The first statutory amendments reflecting the tax and customs policy of President Yoon’s Administration went into effect this year. After the National Assembly passed the amendment bills last December, the Cabinet issued 21 relevant enforcement decrees prescribing the details, which went into effect on February 28, 2023. We highlight below two items that may be of particular interest to those in the finance and customs departments of multinational companies.
1. Change in Issuance of Corrected Import Tax Invoice: From “Positive-Listing Method” to “Negative-Listing Method”
Under the “Positive-Listing Method,” implemented pursuant to a July 2013 amendment to the Value-Added Tax Act (the “VAT Act”), the Customs Office could restrict the issuance of amended import tax invoice when imposing additional VAT pursuant to customs duty assessments resulting from a customs audit (with the VAT amount constituting over 70% of the total assessments), except under exceptional cases, such as the importer not being at fault for the additional assessments.
With the recent amendment, the default rule is changed to a “Negative-Listing Method,” whereby the Customs Offices must issue the amended import tax invoice as a default, unless the taxpayer is at material fault. In other words, unless the taxpayer has for example repeated the erroneous practice pointed out during a past customs audit, the Customs Office must issue an amended import tax invoice.
Therefore, we recommend that companies pay close attention to what constitutes legitimate reasons for restricting issuance of an amended import tax invoice under the amended law, especially since there are many ongoing discussions relevant to these matters.
2. Changes to ACVA Program: Separation of Duties Between CVCI and Three Regional Customs Offices
Since 2008, the year when the Advance Customs Valuation Arrangement (the “ACVA”) program - a system for advance agreement between the Customs Office and the taxpayer on customs valuation for transactions with overseas affiliated parties prior to a customs audit - was introduced, the Customs Valuation and Classification Institute (the “CVCI”) had been in charge of overseeing its operation. Additionally, since 2017, five regional Customs Offices across the nation had been responsible for reviewing ACVA applications and conducting post-ACVA management.
However, pursuant to amendments in February of 2023 to the “Notification on Operation of Customs Valuation,” and the “Directive on Operation of Advance Customs Valuation Arrangements,” the CVCI will focus on receiving and distributing applications, while three regional Customs Offices (Incheon, Seoul and Busan) will subsequently conduct more detailed reviews of these applications. In accordance with the amendments, a company’s ACVA application will be handled by a regional Customs Office that has jurisdiction over the head office of the company in principle, unless it is deemed more efficient or otherwise suitable for a different regional Customs Office to review the application, or unless a different regional Customs Office has jurisdiction over the company’s main customs entry port.
In light of the above, companies are advised to pay close attention to the changes in the ACVA program in developing and implementing its long-term risk management strategies on valuation.
The above-described changes to the issuance of amended import tax invoices and the ACVA program are not only significant individually, but are also closely correlated with each other in practice. Therefore, we recommend multinational companies to closely monitor how these upcoming changes may affect their finance and customs activities and review their customs policies in advance.
1 Benefits of the ACVA: First, the ACVA allows for voluntary review of a company’s customs valuation determination process, and to proactively resolve transfer pricing (“TP”) issues, instead of reactively responding to the relevant customs authority’s audit. Second, companies under the ACVA may enjoy reduced taxes in relation to the issuance of an amended import tax invoice (allowing for VAT refund), and may also be exempted from penalty taxes under various circumstances, such as filing a final declaration with a changed amount. Third, the ACVA may save companies from getting penalty points for errors.
