Transfer Pricing: Rules and Practice in Selected Countries (J-L) (Portfolio 6960)

Part of Tax

Tax Management Portfolio, Transfer Pricing: Rules and Practice in Selected Countries (J–L), No. 6960, presents the rules and practice related to transfer pricing in Japan, Korea, and Luxembourg.

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Chapter 90, “Transfer Pricing Rules and Practice in Japan,” presents the substantive Japanese transfer pricing rules and describes in detail the conduct of a transfer pricing examination. The chapter also analyzes appeals procedures, the availability and process for competent authority relief, and the operation of the Pre–Confirmation System in transfer pricing cases.

Chapter 95, “Transfer Pricing Rules and Practice in Korea,” describes the sources and scope of Korean transfer pricing rules, the approved transfer pricing methodologies and priorities, and the documentation required to support transfer prices under those rules. The chapter also analyzes the procedures and strategies available in dealing with the Korean tax authorities on transfer pricing issues and discusses the availability of and experience with joint U.S.-Korean action in connection with the mutual assistance provision of the U.S.-Korea Income Tax Treaty and in connection with bilateral advance pricing agreements.

Chapter 100, “Transfer Pricing Rules and Practice in Luxembourg,” provides an overview of the current transfer pricing environment in Luxembourg. With the absence of strict transfer pricing rules and a fiscally friendly climate, Luxembourg can be considered an attractive country for international business. The main transfer pricing references in the Luxembourg Income Tax Law date back to 1967, and some general tax provisions even date back to the 1940s. The provisions referring to the arm's-length principle, however, are very broad, and no recent transfer pricing rules or documentation requirements have been implemented in Luxembourg.


The Transfer Pricing: Rules and Practice in Selected Countries (J–L) Portfolio was authored by the following experts.
Akira Akamatsu

Akira Akamatsu, Former officer of the Japanese National Tax Administration, serving as Chief, International Examination Section (1989–90), International Liaison Officer in Hong Kong (1987–89), and staff member, Examination Division in charge of transfer pricing, tax haven companies, foreign tax credit and exchanges of information under treaties (1984–87), and an officer of the International Examination Division, Tokyo Regional Taxation Bureau (1982–84).

Woo Taik Kim

Woo Taik Kim, tax partner, Kim & Chang, Seoul; Columbia University (M.B.A., 1972); Seoul National University (B.A., 1970); Member, Korean Institute of Tax Attorneys, Korean Institute of Certified Public Accountants, New York State Society of Certified Public Accountants, International Fiscal Association.

Dong Jun Yeo

Dong-Jun (DJ) Yeo, tax partner, Kim & Chang, Seoul; University of Illinois, Urbana-Champaign (M.A., 1987); Seoul National University (B.A., 1980); Employment: tax practice in Korea (1981–1985), tax practice in New York (1987–1992), Kim & Chang (1992 – current); Member, Korean Institute of Certified Public Accountants, American Institute of Certified Public Accountants, International Fiscal Association.

Stefan L. Moller

Stefan L. Moller, senior foreign legal consultant, Kim & Chang, Seoul; Southern Methodist University, Dallas, Texas (J.D., 1986); Southern Methodist University, Dallas, Texas (LL.M., 1984); University of Stockholm, Sweden (Jur.Kand., 1980); Employment: District Court of Norrkoping, Sweden (Law Clerk, Associate District Court Judge, 1980–1983), Latham & Watkins, Los Angeles, California (Associate, 1987–1991), Law Firm of Stefan L. Moller, Goteborg, Sweden (1992–1994), Kim & Chang (1994 – current); Member, California Bar Association.

Tae Yeon Nam

Tae-Yeon (TY) Nam, tax partner, Kim & Chang, Seoul; University of Washington, Seattle (Master of Professional Accounting specialized in Tax, 2002); Dongguk University (B.A. in accounting, 1989); Employment: tax practice (1992–1995), Ssangyong Investment Securities Co., Ltd (1995–1996), Kim & Chang (1996 – current); Member, Korean Institute of Certified Public Accountants.

