Recent International Experiences and Optimal Transfer Pricing Tax Policy of Korea and China
Asian Tax Journal Vol. 7 No. 1 (2006), pp. 89-116
Abstract
Kim, Yu-Chan*Han, Sang-Kook**With the increasing transaction volume between Korea and China it is also increasingly important that these two countries must cooperate in order to fight against tax avoidance of multinational enterprises. In this article we show the Korean Transfer Pricing System and international trends in this area and we try to draw the optimal policy direction. Korea and China, both of them are the countries, which criticized from foreign investors because of their legal unstability. In some cases in the past the Korean and Chinese Tax Authorities have played their discretionary powers more strongly than the tax codes clearly mean. In the future the Korean and Chinese Tax Authorities have to show clearly in the tax codes what is the maximum of documents taxpayers to deliver and the Tax Authorities have not to abuse their discretionary powers. The Arm's Length Principle was and is still the Basics of Transfer Pricing Systems in the world but the challenge is strong too. Sooner or later in the future the Arm's Length Principle is likely to be replaced by Formulary Apportionment System. From the perspective of Korea and China what would we do for this new subject and what is better for Korean and Chinese economic interest? In the process of introducing the Formulary Apportionment System the most important thing is to choose the best apportionment factors.
Keywords
- tax avoidance
- multinational enterprises
- transfer pricing system
- arm's length principle
- formulary apportionment system
- apportionment factors
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