Louis Vuitton Korea raised its domestic retail prices by 40 percent over three years while lowering the prices it pays to import from its overseas affiliates by at least 7 percent, the Seoul Economic Daily has learned. The Korea Customs Service assessed hundreds of billions of won in back duties, concluding that the company had artificially adjusted import prices between related parties to underpay customs. Louis Vuitton is contesting the assessment and has filed for a tax tribunal review. Critics say foreign luxury brands are posting record earnings by raising consumer prices multiple times a year while using loopholes to minimize customs duties and corporate taxes.
According to the Korea Customs Service and luxury industry sources on Oct. 21, the customs agency reassessed taxable values on about 10,000 import declarations filed by Louis Vuitton for leather goods, apparel, shoes and accessories brought in from its affiliates in Hong Kong and Singapore between July 2020 and October 2023, citing that "transaction prices were arbitrarily lowered." In the pre-assessment review, the agency said, "Retail prices in August 2023 rose about 40 percent compared to April 2019, while import prices in 2020 were cut by 7 percent," adding, "It lacks validity to justify the import price reduction by simply comparing the increase in inventory risk costs (9 percent) and the import price cut (7 percent) based on only a few selected items."
Louis Vuitton raised prices five times in 2021 alone as revenge spending during the COVID-19 pandemic drove a surge in luxury demand. The brand continued to raise prices in the following years — twice in 2022, once in 2023, twice in 2024 and five times last year. During this period, the price of its flagship "Capucines MM" bag jumped from the 6 million won range to over 10 million won. Louis Vuitton Korea's revenue surged from 784.6 billion won in 2019 to 1.85 trillion won last year. Operating profit jumped from 54.9 billion won to 525.6 billion won over the same period.
Louis Vuitton imports all of its products sold in Korea from related entities based in Hong Kong and Singapore. The import price is calculated by multiplying the domestic retail price by a certain adjustment coefficient, or discount rate. In other words, the Korean unit first sets the retail price for the local market and then applies a fixed ratio to determine the price at which it buys from its overseas affiliates.
The customs agency imposed the back taxes, viewing as problematic that Louis Vuitton arbitrarily lowered the adjustment coefficient to reduce import prices twice — in June-July 2020 and August-September 2023. Louis Vuitton paid the assessed duties but is pursuing a review with the Tax Tribunal. It has also booked a significant portion of the payment as an asset that it expects to recover. This amount grew from 12 billion won in 2024 to 26.3 billion won last year.
Louis Vuitton countered that, given the nature of the luxury industry, import prices are not unilaterally set by headquarters but are negotiated taking into account market conditions and competitors' pricing. It also argued that the adjustments merely reflected heightened inventory risks and expanded investments during the COVID-19 pandemic, and did not distort prices through related-party transactions.
Industry observers point out that "the foreign parent appears to be adjusting import prices like a rubber band to manage the Korean unit's tax burden." Louis Vuitton's import prices have fluctuated over time. Between 2014 and 2018, import prices were kept relatively high, resulting in an operating margin of just 8.5 percent for the Korean unit — less than half of the 19 percent margin posted by Louis Vuitton's U.K. unit over the same period. At the time, the National Tax Service determined that import costs from the Singapore affiliate were set excessively high, leaving little profit for the Korean unit. When the agency imposed back corporate taxes on the grounds that profits were being funneled to overseas affiliates, Louis Vuitton contested the assessment, and the Tax Tribunal ruled partly in the company's favor in 2024, ordering a refund of corporate taxes.
