S. Korea, China ink advance pricing agreement
SEJONG, April 22 (Yonhap) — South Korea and China on Wednesday signed a so-called advance pricing agreement (APA) that can ease tax audit burdens for companies operating in each other’s country.
The new accord, signed during a meeting of their tax chiefs, will allow authorities to better check “transfer prices” between a parent company and its subsidiary, the National Tax Service said.
An APA is a deal between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions.
This arrangement can make it possible for tax officials to verify if a subsidiary operating in its jurisdiction intentionally marked up or lowered prices of products and services it received from a parent company, so as to pay less taxes.
“The bilateral APA can reduce transfer price-related tax audits from being carried out,” an NTS official said. “Tax audits in China are costly and time consuming and can adversely affect companies.”
The APA will be of particular help to South Korean companies in China that have consistently posted losses, have large marketing outlays and pay steep royalties, the official said.
Such developments have become a source of concern because many South Korean companies have set up operations and invested heavily in China.
As of late last year, there were some 24,848 South Korean companies operating in China, with US$49.7 billion having been invested so far.
Besides the APA, the two tax services said they will work together to promote further trade and investment that can benefit both countries.
Two-way trade between South Korea and China reached US$171.6 billion last year, down from $228.9 billion the year before. China is South Korea’s largest export market, accounting for 15.6 percent of all trade in 2014.
