National Tax Service has issued a revised guide on the Mutual Agreement Procedure, covering applications, case handling, implementation, statistics, and required documentation.
Korea (Rep.)’s National Tax Service (NTS) has issued a revised version of its guidance on the Mutual Agreement Procedure (MAP) for taxpayers.
The document provides details on MAP applications, the procedure and conclusion of cases, implementation of MAP results, statistical data, and required documentation.
The term “mutual agreement procedure” means the procedure by which interpretation of a tax treaty, unreasonable taxation, or adjustment of taxable income are resolved through consultations between the competent authority (hereinafter referred to as ”CA”) of the Republic of Korea and that of the other Contracting State).
A MAP case can be initiated by the request of a taxpayer and the taxpayer is required to submit the Application Form for Commencing Mutual Agreement Procedure in a written format).
Where a taxpayer submits the Application Form for Commencing MAP, the Minister of Economy and Finance or the Commissioner of the National Tax Service (NTS) reviews the application to determine whether the request falls under the scope of limitations to the MAP commencement.
Unless the application is recognized as a case to limit commencement, the Minister of Economy and Finance or the Commissioner of the NTS requests a relevant Contracting State to initiate a MAP for the case. Where the Contracting State agrees to initiate the MAP case, both States enter into a consultation process and endeavor to resolve the disputed issues including taxation not in accordance with the provisions of the applicable tax treaty. The outcome of a MAP case neither establishes a precedent for other similar cases nor legally binds other tax issues of the same taxpayer.
Application of MAP
- Taxes Covered
Since MAP is based on provisions of the individual tax treaty and the AITA, the tax items covered by MAP depend on each tax treaty signed between Korea and the other Contracting State. Thus, the covered taxes may vary depending upon the individual tax treaty. However, general tax treaties cover taxes imposed on income or capital gains including individual income tax, corporate income tax and residence tax. Accordingly, MAP generally covers the aforementioned taxes.
- Eligible MAP Applicant
Any national resident or domestic corporation of the Republic of Korea, any nonresident or foreign corporation may apply for commencing MAP to the CA of Korea (the Minister of Economy and Finance or his/her delegate) where any taxation has not been in accordance with the provisions of the tax treaty unless otherwise stated in each tax treaty.
- Conditions for Application
Any taxpayer may apply for commencing MAP to any of following cases:
- Where it is necessary to consult with the other Contracting State on the application and interpretation of the tax treaty;
- Where any tax has been or is likely to be assessed by the tax authority of the other Contracting State not in accordance with the provisions of the tax treaty;
- Where a tax adjustment is required under the tax treaty between Korea and the other Contracting State. For example, a taxpayer may request for commencing MAP to address the double taxation through consultation between relevant tax authorities, where any economic double taxation arises as a result of the following circumstance:
- Where the tax authority recognises the price of an international transaction in which either party to the transaction is a foreign related party deviates from the arm’s length price that independent third parties would have applied; and accordingly the tax authority determines or rectifies the tax base and tax amount of a resident based on the arm’s length price.
- Where the tax authority has not yet notified a taxpayer of a final tax adjustment, the taxpayer may even file a MAP application as long as the taxation is considered not in accordance with the tax treaty and such taxation is highly probable. A prediction/estimation of those will not be recognised as being highly probable. It is generally recognised when the taxpayer and the CA can identify the details of covered tax and relevant tax amounts based on a written notice such as an advance notice of taxation.
