Effective from December 9, 2022, the amended Guidelines for Examination of Unlawful Support (the “Guidelines”) expands the scope and modifies the standards of the existing safe harbor.
New Safe Harbor Standards for Different Types of Transactions
Under the existing Guidelines, only monetary transactions qualified for safe harbor. The safe harbor applied to monetary transactions in which: (a) the difference between the actual interest rate and the arm’s length interest rate or the weighted average interest rate was less than 7% of the arm’s length interest rate or the weighted average interest rate; and (b) the amount of support arising from one or more supporting practices was less than KRW 100 million.
Under the amended Guidelines, in addition to monetary transactions, the following types of transactions may be eligible for safe harbor: asset, real estate, goods and services, and human resources.
Change of the Safe Harbor Standard to Total Transaction Amount
Under the amendment, to fall within the safe harbor, (a) the difference between the normal* price and the actual price should be less than 7% of the normal price (the “price requirement”); and (b) the total transaction amount should be: (i) less than KRW 10 billion for goods and services transactions; and (ii) less than KRW 3 billion for all other types of transactions (the “scale requirement”). In calculating the total transaction amount, transactions of all scales made between a benefactor and a beneficiary are included.
As for monetary transactions, the scale requirement has been changed from “less than the amount of support** of KRW 100 million” to “less than a total transaction amount of KRW 3 billion.” The Korea Fair Trade Commission (“KFTC”) anticipates that there will be twice as many cases that implicate the safe harbor under the amendment.
* Normal price in this context means the market price that would have been established if the economic benefit in an arm’s length transaction, which is equivalent to the economic benefit formed between a benefactor and a beneficiary, is formed, wherein the time, type, scale, duration, and credit rating are similar to those in a benefactor-beneficiary transaction.
** Amount of support means the amount obtained by deducting the normal value of economic benefit that the beneficiary provides to the benefactor from the normal value of economic benefit that the benefactor provides to the beneficiary in consideration thereof.
Safe Harbor for Large-scale Support
A safe harbor was added for goods and services transactions where there is a large-scale supporting practice. To be considered for safe harbor, the total amount of goods and services transactions arising in a relevant year should be: (a) less than KRW 10 billion (the “absolute scale requirement”); and (b) less than 12% of the counterparty’s average turnover*** (the “relative scale requirement”).
*** In principle, the average turnover shall be calculated based on the immediately preceding 3 years. However, if, as of the first day of the relevant year, it has not been 3 years since the business was launched, the average turnover should be calculated from the launch of the business until the last day of the immediately preceding business year; if the business was launched in the relevant business year, the turnover from the launch of the business until the violation calculated as the annual turnover will be deemed to be the average turnover.
Safe Harbor for Unlawfulness
Even if a specific transaction type does not satisfy the relevant safe harbor standard, a supporting practice will not be unlawful if (a) the amount of support is no more than KRW 100 million, and (b) there is no considerable harm to fair trade.
Under the existing Guidelines, to invoke safe harbor, the amount of support had to be no more than KRW 50 million, but after the amendment, the amount was adjusted upwards to no more than KRW 100 million. The purpose of this adjustment is to prevent potential unfair treatment to businesses that have a large total transaction amount, which may result from changing the scale requirement from “amount of support” to “total amount of transaction.”