Marc Rasch

Marc Rasch, Tilburg University, the Netherlands, 1997; Keele University, United Kingdom, 1997. Mr. Rasch is a transfer pricing director at PwC in Luxembourg. He has over 14 years experience in international corporate taxation and transfer pricing. Prior to working in Luxembourg, he worked for over seven years in the Netherlands and for four years in Paris, France. Mr. Rasch has experience in the financial services, consumer goods, pharmaceutical, chemical, entertainment, apparel, automotives, and food & beverages sectors. Mr. Rasch is a regular speaker at transfer pricing seminars, and the author of numerous articles on transfer pricing.

Table of Contents

Portfolio 6960-1st: Transfer Pricing: Rules and Practice in Selected Countries (J-L)

Portfolio Description


Technical Advisors


Significant Developments

Significant Developments



Enacted Legislation

Amendment to Revised Tax Act Merges Transfer Pricing, Corporate Inquiries by NTA

Pending Legislation

2013 Tax Reform Proposal

Treaty Developments

Protocol to U.S.-Japan Treaty Includes Mandatory Arbitration Clause


Administrative Developments

Korea's Ministry of Strategy and Finance Amends Rules on Pricing of Guarantee Fees


Detailed Analysis

CHAPTER 90: TRANSFER PRICING RULES AND PRACTICE IN JAPAN by Gary M. Thomas White&Case Tokyo, Japan and Akira Akamatsu Licensed Tax Attorney Tokyo, Japan

90:I. Background

90:II. Sources of Transfer Pricing Law in Japan

A. Transfer Pricing Rules of General Application

B. Separate Rules for Transactions with Specified Trusts

C. Separate Rules for Consolidated Companies

90:III. Substantive Transfer Pricing Rules

A. Limitation to Foreign Related Transactions

1. In General

2. Foreign Related Transactions

3. Foreign Related Persons

a. Corporation

b. Foreign Corporation

c. Special Relationships

(1) Control Through Shareholding

(2) Control in Substance

(a) Control Through a Single Officer with Representative Authority

(b) Control Through Majority of Officers

(c) Control Through Business Transactions

(d) Control Through Financing

(e) Other Facts Similar Thereto

(3) Control Through a “Chain” of Relationships Including Control through Shareholding and Control in Substance

(4) Timing of Determinations

4. Transactions Through Unrelated Persons

B. Nature of Transactions Covered

C. Requirement to Conduct Transactions at Arm's Length Price

1. In General

2. Definition of Arm's Length Price

D. Transfer Pricing Methods for Inventory

1. Comparable Uncontrolled Price Method

a. In General

b. Transactions Used for Comparison

c. Comparable Property

d. Comparable Terms and Conditions of Sale

2. Resale Price Method

a. In General

b. Transactions Used for Comparison

c. Comparable Property

d. Comparable Terms and Conditions of Sale

3. Cost-Plus Method

a. In General

b. Transactions Used for Comparison

c. Comparable Property

d. Comparable Terms and Conditions of Sale

4. Other Corresponding Methods: The “Quasi-Methods”

5. Cabinet Order Methods

a. Profit Split Method

(1) In General

(2) Profits Subject to Split: Operating Profits

(3) Contribution Profit Split Method

(4) Comparable Profit Split Method

(5) Residual Profit Split Method

(6) Apportionment of Common Expenses

b. Transactional Net Margin Method

(1) In General

(2) Related Purchase/Resale Transactions

(3) Related Sale Transactions

(4) Corresponding Method: Quasi-TNMM Method

(5) Computation of Selling and General Administrative Expenses

6. Priority of Application of Methods

7. Comparability Factors

8. Adjustments for Differences

9. Use of Averages Permitted

10. Special Issues in Computation of the Arm's Length Price

a. Transaction Unit: Individual Transactions or Segments?

