Transfer Pricing guide: Korea
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for Korea, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2025
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
South Korea is an OECD member jurisdiction.
Relevant Transfer Pricing regulation
Law for the Coordination of International Tax Affairs Arts. 6-21.
Is this regulation aligned with the OECD Guidelines
Most of the regime is similar to that contained in the OECD Guidelines.
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
Taxpayers with sales of KRW100 billion or more and KRW50 billion or more in cross-border transactions with their related parties in a given year are required to submit a master file and a local file.
Documentation Threshold for Preparation of Master File
Taxpayers with sales of KRW100 billion or more and KRW50 billion or more in cross-border transactions with their related parties in a given year are required to submit a master file and a local file.
Documentation Threshold for Preparation of Country by Country Report
If the ultimate parent company is located in Korea and the consolidated revenue in the preceding fiscal year exceeds KRW 1 trillion, there is an obligation to submit a Country-by-Country Report (CbCR). In addition, if the ultimate parent company is located outside of Korea and its consolidated revenue in the preceding fiscal year exceeds the threshold amount prescribed under the laws of its jurisdiction or EUR 750 million, the Korean subsidiary of such ultimate parent company is also required to submit a CbCR.
Submission of Local File, Master File, and CbC Report Required? If so, when?
The CRIT – consisting of the local file, master file and CbC report – should be submitted within 12 months from the end of each fiscal year.
If No Submission Required, any Other Deadline?
For those taxpayers not subject to the CRIT, the NTS may request it in the course of a tax audit; if so, it should be submitted within 60 days of the request.
Other Documentation Requirements
None.
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
If a taxpayer is not subject to the Local File submission requirement as explained above, there is no mandatory obligation to prepare a transfer pricing documentation (TPD). However, if the TP documentation is prepared and maintained by the tax return filing deadline and the transfer pricing method is deemed to have been reasonably applied, a 10% reduction in the understatement penalty may be granted in the event of a transfer pricing adjustment during a potential tax audit. This serves as an incentive for taxpayers to prepare the TP documentation voluntarily.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
Not applicable to Korea.
Deadline for TP Return Filing
Not applicable to Korea.
Key information to be included in the TP Return
Not applicable to Korea.
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
When benchmarking a tested party located in Korea, local Korean comparables are used, and the ValueSearch database provided by NICE Bizline is utilized. ValueSearch offers company profiles and financial information for approximately 1.5 million companies in Korea.
Single-Year vs Multi-Year Analysis
As a general rule, single-year analysis is applied. However, if the effects of changes in economic conditions—such as economic fluctuations—affect product prices over multiple fiscal years, or if business strategies such as market penetration or pricing based on product life cycles influence product pricing across several years, the use of multi-year data may be considered reasonable. In such cases, the use of multi-year data is permitted.
Public vs Private Comparables
Private Comparables (provided by ValueSearch)
Interquartile Range or Full Range
Interquartile Range.
Transaction-Based or Aggregate Approach, or Both
As a general rule, transaction-by-transaction analysis is preferred. However, an aggregated approach may be performed in the following cases:
1. Where the products are closely related, such as belonging to the same product line.
2. Where the supplier provides know-how to the manufacturer while also supplying key components.
3. Where the transaction involves an indirect transaction through a related party.
4. Where the sale of one product is directly related to the sale of another product, such as printers and toner, or coffee machines and coffee capsules.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
There are no specific regulations regarding the update frequency of benchmarking, but since tax audits are conducted on a year-by-year comparison basis, it is recommended to update the benchmarking analysis annually.
TP Penalties
In Case of Delayed Submission of Documentation
If a taxpayer obligated to submit the Local File (LF), Master File (MF), or Country-by-Country Report (CbCR) fails to submit the report within 12 months from the end of the relevant fiscal year, a penalty of KRW 30 million will be imposed for each report. However, if the report is submitted after the deadline, the penalty may be reduced depending on the number of days between the original due date and the actual submission date.
In case of Income Adjustments in Course of a Tax audit
If additional tax is assessed as a result of a transfer pricing adjustment during a tax audit, a 10% understatement penalty will be imposed—similar to other tax items—along with a penalty for failure to pay on time, calculated at a daily rate of 0.022% (approximately 8.03% annually) from the statutory payment due date to the date of the notice.
In addition, for transfer pricing assessments, a confirmation of return (i.e., a document verifying that the adjusted amount has been returned) must be submitted within 90 days from the date of the provisional retention disposition. If such confirmation is not submitted within 90 days, a secondary disposition will be imposed on the amount that should have been returned. If the counterparty to the transaction is the parent company, the amount may be treated as a deemed dividend, in which case dividend withholding tax must be applied.
