Korea: Prices of imports and exports were not manipulated to benefit third parties (court decision)

Taxpayer did not manipulate the prices of imported and exported goods for the unfair purpose of benefiting third parties

Taxpayer did not manipulate the prices of imported and exported goods

The Incheon District Court held (2021 Gohap 924, 16 February 2023) that a taxpayer did not manipulate the prices of imported and exported goods for the unfair purpose of benefiting third parties.


  • The taxpayer—which was engaged in the research, development, and manufacturing of high-tech devices—signed a supply agreement for high-tech products with an overseas supplier, agreeing to comply with the specifications and raw material standards requested by the overseas supplier.
  • The taxpayer informed the overseas supplier of the sources, quantities, and prices of raw materials required to meet the product performance and specifications. Accordingly, the taxpayer imported the raw materials from a third-country supplier and used them to manufacture the finished products, which were subsequently exported to the overseas supplier.
  • The taxpayer declared the import price of raw materials based on the payment made to the third-country supplier. The export price of the products was declared to the customs authority based on the price received from the overseas supplier, using the same price as agreed upon in the supply agreement.
  • The customs authority determined that the price of the raw materials declared by the taxpayer for import was higher than that of identical or similar items, and accordingly, the exported product price was overvalued. The customs authority further alleged that the taxpayer manipulated the import and export prices for the purpose of providing financial benefits to the related overseas supplier.

Court decision

The court found that the taxpayer did not manipulate the import and export prices for the purpose of benefiting the overseas supplier and simply paid and declared the price of the imported goods in accordance with the import and export agreement with the overseas supplier. In particular, the court found that:

  • The raw materials that the customs authority considered to be overpriced were necessary to produce the goods.
  • It was legitimate business judgment for the parties to impose contractual conditions on the determination of costs, materials, and prices of products for mutual benefit.
  • The illegal overseas financing alleged by the customs authority was either a misinterpretation of the relevant facts or an unsubstantiated allegation.

Read a May 2023 report [PDF 285 KB] prepared by the KPMG member firm in Korea



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