b. Offsetting Transactions

c. Treatment of Foreign Exchange Gains and Losses

d. Treatment of Discounts and Rebates

e. Treatment of Differences in Accounting Methods

f. Amount of Acquisition Cost in the Cost-Plus Method

11. Compensating Adjustments

E. Pricing Methods for Other Kinds of Transactions

1. In General

2. Rental of Tangible Property

3. Rental of Machinery and Equipment to Contract Manufacturers

4. Loans

5. Services

a. In General

b. Effect of Intangible Property

c. Cost-Based Analysis

d. Treatment of Provision of Services Within a Corporate Group

6. Treatment of Licensing or Assignment of Intangible Property

F. Presumptive Taxation Method: Penalty or Another Transfer Pricing Method?

1. In General

2. Shifting the Burden of Proof

3. Scope of Necessary Information

4. Time Period for Disclosure

5. Comparable Enterprises.

a. Criteria for Identifying “Similar” Business Activity

b. Use of Related Parties as Comparable Enterprises

c. No Need for Adjustments for Differences?

6. Gross Margin Ratio or Equivalent Ratios

a. Sales of Inventory

b. Other Business Activities

7. Effect of Presumption and Rebuttal

G. Relationship with “Donation” Provisions

H. Adjustment to Final Return

1. Adjustment of Final Return for Difference from the Arm's Length Price

2. No Tax Return Adjustment for Excess Profits

3. Adjustment of Acquisition Value in the Case of High Price Purchases

I. Treatment of the Amount of Income Transferred Overseas, Etc.

1. Treatment of the Amount of Income Transferred Overseas

2. Treatment in the Case of Repayment of Amount of Income Transferred Overseas

90:IV. The Transfer Pricing Examination

A. Overview of Tax Examinations

1. In General

a. Self-Assessment System

b. Revisions and Determinations

c. Statute of Limitations

d. Frequency of Examinations

2. Administration of Examinations

a. In General

b. Transfer Pricing Examinations

(1) Field Level Staff

(2) National Office Staff

(3) Economists and Government Counsel

3. Authority to Conduct Examinations and Demand Books and Records

a. In General

b. Statutory Basis

c. Persons Who Can Be Examined

(1) Taxpayer

(2) Customers, Suppliers and Lenders

(3) Government Agencies

(4) Comparable Companies

d. Consent of Taxpayer

e. Indirect Compulsion

f. Basic Requirement for Information Production: “Necessity”

g. Sanctions for Refusal to Comply

h. Foreign-Based Documentation

i. No Defense of Self-Incrimination

j. Advisor Privilege Considerations

k. Duty of Confidentiality

4. Timing

B. NTA Transfer Pricing Guidelines

1. Introduction

2. Basic Transfer Pricing Policies

3. Criteria to Determine Whether a Transfer Pricing Problem Exists

4. Factors to Be Taken into Account in the Examination

5. Review of Attachment of Schedule 17-3

6. Documents to Be Investigated at Time of Examination

7. Application of Presumptive Taxation Method and Third-Party Audit Provision

8. Lack of Relevancy of Transfer Prices Computed by a Foreign Tax Authority

9. Miscellaneous Issues

a. Classification of Income as Domestic or Foreign in a Transfer Pricing Assessment

b. Thin Capitalization Provision

c. Withholding Income Taxes

d. Consumption Taxes

e. Repayment of Income Transferred Overseas

f. Impact of Correlative Adjustments Due to a Transfer Pricing Assessment by a Foreign Tax Authority

C. Selection of Candidates for Examination

1. In General

2. Review of Schedule 17-3

D. Taxpayer Preparation Prior to Examination

1. In General

2. Coordination Between Japanese Company and Foreign Related Persons

3. Documentation of Transfer Pricing Policies

4. Special Challenges for Foreign-Controlled Japanese Companies

a. Education of Japanese Management

b. Internal Audit

c. Contemporaneous Documentation

d. Examination Task Force

E. Taxpayer's Strategy and Tactics During Examination

1. Commencing the Examination

a. Notice and Purpose of Examination

b. Mere Information Collection or Regular Examination?

