Research Outcome:

The title of this research is Transfer Pricing International Taxation Law.  This study specifically focused on the Oil and Gas industry in Japan and Korea.  This study was presented at the Comparative International Governmental Accounting Research Conference in 2023. Also, a part of the research content was presented in a session at Yonsei University.  The outcome of this research is published in the 2024 edition of Waseda Global Forum. 

This study introduces carbon taxation in response to climate change, and prospective impacts on the oil and gas industry focusing on transfer pricing strategies in Japan and Korea. Both Korea and Japan have implemented climate objectives to achieve a zero-carbon society. Both countries have revised the legislation to reduce fossil fuel subsidies. Japan has launched on the combined carbon tax scheme, and Korea is at an ongoing discussion stage whether to include carbon pricing mechanism into the existing exergy taxation.

This study focused on two research questions: （1） How can the oil and gas industry develop transfer pricing strategies in the carbon taxation jurisdiction different and the Emission Trading Scheme? （2） How the oil and gas industry creates a sustainable supply chain as a proactive measure for transfer pricing risks under climate change adaptation policies. This article explores how to achieve sustainable transfer pricing strategies based on resilient R&D.

The Oil and Gas companies are already subject to a variety of taxes and levies. OG companies have heavy tax payments to make under license rentals, royalties computed based on production volumes, corporate income taxes, and taxes on the repatriation of profits. And, there are also reporting obligations to the Internal Revenue Services if any OG entities are doing business with the U.S. related parties.  Another challenging factor for the OG is that the industry involves both tangibles and intangibles in the supply and value chain. In this context, three hypotheticals are presented for sample simulations.

The impact of carbon tax on the OG industry will be more significant since the industry relies on MNEs or joint venture projects that involve multiple jurisdictions. The OG industry will require corporations to adopt “resilient” transfer pricing strategies. New transactions will likely evolve as the Carbon Border Adjustment Mechanism will be enforced where non-EU member nations will be affected. The price of risk or the market risk premium in the OG industries in Japan and Korea can be measured and predicted by the use of joint research activities. Japan and Korea responding to the carbon tax and energy transition through transfer pricing strategies, particularly in the OG industry can create a model for business entities in the time of climate change. Also, the active use of advanced agreements between or among different tax administrations with the entities at various stages in the OG industry will create a constructive transfer pricing compliance scheme.