On July 22, 2022, the Ministry of Economy and Finance (the “MOEF”) announced the proposed tax law amendments for the year, including proposed amendments to the Customs Act and the Act on Special Cases Concerning Refunds of Customs Duties on Raw Materials for Export (the “Special Act on Refunds of Customs Duties”).  These amendments (the “Proposed Amendments”) should be given careful consideration since they may significantly impact companies that import/export. 

1.   Amendments to Regulations of E-commerce Goods (Customs Act)

Despite the recent explosive growth in e-commerce and concurrent increases in overseas direct purchases, the current Customs Act suffers from procedural deficiencies, such as lacking an appropriate customs clearance process for e-commerce goods.  In response, the Proposed Amendments to the Customs Act revises the relevant provisions for better consumer protection and more systemic management and supervision of purchasing agents in e-commerce transactions.  The key Proposed Amendments are as follows:

• The Proposed Amendments provide a legal basis for the operation of a customs clearance system suitable for e-commerce goods, such as a customs declaration form tailored to e-commerce goods (Articles 2, 19 (5) and 254 (1) and (5) of the Proposed Amendments).
• In order to facilitate a more efficient customs clearance process, collection of customs duties, and supervision and control of e-commerce goods, the Proposed Amendments provide a legal basis for customs authority to request online business operators, including online brokers, to provide transactional information, such as product and payment information.  (Articles 254 (2) and 254 (3) of the Proposed Amendments).
• For taxpayer protection, the Proposed Amendments provide a legal basis for the Commissioner of the Korea Customs Service to provide consumers with information regarding tax payments and customs clearance status for goods purchased directly from overseas (Article 254 (4) of the Proposed Amendments).

2.   Adjustments to the Requirement to Submit Documentation Used to Determine the Customs Value of Goods Imported by Special Related Parties (Customs Act)

Under the current Customs Act, the customs authority during a tax audit may request the subject special related party to submit data used to determine the customs value of goods imported by the special related party, in order to assess the reasonableness of customs value.  Therefore, (i) if the special related party fails to submit the requested information by the designated deadline without a justifiable reason, the declared value may be denied, and the dutiable value determined according to the methods set forth in Articles 31 through 35 of the Customs Act; or (ii) the requested information is not submitted by the designated deadline without any justifiable reason, or false information submitted by the special related party, then the customs authority may impose an administrative fine of up to KRW 300 million. 

To reinforce the obligation of special related parties to provide the required information under (i) described above, the Proposed Amendments provide for non-recognition of their declared values not only in the case of non-submission of the requested data, but also in the case of “submission of false data” (Article 37-4 of the Proposed Amendments), similar to (ii).  Moreover, evidentiary materials have been added to the list of materials subject to administrative fines for non-compliance with requests for correction by the head of the customs office (Article 277 (1) of the Proposed Amendments).

3.   Introduction of a New Provision to Penalize Using Another Person’s Name for the Purpose of Evading Customs Duties (Customs Act)

The Proposed Amendments provide that if a person illegally uses another person’s name to evade customs duties, he or she may be sentenced to imprisonment for up to one year, or fined up to KRW 10 million, and also clarify that such an act does not constitute a crime of false declaration under Article 276 of the Customs Act.  

4.   Extension of the Application Period for Refunds of Customs Duties on Raw Materials for Export and Repeal of the Prohibition on Voluntary Declarations of Excess Refunded Amounts (Special Act on Refunds of Customs Duties)

According to the current Special Act on Refunds of Customs Duties, if imported raw materials are used to manufacture exported goods, an application for a refund of customs duties on these raw materials may be filed within two years of the date these raw materials were provided for the exported goods.
 
To strengthen the protection of taxpayer rights, the Proposed Amendments extend the application period from two years to five years (Article 14 (1) of the Proposed Amendments).
 
In addition, whereas the current Special Act on Refunds of Customs Duties prohibits voluntary declarations of excess refunded amounts in the case of pre-assessment notices and customs audit notices, the Proposed Amendments will allow voluntary declarations of excess refunded amounts in the above cases in order to alleviate the burden on taxpayers and enhance cooperation in tax payment (Article 21, Paragraph 4 of the Proposed Amendments).

The Proposed Amendments announced by the MOEF were discussed at the Cabinet meeting on August 30, 2022, then submitted to the National Assembly on September 1, 2022.  It remains to be seen whether any changes will be made to the original bill during the deliberation and resolution process of the National Assembly.