2. Setting the Operating Procedures

a. Appoint Taxpayer's Principal Representative in Examination

b. Pre-Examination Internal Conferences

c. Importance of Keeping Meeting Minutes

d. Document Production Considerations

(1) Operating Procedures

(2) Requirement of Written Requests

(3) Recordkeeping for Documents Submitted

(4) Preparation of Supplemental Explanatory Materials

e. Handling of Staff Interviews

f. Periodic Internal Reports

3. Taxpayer Attitude During Examination

4. Educating the Examiner

5. Monitor Examiner's’ Developing Position

6. Presenting Taxpayer's “Positive” Case

7. Position Papers to Supplement Responses

8. Procedure for Preparing Documents

F. Examiner's Interim Report

G. Ending the Examination

1. Wrap-Up Meeting

2. Settlement Negotiations and Strategies

H. Assessment Procedures

1. Formal Notice of Deficiency

2. Making the Pricing Adjustment

a. In General

b. Procedures

c. Characterization Issues

d. Adjustments Concerning Controlled Foreign Corporation Rules

e. Adjustment to Residual Assets

3. Payment of Tax

4. Measures to Avoid Immediate Payment of Tax

5. Interest and Penalties

a. Interest on Deficiencies

b. Penalties

90:V. Advance Pricing Arrangements

A. Background

B. Purpose

C. Pre-Filing Conferences

D. Application

1. Request for Advance Confirmation

2. Attachment of Materials

3. Translation of Submitted Material

4. Correction of Confirmation Request

5. Transmittal of Copy of Confirmation Request Form to NTA

6. Business Years Subject to Confirmation

7. Revisions to Advance Confirmation Request

8. Withdrawal of Advance Confirmation Request

E. Substantive Review of Advance Confirmation Request

1. In General

2. Recommendation for Pre-Filing Conference or Bilateral APA

3. Bilateral APAs

4. Notice of Results of Review

F. Annual Reports

1. Submission of Reports

2. Handling of Reports

G. Effect of Advance Confirmations

H. Adjustments to Prices

I. Revisions, Cancellation or Renewal

1. Revisions in Advance Confirmation

2. Cancellation of Advance Confirmation

3. Renewal of Advance Confirmation

J. Rollbacks

K. Application to Head Office-Branch Office Transactions

L. Relationship Between Examinations and Advance Confirmations

90:VI. Competent Authority

A. In General

B. Sources of Authority

1. In General

2. Treaty Provisions

3. Domestic Law

a. Statutory Provisions

b. MAP Circular

C. Persons Entitled to Seek Competent Authority Relief

1. In General

2. Residents of Japan

a. Treaty Definition

(1) Corporations

(2) Individuals

(3) Estates and Trusts

(4) Partnerships

b. Domestic Regulations

3. Nonresident Individuals Who Are Japanese Nationals

4. Residents of the Treaty Country

5. Residents of Neither Japan nor the Treaty Country

D. Issues Subject to Competent Authority Relief

1. In General

2. Taxes Covered

3. Action by a “Contracting State”

4. Action by “Either” Contracting State

5. Action “Not in Accordance with Treaty”

a. In General

b. Specific Issues

(1) Interpretation or Application of Treaty

(2) List of Particular Issues in Treaty

(a) Same Attribution of Industrial or Commercial Profits for Single Resident

(b) Same Allocation of Income and Deductions Between Persons

(c) Advance Pricing Arrangements

(d) Other Double Taxation Cases

c. Direct Effect from Action?

