Legal Structuring and Risk Mitigation for Cross-Border Transactions Involving a BVI Entity

A Korean mid-sized company (the “Client”) established a Special Purpose Company (SPC) in the British Virgin Islands (BVI) to enhance tax efficiency and attract foreign investment. For convenience, the Korean company’s CEO was also registered as the sole director of the BVI entity, and the two companies engaged in intercompany loans and service agreements.

However, with both entities sharing the same representative, all transactions between them are classified as self-dealing under Korean commercial law, making board approval structurally impossible and creating potential legal invalidity. Additionally, if the transaction prices deviate from arm’s length standards, there is a significant risk of transfer pricing taxation, and the BVI company may be deemed a Korean tax resident due to effective management being conducted from Korea.

Cha & Kwon Law Offices conducted a detailed review of the Client’s corporate structure and intercompany transactions in collaboration with experts in international taxation and corporate governance.

To resolve the self-dealing issue, the firm advised that all transactions must be approved by special resolutions at the shareholder level for both companies, ensuring procedural legitimacy through properly documented shareholder meeting minutes.

To minimize tax risks, the firm recommended preparing arm’s length pricing reports and revising contracts accordingly. Potential criminal liability for breach of fiduciary duty by the CEO was also addressed, and all transactions were restructured to align with the best interests of each respective entity. Cha & Kwon Law Offices continues to provide expert legal solutions for clients navigating overseas entities, transfer pricing, and corporate governance issues.

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