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
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.
||Kyu Dong Kim
John Dryden (firstname.lastname@example.org) and
Kyu Dong Kim (email@example.com)
Tel: +82 2 528 5077 and +82 2 528 5542