Intercompany Transactions

The obligations a Korean subsidiary carries only because of its dealings with the group.

How We Work

The layer that is usually unassigned

Every Korean company carries the routine filings. Only a foreign-invested company carries this second layer, and it is the one most often left to no one.

The second layer falls between a bookkeeping engagement and an international tax practice. The bookkeeper processes what is put in front of them; the international tax adviser is brought in once something has already gone wrong.

It is not work that is processed. It is work that is decided. Whether withholding arises on what is paid to head office, whether a charge billed back to head office is zero-rated, whether interest on money borrowed from the group is deductible – none of these produce the same answer every month. And a wrong answer accumulates for years before it surfaces all at once.

We determine each position before it is applied, record the basis, and keep it available for the year it is questioned. Seven questions to ask your current adviser.

On transfer pricing

Transfer pricing policy is set at group level. A Korean adviser does not write that policy. What we do is make sure the Korean filings agree with it – that the transactions captured in the statement of international transactions are the transactions the group documentation assumes, characterised the same way, at the same amounts.

Where the two diverge, the quality of the group documentation does not help. What is examined in Korea is what was filed in Korea.

Routine Korean filings are dealt with under Compliance.

Service Scope

Key Services Included

Payments to and from the group

  • Withholding on service fees, royalties, interest and dividends paid to head office and other non-residents
  • Treaty rate, exemption and non-taxation applications, with the supporting documentation
  • VAT treatment of charges billed back to head office, including the zero-rating conditions

Financing from the group

  • Thin capitalisation – interest on borrowings from a foreign controlling shareholder
  • Earnings stripping – interest expense measured against earnings

Related-party filings

  • Statement of international transactions and the related annual filings
  • Agreement between the Korean filings and the group’s transfer pricing documentation

Head office presence

  • Permanent establishment exposure from head office personnel, secondees and dependent agents
  • Cost sharing and recharge arrangements with head office

When it is questioned

  • Position memoranda in English, with the basis kept on record
  • Tax audit support on head office and group transactions

Is anyone reviewing your intercompany transactions?

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