A Study on Transfer Pricing

Abstract

This study analyzed the international aspect of Korean tax law related to transfer pricing. This study presented application examples of comparable uncontrolled price method, resale price method and transactional net margin method through actual enterprises to see the situations that these methods can be used as the Arm’s Length Price criteria. The comparable uncontrolled price method was used in the case that the comparable enterprise which sold similar products in similar markets was found. The resale price method was applied in the case that the gross margin earned on purchases from foreign affiliated supplier and the gross margin earned on purchases from unaffiliated supplier within the tested company. The transactional net margin method was done in the case that more credible methods such as comparable uncontrolled price method, resale price method could not used. The transactional net margin method used operating asset margin as an appropriate profit level indicator which was adjusted for differences in certain asset ratios between the comparable companies and the tested corporation. Tax authorities and law courts can use the results of this study as benchmark data of transfer pricing. This study has the limits in that subjective assesment of the situations of companies might be performed and generalization of research results is difficult