Other Considerations
APA & MAP Availability
Taxpayers may apply for unilateral, bilateral, or multilateral Advance Pricing Agreements (APAs) depending on their specific needs and treaty access. Additionally, if actual or potential taxation arises that is inconsistent with the provisions of a double tax treaty to which South Korea is a party, taxpayers may seek relief through a Mutual Agreement Procedure (MAP).
Applicability of Safe Harbour Rules
There are two main types of transactions where TP safe harbour rules may apply:
1. low value-adding intra-group service transactions; and
2. intercompany loan transactions.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
Cases involving substantial activities within South Korea but low profit levels—particularly where intellectual property is held offshore and there are significant base-eroding payments or financial arrangements—tend to attract heightened scrutiny.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
Since Korea adopted the OECD Guidelines’ risk analysis framework, the NTS has increasingly focused on whether there is a mismatch between the entity contractually designated to bear economically significant risks and the entity that actually bears those risks in substance, as demonstrated by its functions and conduct.
Relevant Regulations and Rulings with Respect to Thin Capitalisation or Debt Capacity in the Jurisdiction
Section 2 of the Law for the Coordination of International Tax Affairs sets forth a thin capitalisation rule, under which interest on excessive debt paid to foreign controlling shareholders is not deductible for Korean tax purposes. This rule reflects the view that foreign controlling shareholders tend to prefer debt financing over equity contributions to Korean subsidiaries, as interest payments on debt may be treated as deductible expenses.
Accordingly, if the amount of debt borrowed from a foreign controlling shareholder (or a related party) exceeds a specified debt-to-equity ratio (e.g., 2:1, though the exact ratio varies by industry), the portion of interest corresponding to the excess debt is not recognized as a deductible expense. Instead, such interest is recharacterized as a dividend or other outward remittance of economic benefit.
Strengthening of Documentation Obligations During Tax Audits
In March 2025, an amendment to the Framework Act on National Taxes introduced a new enforcement mechanism whereby taxpayers may be subject to an administrative fine—following deliberation by the Enforcement Review Committee—if they fail to submit statutorily required books or records during the course of a tax audit without just cause.
This new provision appears to have been introduced in response to difficulties experienced by tax authorities in obtaining documents from foreign parent companies during transfer pricing audits of Korean subsidiaries. In many such cases, the local entities had limited access to the relevant information. The regulation is thus designed to place greater pressure on taxpayers to produce such documents, and it signals a broader trend toward more rigorous and forceful audit practices going forward.
Global Mimimum Tax (Pillar 2)
Korea became the first country in the world to enact domestic legislation implementing the Global Minimum Tax rules in 2023. As the first filing deadline for the Global Minimum Tax—applicable to fiscal years beginning in 2024—approaches, the 2025 tax law amendments have introduced comprehensive revisions to the rules. These include clarifications on definitions, calculation and adjustment methods, and the introduction of a general exemption provision, incorporating elements of the OECD’s administrative guidance across 30 distinct items to enhance the regulatory framework.
In parallel, companies in Korea that fall within the scope of the Global Minimum Tax regime have begun to disclose the anticipated impact and projected tax effects of the new rules in the footnotes to their audited financial statements for the 2024 fiscal year.
Tax Audit Involving TP Related Matters
During a tax audit, the NTS may request transfer pricing documentation that supports the calculation of arm’s length price. When such a request is made, the taxpayer is required to provide the relevant documents within 60 days. Failure to submit the requested materials, or submission of inaccurate information, may result in penalties, depending on the extent of non-compliance. The NTS may also issue a separate notice granting 30 days to file missing reports, and failure to meet this deadline may incur further interest charges.
If the NTS determines that the TP documentation was prepared in a timely manner alongside the corporate income tax return, and that the selected TP method was reasonably chosen and appropriately applied—despite the potential for subjective interpretation—the taxpayer may qualify for a 10% exemption from underreporting penalties in the event of a TP-related reassessment. Where contemporaneous TP documentation is specifically requested, it must be submitted within 30 days.
To mitigate the risk of penalties, it is critical for taxpayers to adhere to submission deadlines and ensure that the TP method used is clearly explained, supported by appropriate documentation and data. The presentation of the TP documentation, as well as the benchmarking database used, should align with Korean practices and meet the NTS’s standards to be deemed credible and comprehensive.
Judicial Precedent on Transfer Pricing
Unlike common law jurisdictions, Korea follows a continental legal system where court decisions do not have binding precedent. While lower courts generally respect Supreme Court rulings, these decisions do not create binding legal rules. As a result, the NTS is not legally required to follow Supreme Court interpretations and may adopt differing views, although it typically aligns its position once the Supreme Court has issued consistent rulings on the same matter.
In practice, tax auditors in Korea are often hesitant to escalate transfer pricing disputes to litigation unless exceptional circumstances exist. They generally favor resolution through negotiation during the audit process. Consequently, most TP disputes are settled at the audit stage, and the number of transfer pricing cases that proceed to court remains relatively low compared to common law countries.
