The Ministry of Economy and Finance announced the tax law amendment on July 27, 2023. This includes amendments to the “Customs Act” and the “Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements” (the “FTA Special Act”).

The following contents of the proposed amendments may have an impact on import-export companies.
 

The current Customs Act stipulates that if a taxpayer fails to pay the customs duties by the deadline specified in Article 9 of the Customs Act or if additional customs duties are collected due to the provisions of Article 38-2 (1) or (6) of the Customs Act (refer to Article 42 of the Customs Act), an additional tax may be imposed. However, the law also stipulates that in cases falling under any of the subparagraphs of Article 42-2 (1) of the Customs Act, a portion of the additional tax amount may be reduced (Article 42-2 (1) of the Customs Act).

The proposed amendment to the Customs Act adjusts the reduction rates for additional taxes based on the timing of amended declarations as follows: (i) 30% within six months after the correction period has elapsed (previously 20%), (ii) 20% for over six months but within one year after the correction period has elapsed (previously 10%), and (iii) 10% for over one year but within one year and six months after the correction period has elapsed (maintaining the previous 10%). This adjustment aims to encourage taxpayers to promptly submit amended declarations (proposed amendment to Article 42-2 (1) of the Customs Act).

Additionally, the current FTA Special Act has regulated the exemption and collection of correction interest on goods subject to FTA tariff rates through Article 38-2 (5) of the Customs Act as a result of the absence of provisions governing the adjustment of interest. However, there have been no separate provisions for cases where correction applications are filed because of errors in the proof of origin documents.

The proposed amendment to the FTA Special Act introduces new provisions under Article 36-2 and Enforcement Decree Article 47-2 that address the following scenarios: (i) where the importer, without any fault, has errors in the proof of origin documents and applies for correction before receiving a notice of country of origin investigation, or (ii) when the Commissioner of the Korea Customs Service, head of a customs office or head of a tax office requests country of origin verification from the treaty partner’s customs authorities, and there is no response within the specified period. By clarifying the reasons for correction and exemption, these new provisions are expected to reduce disputes regarding the exemption or correction for goods subject to FTA tariff rates.
 

The current FTA Special Act stipulates the subjects of punishment related to preventing misconduct when applying for the qualification of a certificate of origin exporter as follows: (i) those who obtained or issued the proof of origin documents by deception or other fraudulent means when applying for them, and (ii) those who submitted false information or intentionally failed to submit necessary documents for pre-screening (Article 44, Paragraph 2 of the FTA Special Act).

The proposed amendment aims to enhance the reliability of the certificate of origin exporter system. In addition to those who falsely create or issue proof of origin documents, the scope of penalties (a fine of up to KRW 20 million) has been expanded to include those who apply for or receive certification as a certificate of origin exporter through deceptive or other fraudulent means.
 

The current Customs Act generally stipulates a period for customs duty assessment of five years (ten years in cases of recognized misconduct). However, the law provides exceptions as follows: (i) in the case of appeal decisions or litigation rulings, one year from the date of finalization, (ii) in the case of requests for verification of the authenticity of certificates of origin, one year from the date of response, and (iii) in the case of claims for adjustment or notifications of price adjustment decisions, decisions or rulings, responses, or adjustments or other necessary measures can be taken within two months from the date of claim or notification (Article 21 (1) and (2) of the Customs Act).

The proposed amendment to the Customs Act allows for the rationalization of the period for customs assessment by adding reasons for special application. In cases where the fact of lending one’s name is confirmed through the filing of an objection and lawsuit, within one year from the date of the decision or judgment, necessary dispositions can be made (Article 21 (2) of the proposed amendment to the Customs Act).
 

The current Customs Act imposes an obligation on those who have fulfilled various reporting obligations under the Customs Act, such as price declaration, tax payment declaration, and import/export declaration. They are required to retain the reported or submitted documents for a certain period (five years, three years, or two years depending on the type of document) from the date of the report or submission (Article 12 of the Customs Act and Article 3 of its Enforcement Decree).

The proposed amendment to the Customs Act rationalizes tax administration and enhances fairness by designating books and documentary evidence that can substantiate the content of the reported or submitted data (including documents related to the determination of the taxable value of goods imported by related parties) as the subjects for retention, instead of removing the reported or submitted data from the retention targets (Article 12 of the proposed amendment to the Customs Act).
 

The proposed amendment to the tax laws announced by the Ministry of Economy and Finance was submitted to the regular session of the National Assembly on September 1, 2023, following its approval in the Cabinet meeting held on August 29, 2023, after the legislative notice period. It is expected to be revised after undergoing deliberation and approval. Companies are advised to follow the process in the National Assembly, including the deliberation and approval processes, for any additional modifications to the original content during the course of the legislative review.

[Korean Version]