6. List of Specific Issues in MAP Circular

a. Transfer Pricing Cases

b. Advance Pricing Arrangements

c. Permanent Establishment Cases

d. Withholding Tax Cases

E. Timing Considerations

1. Ripeness

2. Deadlines

F. Pre-Filing Conferences

G. Filing Procedures for Mutual Consultations

1. Application Form

2. List of Materials to Be Attached

3. Submission of Translated Documents

4. Review of Application for Mutual Consultations

5. Changes in Submitted Documents, Etc.

6. Retention of Documents

H. Protective Measures

I. Conduct of Mutual Consultations

1. Filing of Request for Mutual Consultations with the Competent Authority of the Other Country

2. Communications with the Other Country

3. Disclosure of Confidential Taxpayer Information

4. Status Reports to Applicant

5. No Duty to Reach Agreement

J. Taxpayer Role in Negotiations

1. Duty to Cooperate

2. Indirect But Active Involvement

K. Conclusion of Mutual Consultations

1. Confirmation of the Applicant's Acceptance

2. Notification of Agreement

3. Termination or Withdrawal of Mutual Consultations

a. Termination

b. Withdrawal of Application

4. Discontinuation of Document Retention Measures

L. Implementation of Agreement

1. Claim for Refund

2. Interest on Refund

M. Mutual Consultations Based upon Requests from the Competent Authority of the Other Country

1. Transfer Pricing Assessments

2. Advance Confirmations in Case of a Domestic Corporation

3. Advance Confirmations in Case of a Foreign Corporation

4. Other Requests

5. Dealing with Withholding Agents

6. Submission of Documents

7. Notification of Agreement in Mutual Consultations

8. Termination of Mutual Consultations

9. Discontinuation of Document Retention Measures

N. Requests for Mutual Consultations Initiated by OMAP

90:VII. Domestic Appeals Procedures

A. In General

B. Order of Appeals

1. Dispositions by District Director

2. Disposition by Regional Commissioner

3. Blue Return Filers

C. Timing of Appeals

1. Petition of Exception

2. Claim for Review

3. Unavoidable Circumstances.

4. One Year Restriction

D. Effect of Pending Appeal upon Disposition

E. Petition of Exception

1. Form

2. Review Procedures

3. Decision

a. Dismissal

b. Rejection on Merits

c. Withdrawal or Amendment of Disposition

4. Notice of Decision on Objection

F. Claim for Review

1. Form

2. Review Procedures

3. Ruling

4. Notice of Ruling

G. Judicial Review

1. Requirement for Prior Administrative Decision or Ruling

2. Parties

3. Timing

4. Procedures

CHAPTER 95: TRANSFER PRICING RULES AND PRACTICE IN KOREA by Woo Taik Kim,  Dong Jun Yeo,  Stefan L. Moller and  Tae Yeon Nam,  Kim &  Chang Seoul, Korea

95:I. Overview of Korean Tax System and Administration

A. Income over Which Korea Asserts Tax Jurisdiction

1. Income Derived by U.S.-Based Entities from Transactions Involving Korean Activities or Payments

2. Income Derived by Korean-Based Entities from Transactions Involving Foreign Activities or Payments

B. Tax Administration Organization

C. Audit Procedures

D. Complaint Against Notice of Outcome of Tax Audit

E. Assessment of Corporation Tax

1. Payment Notice

2. Payment Suspension and Collateral

F. Administrative Appeal of Disputed Tax Assessments

1. NTBL Appeals

2. BAIL Appeals

3. Comparison of the Two Procedures

G. Judicial Appeal of Disputed Audit Findings

H. Mutual Agreement Procedures

I. Burden of Proof

1. Administrative Proceedings

2. Court Proceedings

95:II. Basic Korean Transfer Pricing Rules

A. Introduction

B. Transactions Affected

1. Overview

2. Tangible Property Transactions Subject to Transfer Pricing Rules

3. Intangible Property Transactions Subject to Transfer Pricing Rules

4. Services

5. Loans

6. Cost Sharing Arrangements

C. Definition of Foreign Related Parties

1. Overview

2. Definition of Special Relationship Under ITCL

a. 50% Parent-Subsidiary Relationship

b. 50% Brother-Sister Relationship

c. Constructive and Indirect Ownership

3. Detailed Definition of Special Relationship Under ITCL-ED

a. Inbound Investment Situations

b. Outbound Investment Situations

c. Common Ownership Situations

d. Effective Control Circumstances

4. Extent to Which Indirect Relationships May Be Taken into Account

5. Third-Party Intervention

D. Transfer Pricing Methodology

1. Most Reasonable Method

2. Types of Transfer Pricing Methods

a. Comparable Uncontrolled Price (CUP) Method

b. Resale Price Method

c. Cost Plus Method

d. Profit Split Method

e. Transactional Net Margin Method (TNMM)