Joint Audits
South Korea is a party to the Convention on Mutual Administrative Assistance in Tax Matters. Pursuant to Article 8 (Simultaneous Tax Examinations) and Article 9 (Tax Examinations Abroad), the tax authorities of signatory countries may collaborate to carry out coordinated tax audits or share relevant information obtained during such examinations. Moreover, a contracting state may request involvement in specific aspects of a tax audit being conducted by another participating jurisdiction.
Advance Pricing Agreement (APA)
South Korea introduced its APA program in 1995, concluding its first APA with the United States in May 1997. Since then, the program has handled a total of 970 applications—both unilateral and bilateral—with 753 agreements finalized as of December 31, 2023. These figures reflect the high level of activity within Korea’s APA program, and demand is expected to continue rising as more Korean multinational companies expand their manufacturing and distribution operations abroad.
Korean taxpayers have the option to pursue either unilateral or bilateral APAs, depending on their objectives and whether a Mutual Agreement Procedure (MAP) clause is available under the applicable tax treaty. While unilateral APAs remain available—often preferred for their shorter processing times—they are generally less favored from a double taxation relief standpoint, unless a taxpayer has a specific reason for opting for one.
The APA process in Korea begins with a request for a pre-filing meeting with the APA/MAP division within the International Taxation Bureau at the NTS headquarters. Following a successful pre-filing consultation and informal clearance from the APA/MAP office, the taxpayer may proceed to submit a formal APA application. Once negotiations are completed with the competent authority of the relevant treaty partner (in the case of a bilateral APA), the final decision to approve the APA rests with the NTS Commissioner.
Mutual Agreement Procedure (MAP)
At the request of a taxpayer, the MOEF or the NTS may ask the competent authority of another country to initiate a MAP, provided the following conditions are met:
- A tax treaty exists between Korea and the other country;
- A transfer pricing adjustment has been made by the foreign jurisdiction in relation to a controlled transaction;
- The transaction involves a Korean resident and a resident of the treaty partner; and
- The taxpayer believes that a corresponding adjustment is necessary to eliminate double taxation.
Co-Ordination Between the APA Process and MAP
Korea’s APA and MAP cases are allocated within the APA/MAP division of the NTS according to the counterparty country. Typically, each sub-unit within the team handles APA and MAP matters for a group of assigned jurisdictions. Because case assignments are made by counterparty jurisdiction, it is not uncommon for APA and MAP matters involving the same counterpart to be handled together. When this occurs, the overlapping nature of the issues often leads to a more streamlined and expedited resolution process.
Although there is no formal legal requirement mandating collaboration between APA and MAP personnel within the NTS, such coordination does occur in practice and contributes to more efficient case handling.
Alignment with OECD Guidelines
As a member of the OECD, South Korea’s transfer pricing regime is closely aligned with the OECD Transfer Pricing Guidelines. While there are occasional jurisdiction-specific modifications, the overall framework mirrors that of the OECD. This alignment is largely due to the Korean legislature and the MOEF actively tracking OECD developments and incorporating them into domestic rules in a timely manner.
The LCITA defines the arm’s length price as the price that a Korean resident, domestic company, or permanent establishment in Korea would apply—or be expected to apply—in typical cross-border dealings with independent third parties. In Korea’s transfer pricing framework, related-party transaction prices are assessed against this benchmark, reflecting Korea’s strict adherence to the arm’s length principle. Alternative pricing mechanisms, such as formulary apportionment, are categorically excluded under Korean law.
In applying the arm’s length principle, the NTS must thoroughly analyze the nature of the transaction, including the financial and commercial relationship between the Korean entity and its foreign affiliate, as well as the key contractual terms. The NTS will then assess whether the transaction aligns with commercial reality, as would be expected between unrelated parties. If a transaction lacks commercial substance or a reliable arm’s length price cannot be established, the NTS may disregard the original structure or recharacterize the transaction in a commercially reasonable manner for transfer pricing purposes.
The OECD’s Base Erosion and Profit Shifting (BEPS) initiative has significantly influenced Korea’s transfer pricing regime. Notably, it led to the introduction of the Comprehensive Report on International Transactions (CRIT), which mandates Korean taxpayers to disclose detailed information on cross-border related-party dealings. In accordance with section 8.2 on Taxpayer Obligations Under the OECD Guidelines, Korean taxpayers that exceed certain thresholds in sales and cross-border related-party transactions are obligated to file the CRIT, comprising a local file, master file, and Country-by-Country (CbC) report.
Benchmarking Analyses Nuances or Preferences
To be regarded as credible and robust, transfer pricing documentation must follow local conventions and use benchmarking databases that meet the standards and expectations of the NTS.
