Asian tax officials will discuss transfer pricing

By Kim Jae-won

Staff reporter

Asia’s senior tax officials will gather at an international forum, in Seoul from Wednesday to Thursday to come up with measures to tackle issues related to so-called transfer pricing the National Tax Service (NTS) said Monday.

The tax agency said that officials from 15 Asian countries and the OECD will put their heads together to solve the transfer pricing issue, one of the most important issues in the global tax community, during the forum titled "Study Group on Asian Tax Administration and Research (SGATA) Working Level Meeting.’’

"The forum is an annual conference of 16 members of the Asia-Pacific region. All of the members, including China, Japan and New Zealand, will take part in the meeting except Australia, which will miss the conference due to internal problems,’’ an NTS official said.

It is the first time for Korea to host this meeting. A total of 35 officials from all over the region will share their experiences and policies on transfer pricing at Lotte Hotel in Seoul.

Transfer pricing refers to the pricing of assets and services transferred within an organization, or company. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be sold to a foreign subsidiary.

Since the prices are set within an organization, the typical market mechanism that establishes prices for such transactions between third parties may not apply. The choice of the transfer price will affect the allocation of the total profit among the parts of the company.

This is a major concern for tax authorities who worry that multinational entities may set transfer prices on cross-border transactions to reduce taxable profits in their jurisdiction. This has led to the rise of transfer pricing regulations and enforcement, making transfer pricing a major tax compliance issue for multinational companies.

The NTS, headed by commissioner Baek Yong-ho, said officials will talk about various strategies on ways to impose proper taxation.

"International firms tend to use transfer pricing as a method to avoid taxes. They buy goods with expensive prices from their subsidiaries to reduce income and avoid tax, while they sell the goods at a cheap price to affiliates,’’ Seo Jin-wook, director of the NTS, said. "We hope that we could learn more about their schemes at this meeting.’’