a Contracting State are commenced, no national taxes shall be imposed after the end of the period of one year from the date following the closing date of the mutual agreement procedures and of the period provided under Article 26-2 (1) of the Framework Act on National Taxes, whichever comes later.

14 14 ii. Where the mutual agreement procedures agreed upon with a Contracting State are commenced, no local taxes shall be imposed after the end of the period of one year from the date following the closing date of the mutual agreement procedures and of the period provided under Article 38 (1) of the Framework Act on Local Taxes, whichever comes later. VIII. Article 27 ii. The Minister of Strategy and Finance or the Commissioner of the National Tax Service shall, where the mutual agreement procedures are closed, notify the tax authorities, heads of the local governments, Director of the Tax Tribunal, other relevant agencies, and the applicant for the commencement of the mutual agreement procedures of the terms and conditions mutually agreed upon within 15 days from the day next to the closing date of the mutual agreement procedures. In such cases, the Minister of Strategy and Finance may publicly notify the contents of such agreement reached. 2. Enforcement Decree of the Adjustment of International Taxes Act I. Article 9 i. Paragraph 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 referred to as the "applicant" in this Chapter) shall submit to the said Commissioner two respective copies any of the following documents as to the whole or part of his/her international trades no later than by 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 computation method as provided by Ordinance of the Ministry of Strategy and Finance, indicating the subject period, the subject international trades, the parties to trades and the arm's length price computation method, etc.;

15 15 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 trade and other accompanying documents of the parties to trades for the latest three years; 4 Any of the following data, concretely explaining 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; e. Explanatory data on the conditions or assumptions to form a premise of the arm's length price computation method; 5 Where 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 approval, a written application for commencing the mutual agreement procedures as provided by Ordinance of the Ministry of Strategy and Finance; 7 Other data attesting the propriety of the arm's length price computation method applied for a prior approval.

16 ii. Paragraph 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. 16 iii. Paragraph 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 taxpayer intends to obtain a prior approval of the arm's length price computation method. iv. Paragraph 4 : An applicant may change the details of application for a prior approval, or withdraw his/her application for a prior approval no later than before acquiring a prior approval of the Commissioner of the National Tax Service. In such cases, when the application is withdrawn, the Commissioner of the National Tax Service shall return to the applicant all data submitted under paragraph (1) or (2). v. Paragraph 5 : The Commissioner of the National Tax Service shall not use the data submitted under paragraph (1) or (2) for purposes other than the examination of prior approval and ex post facto management. II. Article 11 i. Paragraph 1 : Where he/she does not grant a prior approval as he/she deems that the application for prior approval is inappropriate, the Commissioner of National Tax Service shall return to the applicant all data submitted under Article 9 (1) or (2). ii. Paragraph 2 : Where the applicant applies for commencing the mutual agreement procedures at the time of applying for a prior approval, the Commissioner of National Tax Service shall request the competent authority of the Contracting State to commence the mutual agreement procedures, and notify the applicant of the request. iii. Paragraph 3 : Where an agreement is made with a Contracting State in the procedures of mutual agreement pursuant to paragraph (2), the Commissioner of the National Tax Service shall notify the applicant of the details of the agreement within 15 days from the day following the completion of mutual agreement procedures. In such cases, the applicant shall submit in writing whether he/she consents thereto to the Commissioner of the National Tax Service within two months from the date of receiving a notification on the details of agreement.

17 17 iv. Paragraph 4 : Where the applicant fails to notify the Commissioner of the National Tax Service of whether he/she consents thereto within the term under the later part of paragraph (3), it is deemed that he/she has not consented, and the original application for prior approval is deemed withdrawn by the applicant. v. Paragraph 5 : Even if the agreed details under the mutual agreement procedures are not identical with the original content of application for prior approval, it shall be deemed that the applicant has applied for the relevant details from the outset, where the applicant consents to the agreed details under paragraph (3). vi. Paragraph 6 : Where he/she has received from the applicant a letter of consent to the mutual agreements pursuant to the later part of paragraph (3), the Commissioner of the National Tax Service shall grant a prior approval of the arm's length price computation method within 15 days from the date of receiving the letter, and notify the applicant thereof. vii. Paragraph 7 : In any of the following cases, the Commissioner of the National Tax Service shall 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 three years from the date of accepting the application for prior approval; 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 to reach. viii. Paragraph 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 such cases, Articles 15, 15-2, 16 and 18 shall apply mutatis mutandis to the income amount to be adjusted.