Risk of dual pricing
When an exporter sells a product to an unrelated customer in Korea at sales price and a related affiliate in Korea at transfer price, serious customs valuation issue can arise to the related affiliate if the sales price is much higher than the transfer price. It’s because customs authority will try to collect tax shortfalls plus penalty calculated based on the customs value determined based on the sales price. Pursuant to WTO Customs Valuation Agreement, the transfer price can be regarded as the appropriate customs value if it is proved that the special relationship doesn’t influence the transaction price of the product. However, under the situation where customs authority found out that a product was sold to an unrelated customer at much higher price, it is not easy to prove. Besides, the fact that the same product was sold to an unrelated customer at much higher price can be easily found out by customs authority through analysis of Korea Customs Service (KCS) database. ...