In customs investigations, disputes often arise between customs authorities and the investigated parties over the submission of data. This is because, from the customs authorities’ perspective, it is necessary to secure documents required for taxation to properly assess whether the import declaration price of the investigated party is appropriate, while from the investigated party’s perspective, they wish to avoid submitting data that may be disadvantageous to them. Therefore, the Customs Act of Korea (the “Customs Act”) imposes fines of up to KRW 200 million for failing to respond to questions of customs officials or for refusing to submit taxation data. However, some have pointed out that these sanctions are insufficient to prevent non-cooperation in data submission.
In response, on April 2, 2024, the Korea Customs Service (the “KCS”) established the “Directive on Securing Taxation Data During Customs Investigations,” which specifies the necessary procedures and details to smoothly secure taxation data during customs investigations through the obligation of companies to maintain and submit taxation data and cooperate in tax payment. This directive has been in effect since April 5, 2024.
The main contents of the “Directive on Securing Taxation Data During Customs Investigations” (the “Taxation Data Directive”), which has been in effect since April 5, 2024, are as follows:
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Basic Principles for Requesting Submission of Taxation Data
The Head of the Customs Office must request the submission of taxation data and other relevant materials within the minimum necessary scope, considering the efficient conduct of customs investigations and the impact on the business operations of the investigated party. Additionally, despite any other directives set by the Commissioner of the KCS regarding the request and response for the submission of taxation data related to customs investigations, the Taxation Data Directive takes precedence. Matters not specifically defined in the Taxation Data Directive are governed by the “Directive on Management of Customs Investigations.”
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Definition of Non-Cooperation in Submitting Taxation Data and Principle for Response
The Taxation Data Directive defines a non-cooperative person in submitting taxation data as “a person who, without a legitimate reason, delays or refuses to submit the required taxation data as requested by the Head of the Customs Office or submits false information, thereby clearly evading investigation” (“Non-Cooperative Entities”). It also categorizes non-cooperative behaviors into three types: (i) delay in submission, (ii) refusal to submit, and (iii) submission of false data, as outlined below.
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Delay in Submission
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Submitting only ancillary materials that do not meet the purpose and content of the request
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Submitting only part of the requested materials, thereby causing a significant delay in the investigation
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Delaying the submission of materials that should be submitted or retained according to other laws, or materials that importers or exporters typically possess according to trade practices
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Refusal to Submit
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Expressing refusal to submit data on grounds of trade secrets or corporate policies by domestic importers or foreign exporters
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Refusal to provide access rights to the accounting information system (“ERP”) or all data registered in the ERP as requested by the customs investigation team
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Submission of False Data
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Interfering with the proper conduct of customs investigations by processing or forging original data to create duplicate data, or selectively submitting only favorable data
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Interfering with the proper conduct of customs investigations by falsely claiming not to possess data requested by the customs authorities despite actually having it
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Measures for Non-Cooperative Entities in submitting taxation data should be enforced within the minimum necessary scope to quickly and accurately secure the delayed, refused or falsely submitted taxation data. Additionally, if the investigated party intentionally interferes with the progress of the customs investigation, the head of the customs investigation team must provide the investigated party with sufficient opportunities to submit data through continuous requests for data submission. Meanwhile, considering the types, frequencies and degrees of non-cooperative behaviors, such as delay in submission, refusal to submit and submission of false data, corresponding differential response measures should be sequentially enforced according to the Taxation Data Directive.
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Response Measures for Non-Cooperative Entities in Submitting Taxation Data
The Taxation Data Directive has strengthened responses to non-cooperation in submitting taxation data by imposing the following measures on Non-Cooperative Entities:
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Extension of On-Site Customs Investigation Period: The on-site customs investigation period can be extended within a range of 20 days.
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Suspension of Customs Investigation: Customs investigations can be suspended. In this case, the suspension period is not counted towards the investigation period and the extension period. If the reason for suspension is resolved by the investigated party’s submission of taxation data, the investigation must be resumed immediately.
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Administrative Fines: Administrative fines of up to KRW 200 million can be imposed based on the type of non-cooperative behavior in submitting taxation data.
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Selection for Document Submission and Increase in Inspection Rates: Non-Cooperative Entities may be selected for document submission and the inspection rate for all imported goods of Non-Cooperative Entities may be increased.
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Cancellation of Monthly Payment Approval: Monthly payment approval for the investigated party can be canceled.
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Non-Issuance of Amended Import VAT Invoices: Amended import VAT invoices will not be issued for Non-cooperative Entities based on the results of the customs investigation.
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Denial of Transaction Value: Transaction value as defined in Article 30 of the Customs Act can be denied, and the customs value can be determined according to the methods stipulated in Articles 31 to 35 of the Customs Act.
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Referral for Criminal Investigation and Customs Administrative Fines: If Non-Cooperative Entities violate the record-keeping obligation under Article 12 of the Customs Act and Article 3 (1) of its Enforcement Decree, they can be referred for criminal investigation or issued customs administrative fines.
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Selection for Non-Scheduled Customs Investigations: Non-cooperative Entities can be selected for non-scheduled customs investigations.
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Measures for Taxpayer Protection Regarding Response Measures)
The head of the customs investigation team must implement taxpayer protection measures according to Article 31 of the “Directive on Management of Customs Investigations,” including providing the Taxpayer’s Bill of Rights to the investigated party at the commencement of the customs investigation and notifying them of any requests for review by the Taxpayer Protection Committee.
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As described above, the Taxation Data Directive has introduced stringent response measures for non-cooperation in submitting taxation data by the investigated party. We therefore expect the customs authorities to actively utilize the response measures stipulated in the Taxation Data Directive to pressure the investigated party when conducting customs investigations in the future. Accordingly, companies subject to future customs investigations are advised to pay close attention to how these changes in customs administration may impact their business operations.
[Korean Version]