f. Other Methods Deemed Reasonable

3. Guidance in the NTS Basic Guideline

a. Comparable Uncontrolled Price (CUP) Method

b. Resale Price Method

c. Use of Transactions Between Related Parties

d. Berry Ratios

e. Use of Interquartile Range

4. Selection Criteria

a. Comparability

b. Data Availability and Accessibility

c. Economic Circumstances

d. Sensitivity to Error

e. Suitability

5. Setoffs

6. Economic Databases


b. Annual Corporation Reports (ACR)

7. Supplement to Arm's-Length Price Method

8. Comments on Honoring the Form of Transactions

E. Intragroup Service Charges

F. Sources of Transfer Pricing Rules

1. Statutes and Guidelines

a. International Tax Coordination Law

b. ITCL Enforcement Decree

c. ITCL Enforcement Regulations

d. NTS Basic Guidelines

2. Administrative Regulations

a. NTS Notice 98-12 and Its Progeny

b. International Tax Administrative Regulation

c. Priority of Transfer Pricing Methods

d. Influence of OECD Standards (Including 2010 Guidelines)

e. Likely Reaction to U.S. Commensurate-with-Income Standard for Intangibles

f. Applicability of Transactional Profit Methods

g. Use of Expert Economic or Industry Evidence in Establishing “Correct” Transfer Prices

h. Availability of Entity-Based Methods, such as Comparable Profits Method (and Comparison to Transactional Net Margin Method)

3. Defenses Against Transfer Pricing Adjustments

a. Prudent Business Behavior or Motivation

b. Market Share Strategies

c. Setoffs

4. Judicial Decisions

a. Dow Chemical — Application of Resale Price Method

(1) Seoul Administrative Court

(a) Internal Comparables

(b) Comparables

(c) Necessary Adjustments

(2) Appeal to Seoul High Court

(3) Appeal to Supreme Court

(4) Remand to Seoul High Court

(5) Comment on Dow Chemical

b. Pfizer — Application of CUP Method

c. Rockwell — Recognition of Intragroup Service Fees

d. UIP/CIC — Royalties for the Use of Films

G. Corresponding Adjustments

1. In General

2. Secondary Adjustments

a. Return of Income

b. Statutory Background

3. Characterization of Unrepatriated Adjustments

a. Foreign Related Party Is a Shareholder

b. Foreign Related Party Is a Subsidiary

c. Foreign Related Party Is Neither a Shareholder Nor a Subsidiary

4. Treatment of Repatriated Adjustments

95:III. Penalties, Waivers, and Interest on Additional Corporation Tax Due Based on Transfer Pricing Adjustments

