South Korea: New rights for taxpayers subjected to a dawn raid

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

South Korea: New rights for taxpayers subjected to a dawn raid

intl-updates-small.jpg

The Korean government recently promulgated a new presidential decree imposing additional requirements on the National Tax Service (NTS) with regards to documents seized during an unannounced tax audit or 'dawn raid'.

On February 13 2018, the Korean government officially promulgated the Presidential Decree (Decree) implementing recent amendments to the National Basic Tax Act. The Decree sets forth new standards the NTS must meet to temporarily seize documents during a dawn raid, maintain custody of such documents, and return such documents.

Before the Decree, when the NTS conducted a dawn raid, it would present the taxpayer a list of documents subject to temporary seizure. This list was often very general in nature, for example, demanding a 'PC' or 'hard drive' rather than listing the documents or types of documents contained on the PC or hard drive. While the taxpayer could choose not to allow the NTS to take such documents, taxpayers rarely did so in an effort to maintain a good working relationship with the NTS.

Further, once the documents were in the custody of the NTS, it was very difficult for the taxpayer to request their return. This was because the taxpayer often did not know which actual documents the NTS had seized and, even if the seized documents were identified, the NTS would refuse return requests claiming that the return of the documents would affect the audit.

Under the Decree, to temporarily seize documents, the NTS must allege the existence of one or more 'causes for denial of the presumption of good faith cooperation'. These causes include: the taxpayer's non-performance of an obligation to cooperate; an allegation of dishonest transactions; a tip-off from a whistleblower; the existence of materials clearly indicating an omission or error in a taxpayer's reported information; and bribery of tax officials. At the time of seizure, the NTS must provide notice to the taxpayer of the grounds for the temporary seizure, inform the taxpayer that the seizure requires the taxpayer's consent, and that the taxpayer may receive back the seized documents upon its request. However, if the taxpayer refuses to allow the temporary seizure of certain documents, the NTS can retain such documents if it has a 'legitimate cause'.

Once the documents are in the NTS's temporary custody, the NTS is required to return them to the taxpayer after a maximum of 28 days from the date of a request for their return. If the NTS determines that the documents have no impact on the audit, it must return them immediately and must return all documents at the conclusion of the audit.

If the NTS fails to abide by these new requirements, the taxpayer could challenge in the courts the validity of any assessment arising from such 'illegal' seizure and demand the assessment be cancelled.

While the Decree is a positive development for taxpayers, how the NTS will interpret the regulations remains to be seen. Given the NTS's history of aggressive audits, it is likely the NTS will narrowly interpret the requirements in the Decree. Taxpayers, therefore, should monitor developments in this area (including the revision of the NTS's internal regulations on dawn raids) and revise their internal dawn raid guidelines and action plans to reflect the Decree and the NTS's future implementation of the Decree.

dryden.jpg
kim.jpg

John Dryden

Kyu Dong Kim

John Dryden (jdryden@yulchon.com) and Kyu Dong Kim (kdkim@yulchon.com)

Yulchon LLC

Tel: +82 2 528 5077 and +82 2 528 5542

Website: www.yulchon.com

more across site & shared bottom lb ros

More from across our site

A ‘quiet revolution’ in HMRC’s compliance strategy has caused Adam Craggs to rethink how to advise clients, he tells ITR
If the Reform leader becomes UK prime minister then he may follow the direction of the US in at least one significant way
Trump declared a new national emergency in issuing the order; in other news, Grant Thornton Germany is up for sale and the subject of interest from both its UK and US counterparts
The judgment, which saw Denmark's Supreme Court rely on OECD TP guidance, sets aside more than 15 years of consistent administrative practice, experts have told ITR
Belgium’s new coalition government has gone ahead with a new exit tax regime that could land it in the courts
Brazil’s government has not officially framed the bill as a countermeasure amid trade tensions with the US, but the move is being considered as part of Brazil’s strategic response, one expert tells ITR
Understanding India’s income tax landscape can help charities ensure compliance, optimise tax benefits, and enhance their impact, writes Raghav Bajaj of Khaitan & Co
Tax advisers in Brazil are rising above the country’s notoriously complex tax system to deliver high-quality advisory services, ITR’s exclusive in-house data reveals
ITR’s data has highlighted the US firm’s ambition to become America’s ‘premier’ tax player via a concerted partner recruitment strategy
Jaap Zwaan’s arrival continues a recent streak of A&M Tax investing in the region; in other news, the US and Japan struck a deal that significantly lowered tariff rates
Gift this article