When an intercompany service transaction involves ancillary or back-office functions rather than the core operations of the taxpayer, it may qualifies as a “low value-adding intra-group service,” subject to certain conditions being met. In such cases, a standardized 5% mark-up may be applied without requiring a separate benchmarking study.
Reflecting the OECD’s Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic released in December 2020, Korean regulations were updated in 2022 to permit the inclusion of loss-making comparables in benchmarking analyses, where appropriate. This change was formally incorporated into the subordinate regulations under the LCITA. This development further illustrates how Korea’s modern transfer pricing regime remains closely aligned with the OECD Guidelines.
Considerations for Intercompany Loans
When engaging in financial transactions with foreign related parties, Korean taxpayers may determine the arm’s length interest rate through one of two methods:
- by evaluating comparability factors such as the loan amount, maturity, presence of guarantees, the borrower's creditworthiness, and other relevant elements; or
- by applying the “safe harbor” interest rate provided under the LCITA.
Under the safe harbor rules, if a Korean entity lends funds to a foreign affiliate at an interest rate statutorily provided, such arrangement is deemed acceptable. Conversely, if the Korean taxpayer is the borrower, the safe harbor rate is defined as the applicable Risk-Free Rate (RFR) for the currency involved (e.g., SOFR for USD, KOFR for KRW) plus a 150 basis point spread. For currencies not specifically listed in the subordinate regulations, SOFR serves as the default base rate.
The OECD’s recent developments on transfer pricing were partly transposed into the LCITA and its subordinating regulations in 2022. Newly codified intercompany loan pricing methodologies by reference to the OECD’s Transfer Pricing Guidance on Financial Transactions published in October 2020 have reinforced the LCITA’s existing regime, which lacked sophistication, and have provided specific guidance to allow for greater tax certainty. These updates provide more granular methodologies for determining arm’s length pricing of intercompany loans, including:
- the use of financial derivative instruments such as credit default swaps, considering the previously mentioned comparability factors; and
- the application of economic models that layer various risk premiums—such as those for default, liquidity, inflation expectations, and loan maturity—on top of a risk-free base rate.
Transfer Pricing Primary Risk Areas in Jurisdiction
Hierarchy of Methods
The Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM), and Cost Plus Method (CPM) are classified as “traditional transaction methods,” whereas the Profit Split Method (PSM) and the Transactional Net Margin Method (TNMM) fall under the category of “transactional profit methods.” Historically, traditional transaction methods were given precedence and had to be considered before applying transactional profit methods.
However, with the revision of the LCITA at the end of 2010, this method hierarchy was eliminated. Since then, taxpayers have been allowed to choose the most appropriate method from the five recognized transfer pricing methods based on the specific circumstances of the transaction.
That said, “other reasonable methods” may be used only when none of the five standard methods can be reliably applied—retaining a limited form of method hierarchy in such cases.
Ex Post Outcomes: Presumptive Evidence
In cases involving the transfer of hard-to-value intangibles (HTVI) or rights thereto, if the actual outcome results in a price that exceeds 120% of the initially agreed-upon price between related parties, a rebuttable presumption may arise. In such instances, the NTS may presume that the original transfer price failed to properly reflect reasonably foreseeable developments at the time of the transaction. As a result, the agreed-upon price may be considered unreliable for transfer pricing purposes.
Cost Contribution Arrangements
South Korea first introduced a cost contribution arrangement (CCA) framework into the LCITA in 2006, and the relevant provisions have undergone multiple amendments since then. However, despite being codified, CCAs have often faced scrutiny from tax auditors, who have frequently recharacterized payments made under such arrangements as royalties, thereby triggering withholding tax assessments.
With recent updates and clarifications to the rules concerning intangibles and CCAs, it is anticipated that the National Tax Service (NTS) will place greater emphasis on the role of intangibles and adopt a more practical and accepting approach toward recognizing CCAs going forward.
Heightened Tax Scrutiny over Intangible Assets
Recently, the Korean National Tax Service (NTS) has intensified its enforcement trends with respect to intangible assets.
In cases where royalties—i.e., consideration for the use of intangibles—are paid overseas, the NTS is closely scrutinizing not only whether such royalties have been reasonably determined, but also whether the use of the intangibles has led to any improvement in the taxpayer's profitability.
Under the Law for the Coordination of International Tax Affairs (LCITA), the Comparable Uncontrolled Price (CUP) method and the Profit Split Method are designated as the primary methods for evaluating intangible transactions. While the Profit Split Method has historically seen limited application due to the inherent difficulty in reasonably allocating relative contributions, there has been a recent uptick in its use. In particular, tax authorities are increasingly relying on DEMPE analyses prepared by audit teams themselves to support aggressive assessments involving economic ownership of intangible assets.