A. Gasanse (Additional Tax)

1. Underreporting of Income

2. Arrearages

3. Failure to Pay Withholding Tax

B. Gasangum and Jung Gasangum (Delinquency Penalties)

C. Interest Equivalent Amount

D. Kwataeryo (Penalties)

1. Imposition

2. Appeals Procedure

95:IV. Dealing with the Korean Tax Administration on Transfer Pricing Issues

A. Advance Pricing Approval Procedures

1. Application

2. Confidentiality

3. Review Process

4. Bilateral Arrangements

5. Termination of the NTS's Review

6. Annual Report

7. Approval

B. APA Practice

1. Considerations in Deciding Whether to Obtain Ruling on Transfer Pricing Standards

2. Ease or Difficulty in Obtaining Rulings

3. Extent to Which APA Binds a Taxpayer and the Tax Administration

4. No Additional Tax Applies for Underreporting of Income

C. Korean Government Participation in U.S. APA Process

D. Reporting International Transactions

1. Schedule of International Transactions

a. Form No. 1 Report

b. Transaction Summary Report

c. Submission of Financial Information for Foreign Related Parties

d. Domestic and Foreign-Based Documents — Inventory Transactions

e. Domestic-Based Documents — Other than Inventory

2. Reporting Certain Inter-Branch Transactions

3. Reporting Differences Between Transaction Price and Reported Price

4. Justification of Transfer Pricing Method

5. Related-Party Income Statements

E. Transfer Pricing Audits

1. Information Requests by the Tax Administration

2. Penalties for Failing to Comply with Information Requests

3. Establishment of Special Transfer Pricing Teams

4. Guidelines or Practical Rules Used by Korean Tax Examiners for Identifying Potential Transfer Pricing Issues

5. Types of Information Used in Transfer Pricing Audits

6. Authority of the Tax Administration to Require Taxpayer to Create Documents Regarding Profitability

F. Refund Claims Following U.S.-Initiated Allocations of Income from Korean Entities to U.S. Taxpayers

1. Refund Procedure

2. Background

3. Forms to Be Used

G. Negotiated Settlements of Korean-Initiated Adjustments

95:V. Practical Aspects of the Competent Authority Process

A. Application for Korean Competent Authority Assistance

1. Mechanics of Application

2. Request for Assistance from NTS

B. Degree of Foreign Taxpayer Involvement with Korean Competent Authority

C. Korean Competent Authority's Willingness to Deviate from Korean Transfer Pricing Rules

D. Korean Competent Authority's Willingness to Deviate from Korean Rules on Penalty and Interest (Including Interest on Refunds)

E. Arbitration Possibilities

1. Korean Arbitration Rules

2. Other Arbitration Rules

95:VI. Information Reporting and Recordkeeping

A. Practical Applications of Exchange of Information Agreements

B. Korean Rules on Confidentiality of Information

C. Taxpayers' Bill of Rights Under the NTBL

D. Defenses Against Information Requests by Foreign Governments

95:VII. Coordination of Transfer Pricing with Korean Customs Declarations

A. Customs Valuation Rules

B. Customs Valuation vs. Transfer Pricing of Imported Goods

C. Six Valuation Methods

1. First Method: Transaction Value of the Goods

2. Second and Third Methods: Transaction Value of Identical or Similar Goods

3. Fourth Method: Deductive Value

4. Fifth Method: Computed Value

5. Sixth Method: Reasonable Value

6. Report of Customs Value

D. Practical Aspects

E. Advanced Customs Valuation Agreement Program


100:I. Introduction

100:II. Overview of Luxembourg's Tax System

100:III. Overview of Luxembourg's Corporate Income Tax System

100:IV. History of Luxembourg's Transfer Pricing Rules

100:V. The Transfer Pricing Rules of Luxembourg

A. Overview

1. Tax Law Provisions

2. Circulars

3. Financial Intermediary Transactions

a. Substance

b. Equity at Risk

c. Transfer Pricing Documentation

4. OECD Model Treaty

5. Burden of Proof

6. Indirect Taxes and Transfer Pricing

a. Customs Duties

b. Value Added Tax

c. Cooperation in Exchange of Information

B. Definition of Controlled Persons or Related Parties

C. Transfer Pricing Rules for Different Types of Transactions

1. Transfer Pricing Rules for Tangible Property

a. Sales

b. Rentals

2. Transfer Pricing Rules for Intangible Property

a. In General

b. Sales

c. Licenses

d. Cost Sharing Arrangements

3. Transfer Pricing Rules for Services

4. Transfer Pricing Rules for Loans and Other Financial Contracts

a. Loans

b. Other Financial Contracts

c. Regulatory Requirements

D. Data Sources Commonly Used in Luxembourg

100:VI. How the Transfer Pricing Rules of Luxembourg Differ from the OECD Transfer Pricing Guidelines

