Challenges and solutions in era of international taxation

Lee Sung-jin

Why does the same product have different prices in different countries?

This simple but intriguing question highlights one of the most complex issues in international taxation. Imagine a Korean subsidiary of a multinational company buying components from its headquarters for $100 per unit, while an independent local firm purchases the same item for $80. Should tax authorities simply accept the $100 price? On the surface, it may appear to be a legitimate transaction between a parent and its subsidiary, but for tax administrations, these differences raise important transfer pricing concerns.

Transfer pricing refers to the price at which assets, services or intangible rights are exchanged between related entities within a multinational enterprise. If these prices are not adjusted properly, profits can be shifted to certain jurisdictions, resulting in tax avoidance or imbalances in tax revenue. To prevent this, tax authorities worldwide apply the arm’s length principle — a global standard that ensures transactions between related parties are priced as if they occur between independent enterprises.

However, what seems simple in theory is often complex in practice. Transactions involve various factors such as technology, brand value, finance and logistics, and each country has its own accounting and tax system. As global supply chains are being reshaped and trade protectionism expands, transfer pricing has become a major challenge not only for companies but also for tax administrations. In response, the National Tax Service (NTS) of Korea has been taking proactive steps to adapt to this evolving environment.

First, the NTS is taking the lead in building a global network for cooperation on international tax disputes.

As part of this effort, the NTS hosted the Competent Authority Forum in Seoul for the first time this June, with participation from major Asia-Pacific countries such as China, Japan, Indonesia and Vietnam, as well as key international organizations including the OECD and the World Bank. A competent authority is the official responsible for conducting practical negotiations to resolve international tax disputes, such as cases of double taxation.

At the forum, the NTS shared Korea’s experience and achievements in transfer pricing management and emphasized the importance of strengthening trust and cooperation among regional tax authorities. Through this initiative, Korea has established itself as both a mediator and cooperative partner in leading efforts to resolve international tax disputes.

Second, the NTS has been expanding support to help Korean companies overseas operate in a stable and predictable tax environment.

Recent global tariff increases and supply chain shifts have rapidly reshaped international trade. Changes in sourcing locations and production bases now have direct implications for taxation. To prevent companies from being exposed to unforeseen tax risks, the NTS has taken proactive measures.

In August, the NTS held an online emergency meeting to directly listen to the concerns of Korean companies operating in the United States that were affected by new tariff measures and to collect opinions on possible policy responses. In November, in partnership with the Korea Chamber of Commerce and Industry, the NTS hosted an international tax seminar for around 30 Korean enterprises with overseas operations. The seminar featured case-based lectures and one-on-one Q&A sessions, allowing the NTS to hear directly from businesses and understand their real-world challenges.

Through these efforts, the NTS is transforming itself from a traditional tax-collecting agency into a partner-oriented administration that helps companies navigate complex international tax environments with greater predictability and confidence.

International taxation is complex and highly specialized, yet as Korea’s economy grows and global activities expand, it can no longer remain the domain of a few experts. It has become vital infrastructure for sustainable economic growth and a foundation for fair global competition. At its core, international taxation aims to ensure fairness and predictability for both governments and businesses.

The NTS will continue to serve as a trusted partner that firmly supports the global competitiveness of Korean enterprises, actively helping them minimize uncertainty in international transactions and grow on the basis of fair and rational standards.

Lee Sung-jin is the vice commissioner of the National Tax Service.