Samsung Electronics to Restrict Discounted Product Sales to Overseas Subsidiaries Starting 2024

Ministry of Economy and Finance Releases Public Hearing Materials on OECD Digital Tax Pillar 1 'Amount B'

[Asia Economy Sejong=Reporter Kwon Haeyoung] Multinational corporations, including Samsung Electronics, will not be allowed to sell products at prices below the international standard price (arm's length price) when dealing with overseas sales subsidiaries starting in 2024.

The Ministry of Economy and Finance announced on the 9th the public hearing materials related to the OECD's digital tax Pillar 1 'Amount B' containing this information.

The discussion on digital tax Pillar 1 is divided into 'Amount A,' which allocates taxing rights to the market jurisdiction, and 'Amount B,' which discusses the standardization of transfer pricing for multinational corporations. The Amount B draft released on this day includes a method for calculating transfer prices applied when multinational corporations transact with overseas related parties.

Member countries will first establish OECD transfer pricing guidelines to calculate the arm's length price range for multinational corporations' overseas sales transactions. Accordingly, the target companies must trade products within the arm's length price range presented in the guidelines. For example, this means that Samsung Electronics should not transfer products at prices below the arm's length price when dealing with local subsidiaries responsible for overseas sales and distribution.

The scope of Amount B applies to all local sales subsidiaries belonging to multinational corporate groups. Considering the significant differences in transfer prices by region and industry and the diversity of target companies, further discussions will be held regarding the specific contents of the guidelines.

Member countries plan to select comparable companies among firms performing local marketing and distribution activities and derive the arm's length price range based on the profitability of those companies. Additionally, a transitional rule will be established to apply the guidelines as is to companies that carry out restructuring to avoid the application of Amount B.