South Korea’s regulation on internal transactions between parent companies and their wholly-owned subsidiaries is one of the killer regulations that restricts business activity, according to the Federation of Korean Industries (FKI) on Monday.

The FKI said that it submitted proposals for improvements in private sector regulations to the Office for Government Policy Coordination.

The submission comprised 13 recommendations, encompassing eight for the Korea Fair Trade Commission (FTC), two for the Financial Services Commission, one for the Ministry of Trade, Industry and Energy, one for the Korean National Police Agency, and one for the Ministry of Land, Infrastructure and Transport.

Among the suggestions, the FKI proposed exempting business transactions between a parent company and its wholly-owned subsidiary from regulations on unfair business support.

While the FTC prohibits a parent company from engaging in transactions with its subsidiary under favorable conditions, the FKI argues that restricting internal transactions between economically identical entities hampers efficiency.

The FKI also advocated for limiting the obligated entities for submitting corporate group-related data solely to legal entities. Currently, the FTC is requesting companies or related parties to submit business group data.

The FKI sees the excessive criminal penalties for failing to fulfill the audit obligation as another area for improvement.

Currently, it is mandatory for all affiliated companies under a business group subject to public disclosure to undergo accounting audits regardless of their size.

The FKI proposed to the Office for Government Policy Coordination transitioning from penal clauses to administrative sanctions or abolishing them altogether.

By Chung Seung-hwan and Minu Kim

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