The Ministry of Strategy and Finance of South Korea has released draft legislation for amending existing provisions of Korean law. The draft legislation generally follows Action 13 of the OECD/ G20 project on base erosion and profit shifting (BEPS).
The draft legislation would amend Articles 11 and 12 of the “Law for the Coordination of International Tax Affairs” (LCITA) for implementing certain BEPS initiatives for transfer pricing documentation.
According to the draft legislation taxpayers subject to the Korean transfer pricing rules would be required to submit both a master file and a local file containing information on related-party transactions. In the current iteration of the draft legislation a country by country (CbC) report is not required. All taxpayers that enter into cross-border related-party transactions are now required to submit a transfer pricing report. Failure to comply with the reporting requirement will result in a noncompliance penalty not exceeding KRW 10million (US$8,500) and will be effective for fiscal years beginning on or after 1 January 2016.
If enacted the draft legislation, would be effective from 1 January 2016 and preparation of the transfer pricing documentation would be mandatory from that time.
