According to Article 37-4 of the Customs Act and Article 31-5 of the Presidential Decree of the same Act, where a customs office reviews the appropriateness of the dutiable value of goods imported by a related party, it may request the related party to submit data to determine such dutiable value. The scope of data to be submitted includes the current status of mutual investments, internal price determination data, a cost sharing contract, a contract for supporting business and management, etc. The person who has received the request to submit data should submit the relevant data within 60 days from the date of receipt of such request. If the person who has been requested to submit data fails to submit such data by the above deadline or submits false data without just cause, that person will be subject to an administrative fine not exceeding KRW 100 million.
Effective from February 13, 2018, the Presidential Decree of the Customs Act has been amended to additionally include the master file and the local file under Article 21-2 of the Presidential Decree of the Law for the Coordination of International Tax Affairs in the scope of data to be submitted upon the request of a customs office. The master file and the local file are the reports required to be submitted to the relevant district tax office by a taxpayer with annual sales revenue in excess of KRW 100 billion and annual cross-border related-party transaction volume in excess of KRW 50 billion. The master file includes information on the organizational structure of the taxpayer and the entire multinational group related to the taxpayer, description of businesses, intangible assets, financing activities, financial summary, etc., and the local file provides information on the organizational structure of the taxpayer, description of businesses, related-party transactions and price determination data for such related-party transactions, and financial summary. According to the government’s pre-announcement of legislation, besides the master file and the local file, the Country-by-Country report (“CbC report”), which includes information on the amount of revenue, profit and loss before tax, taxes paid, capital, major business activities of the taxpayer and the entire multinational group related to the taxpayer, was also included in the scope of data to be submitted upon the request of the head of a customs office. However, as there has been controversy surrounding submission of the CbC report to the customs office for the reason that this may violate the OECD criteria, the CBC report is excluded from the scope of data to be submitted under the finally announced and enforced Presidential Decree of the Customs Act.
As a result of this amendment, the customs authority expects that it may obtain taxation data from multinational enterprises more easily and utilize such data more effectively in reviewing the dutiable value of imported goods. On the other hand, from the perspective of foreign-invested companies which import goods from their overseas parent companies or affiliates, their work burden will increase due to the amendment. In case the customs office determines that the transaction price of imported goods “has been affected by the special relationship between the transaction parties” under the Customs Act, an assessment in large amount is generally made. Accordingly, when preparing the master file and the local file under the Law for the Coordination of International Tax Affairs for submission to the relevant tax office, multinational enterprises should keep in mind that the master file and the local file need to be prepared considering both national tax aspect and customs valuation aspect with the help of tax and customs experts.