Ask a Lawyer is a regular column written by attorneys at Yoon & Yang LLC on various legal aspects of the Korean life or business. The content provided here is general legal information, not legal advice on a specific situation. -- Ed.


Q. If a local Korean subsidiary of a global corporation is considered as an independent “importer,” a lower customs value is accepted compared to the case where the local subsidiary is considered as a mere “branch” of the global corporation. How can a local subsidiary of the global corporation avoid being considered as a mere branch of such corporation?

A. Let’s suppose Company A, a Korean local sales subsidiary of a global corporation, imported goods from the global corporation headquarters located overseas (the “HQ”) at $100 and, adding a 5 percent margin, sold them at $105 to Company B, the end purchaser. In the above transaction, if Company A is deemed as an importer, the import price ($100) would be accepted as the customs value. However, if Company A is considered as a mere branch of the global corporation, the final sales price to Company B ($105) would be deemed as the customs value and additional customs duties would be imposed.

Following is an example where a local Korean subsidiary is not regarded as an independent importer but as a mere branch: Company A filed an import declaration for the imported goods. It received a fixed amount of sales commissions, and its role was limited to providing sales support to the HQ. Meanwhile, the sales price of the imported goods to the end purchaser, Company B, was determined based on the negotiations between the HQ and Company B, and the inspection of the goods after they have had arrived in Korea was also conducted by Company B. In such a case, although Company A appears as an importer on the paper, it is, in substance, acting as an agent of the HQ. Under such circumstances, the customs office recognizes the sales price to the end purchaser, Company B, as the customs value for purposes of calculating the customs duties.

Therefore, when importing the goods, global corporations need to be cautious to avoid such a case where their local Korean subsidiary may be regarded as a mere agent rather than an independent importer. To this end, a global corporation and its Korean local subsidiary need to carefully prepare a contract and make sure that its Korean local subsidiary exercises and bears a certain amount of contractual and legal rights and obligations. It is also advisable for the Korean local subsidiary to lead the transaction with the end purchaser. Furthermore, it would be desirable if the margin earned by the Korean local subsidiary is determined through such a method and to such a degree that would be determined through negotiations between an independent party and the global corporation, rather than by a fixed amount or fixed rate.

By Lee Sung-bum
Attorney and partner of law firm Yoon & Yang LLC