On March 14, 2025, an amendment to the Framework Act on National Taxes (the “Amendment” to the “Framework Act”), which introduces an enforcement fine for failure to comply with a request for documents in a tax audit, was promulgated. On June 2, 2025, an amendment to the Presidential Decree of the Framework Act setting forth the standards and procedures for the imposition of the enforcement fine was also promulgated.

The Amendment aims to compel taxpayers, including multinational companies, to submit documents requested in a tax audit by imposing an enforcement fine, in response to concerns that (i) the existing administrative fines are too lenient to be effective, and that (ii) it has been difficult to repeatedly impose administrative fines.

To penalize failures to submit documents requested during a tax audit, the Korean tax authorities have imposed administrative fines. Currently, (i) an administrative fine of up to KRW 50 million can be imposed under the Framework Act for refusing to respond to, or evading, tax officials’ inquiries or investigations, and (ii) an administrative fine of up to KRW 300 million can be imposed under the International Tax Coordination Act for failing to submit documents related to international transactions. However, each of these fines may only be imposed once per tax audit.

The newly introduced enforcement fine is different from the existing administrative fine in that the enforcement fine may continue to increase without limit depending on the delay in performance. Under the Amendment, if a taxpayer fails to submit its books or other required materials by a designated deadline without reasonable cause, the taxpayer may be subject to an enforcement fine every 30 days, calculated by applying the following imposition rates to its daily average revenue (i.e., the daily average revenue amount based on the corporate income tax returns for the three immediately preceding taxable periods) prescribed by Presidential Decree per day, starting from the date on which the implementation period expires. The enforcement fine will be imposed until the day before the date on which all of the books or materials to be submitted by the taxpayer have been submitted (if the tax audit is completed before the full submission of the books or materials, the date on which the tax audit is concluded). The amount of the enforcement fine will continue to increase until all of the books or materials have been submitted or the tax audit is concluded.
 

Unlike the administrative fine, the enforcement fine can be imposed repeatedly and in unlimited amounts. In addition, while the administrative fine is directly calculated and imposed by the tax authority, the enforcement fine is imposed after a separate deliberation by the enforcement fine deliberation committee. Moreover, while a taxpayer can challenge an administrative fine directly in a civil court, an enforcement fine should be challenged in an administrative court after going through the administrative appeal process.

The Amendment provides only general provisions regarding the circumstances in which the enforcement fine can be imposed, among other matters. Therefore, taxpayers are advised to follow how this enforcement fine provision is applied in future tax audits and how relevant court precedents develop, particularly regarding operational details, such as whether the enforcement fine may also be imposed on failure to submit documents that (i) are not required to be kept by the taxpayer under tax law, or (ii) require a considerable amount of time and effort to collect or prepare.

The enforcement fine will apply to tax audits beginning on or after September 15, 2025.

Against this backdrop, we recommend taxpayers who anticipate a regular tax audit in the near future to thoroughly review the details regarding the enforcement fine.

[Korean Version]