100:VII. Reporting and Documentation Requirements

100:VIII. Penalties

100:IX. Transfer Pricing Audits in Luxembourg

100:X. Appeals of Transfer Pricing Adjustments

100:XI. Resolving Conflicts with Other Countries

Introductory Material

A. Mutual Agreement Procedure

B. European Arbitration Convention

100:XII. Adjustments to Be Made in the Wake of a Transfer Pricing Adjustment

100:XIII. Advance Pricing Agreements

Working Papers

Working Papers

Table of Worksheets


Worksheet 11 Form No. 1 — Report on Calculation Method of Arm's Length Price for Intangible Assets

Worksheet 12 Form No. 1-2 — Report on Calculation Method of Arm's Length Price for Service Transaction

Worksheet 13 Form No. 1-3 — Report on Calculation Method of Arm's Length Price

Worksheet 14 Form No. 2 — Report on Adjustment of Transaction Price

Worksheet 15 Form No. 3 — Application for Advance Approval on the Method of Calculating Arm's Length Price

Worksheet 16 Form No. 4 — Application for the Commencement of Mutual Agreement Procedures

Worksheet 17 Form No. 5 — Detailed Schedule of Adjustment of Cost Sharing, etc.

Worksheet 18 Form No. 6 — Notice of Provisional Retainment of Transferred Income

Worksheet 19 Form No. 6(2) — Confirmation of the Return of Transferred Income

Worksheet 20 Form No. 6(3) — Notice of Transferred Income

Worksheet 21 Form No. 7 — Application for Special Treatment on Income Calculation

Worksheet 22 Form No. 8 — Detailed Schedule on International Transactions

Worksheet 23 Form No. 8-2 — Summary Income Statement of Foreign Related Party

Worksheet 24 Form No. 9 — Request for Extension of Information Submission Due Date

Worksheet 25 Form No. 10 — Approval Notice on Extension of Data Submission

Worksheet 26 Form No. 11 — Details of Overseas Investment

Worksheet 27 Form No. 12 — Confirmation for the Application of the Special Rules Concerning the Statute of Limitation

Worksheet 28 Form No. 13 — Applicant's Opinion Regarding the Processing Period of the Mutual Agreement Procedure

Worksheet 29 Form No. 14 — Application Form for Special Treatment on Appeal Period

Worksheet 30 Form No. 15 — Application Form for Special Treatment (e.g., deferral in collection)

Worksheet 31 Form No. 16(1) — Notice of MAP conclusion (I)

Worksheet 32 Form No. 16(2) — Notice of MAP conclusion (II)

Worksheet 33 Form No. 16-2 — Application Form for Expansion of Results of the Mutual Agreement Procedure

Worksheet 34 Form No. 17 — Application for Certification of Residence for the Purpose of the Double Taxation Convention between the Republic of Korea and _____

Worksheet 35 Form No. 18 — Certificate of Residence for the Purpose of the Double Taxation Convention between the Republic of Korea and _____

Worksheet 36 Form No. 19 — Request for Tax Collection between Nations

Worksheet 37 Glossary

Worksheet 38 U.S.-Korea Simultaneous Audit Agreement

Worksheet 41 Text of Relevant Luxembourg Tax Provisions

Worksheet 42 Circular No  164/1 of March 23, 1998 on interest rates in connection with the bank accounts of shareholders/partners of entities liable to the corporate income tax

Worksheet 43 Circular No  164/1 of June 9, 1993, relating to hidden dividend distributions

Worksheet 44 Unofficial English translation of Circular No  164/2, on tax treatment of entities carrying out intra-group financing activities

Worksheet 45 Circular No  164/2 of January 28, 2011, on tax treatment of entities carrying out intra-group financing activities

Worksheet 46 Circular No  164/2 bis of April 8, 2011, on tax treatment of entities carrying out intra-group financing activities

Worksheet 47 Diagram of Luxembourg Tax Appeal Procedure







Administrative Pronouncements















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