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ACVA

ACVA

★"K&K: The True Experts in Customs Transfer Pricing"

★With extensive experience in ACVA representation and handling a wide range of transfer pricing investigations and disputes, we consistently deliver outstanding ACVA results!

What is ACVA?

ACVA (Advance Customs Valuation Arrangement) is a system that allows the customs value of imported goods traded between related parties, such as a foreign parent company and a domestic subsidiary, to be determined in advance through a mutual agreement between the tax authorities and the taxpayer upon the taxpayer's request. ACVA is akin to the Advance Pricing Arrangement (APA) system used by the National Tax Service, as it proactively mitigates tax risks for multinational corporations.

Category	ACVA	APA
Legal Basis	WTO Customs Valuation Agreement and Customs Act (Article 37)	OECD Transfer Pricing Guidelines and International Tax Coordination Act (Article 6)
Purpose	To address incorrect customs value declarations and to eliminate the risk of additional assessments through post-audit corrections	To eliminate the risk of double taxation arising from transfer pricing taxation on international transactions
Target	The prices of individual goods to be declared upon import	All transactions subject to transfer pricing taxation (goods, royalties, and services)

Necessity of ACVA

When a multinational corporation reports the transfer price calculated according to domestic tax (corporate tax) purposes or OECD transfer pricing guidelines as the customs value of imported goods, customs authorities may not accept that price as an appropriate customs value under the WCO Customs Valuation Agreement and the Korean Customs Act.

Both the National Tax Service's transfer pricing analysis and the Customs Service's customs valuation of transfer pricing address tax issues in international transactions. However, due to differences in purpose and approach, the tax approaches of the two agencies can result in completely opposite or contradictory outcomes.

Moreover, the assessment of the appropriateness of transfer pricing in customs valuation is the area with the greatest potential impact on additional tax assessments in customs audits of multinational corporations. Therefore, it is essential to prepare in advance for the review of appropriate customs value from a customs perspective on transfer pricing.

Since customs valuation of transfer pricing is subject to various interpretations, it is a high-risk area with multiple tax risks. The ACVA system is currently the only system that can eliminate customs transfer pricing risks for multinational corporations.

Benefits of ACVA

Postponement of customs audit

ACVA application items' customs value will be exempted from customs investigations from the application time until approval

From the time of approval, the declared price will be recognized as the customs value for 3 years, with an extension possible within 2 years)
Exemption from additional tax

From the time of ACVA application, the provisional price declaration system can be used, and the additional tax on the shortfall in tax when finalizing the price declaration is exempted.

In the case of amending the import declaration prior to the application, the additional tax for filing inaccuracies is exempted.
Issuance of a revised import tax invoice

If the tax amount reported and paid prior to the application is amended according to the ACVA results, or if the customs officer makes an adjustment.
Post TP adjustment provisional pricing reporting requirement fulfilled

In the case of transactions expected to be adjusted to the normal price under the National Tax Law and meeting the requirements prescribed by law, procedures have been established to allow provisional price reporting.
Utilization of the Advance Coordination System

To alleviate the taxpayer's inconvenience, a pre-adjustment system has been established that allows simultaneous application of ACVA from the Customs Service and APA from the National Tax Service.
Enhancement of Corporate Credibility and Assurance of Management Stability

The import price of goods can be trusted by both companies and the tax authorities, eliminating concerns about post-audit or appeals.

ACVA Application Procedure

Pre-consultation
Preliminary Review Application
Submission of supporting documents for the pricing method of imported goods, such as transfer pricing policies, reports, or contracts
Preliminary Review
Review period: 1 year
Notification of review result
Applicant's indication of agreement or disagreement with the review results
Issuance of Preliminary Review Documents
Validity period: 3 years
Submission of Annual Report

Key Services of K&K

• Collection of data for customs value determination and interviews with the person in charge • Review of the appropriateness of the customs value and discussion on the customs valuation method • Preparation of the ACVA application • Discussion with the ACVA review team and response to requests for supplementary materials • Reporting the ACVA results and post-management • Preparation of the annual report

We recommend the use of ACVA for the following companies

The following cases present a relatively high customs risk regarding the appropriateness of transfer pricing in future customs audits. Therefore, it is strongly recommended to proactively mitigate these risks through the ACVA system.

• If there has been a consistent or significant payment due to Transfer Pricing (TP) adjustments over recent years.
• If a recent customs investigation by tax authorities challenged the appropriateness of the transfer price and customs valuation, resulting in additional tax liabilities.
• If there were no issues with the transfer price in previous customs investigations, but recent changes have been made to the transfer pricing method (e.g., changes in IM%, Mark-up%, Target OM%).
• If the declared import price has recently decreased significantly or consistently.
• If a significantly higher gross profit margin has been achieved in recent years compared to previous periods.