Innovation Plan for Tax Audit Announced in May 2023

On May 16, 2022, the National Tax Service(“NTS”), the Korean tax authority, made an announcement regarding innovative measures for tax audits. These measures are based on three core values: “relaxing the burden of taxpayers during tax audits,” “ensuring legitimate procedures,” and “promoting legitimate taxation.” The aim is to establish a tax audit system that is both legitimate and fair, resonating with taxpayers and garnering their sympathy.

l NTS strive to minimize the burden of tax audits on taxpayers as much as possible

Extension of the advance notification period

To address concerns about taxpayers having insufficient time to prepare for tax audits adequately, NTS had decided to extend the advance notification period for small and medium-sized taxpayers1 to 20 days (currently 15 days).

*1. Corporate taxpayers with annual revenue of less than KRW 50 billion and Individual taxpayers with annual revenue of less than KRW 10 billion

Decrease the duration of the on-site audits

If a taxpayer’s accounting process is deemed transparent, their suspicion of evasion is low, and they actively cooperate in submitting the requested data, NTS will reduce the number of on-site tax audit days to 50~70% of the total tax audit period.

Rationalize the requirements for data submission

To address concerns raised by taxpayers regarding the challenging nature of excessive data requests during tax audits, the following measures will be implemented.

1) In principle, comprehensive data requests will be prohibited.

2) NTS will systematically manage a list of data submission requests.

3) Data will be requested to the minimum extent possible, ensuring a thorough review by managers to determine the essential information required.

l NTS committed to actively listening and providing precise and accurate information

Hearing for tax audit manager

NTS will introduce a new initiative called the ‘Hearing for Tax Audit Manager’. This will provide an opportunity for direct communication between taxpayers and tax audit managers (i.e., Director or Director General). It aims to facilitate open dialogue, allowing taxpayers to express their opinions or discuss any difficulties they encounter during the tax audit process.

Brief session to inform a taxpayer about a tax audit result

Within 20 days following the end of the tax audit periods, NTS will deliver a written report directly to the taxpayer. This report will encompass comprehensive details of the tax audit, including specific grounds for taxation, a breakdown of the audit finding, results of the review on the taxpayer's explanation, and a thorough explanation of the available procedures for seeking relief or exercising their right.

l NTS committed to implementing legitimate taxation through the utilization of collective intelligence

Legality review meeting in advance of taxation

To ensure thoroughness and accuracy in taxation, the NTS has introduced a legality review meeting prior to the implementation of taxation. This meeting involves the tax audit team, deliberation team (supporting the tax audit team’s decision-making), and expert group (where the Red Team exclusively represents the taxpayer's position). During this meeting, independent and horizontal discussions take place, focusing on critical taxation issues that may deviate from the taxpayer's perspective.