Contributed By Lee & Ko
Tax controversies arise in South Korea (“Korea”) when a tax assessment notice (TAN) and invoice is issued to a taxpayer after completion of a tax audit (or in the absence of a tax audit, if the statute of limitations on assessments is about to expire), or when a taxpayer’s requests for a refund of over-paid or over-withheld taxes are rejected by the relevant tax office.
Tax controversies can involve all types of issues, including corporate income tax, individual income tax, inheritance and gift tax, property tax, local taxes, transfer taxes, VAT, customs duties, and others. However, for foreign entities and foreign-owned Korean entities, the most frequently disputed issues involve transfer pricing, application of a tax treaty, withholding tax, and permanent establishment, which are all within the structure of corporate income tax law. There is no minimum threshold for invoking the tax dispute process and hence there are many small tax disputes involving domestic entities and individuals. However, for foreign entities and foreign-owned Korean entities, the amount in dispute tends to be higher since retaining counsel involves substantial costs. It is worth mentioning that the withholding tax dispute relating to the source of royalty income under the Korea-US Tax Treaty has been ongoing since 1992, and despite repeated losses by the Korean tax authority at the Korean Supreme Court, the Korean government has not acquiesced on this issue.
Unlike many Asian countries, Korea is a democratic but litigious nation, and it is unsurprising that, during a tax audit, disputes between the tax examiners and taxpayers frequently arise. Often, these disputes arise because the tax examiners have a specific mission to collect taxes and hence will raise issues based on aggressive technical and factual assertions pertaining to an issue, which may be challenged by the taxpayer. It is generally understood by the tax community that tax examiners are rewarded for being aggressive and assessing as many taxes as possible, rather than being co-operative with the taxpayer and focused only on whether the taxpayer properly complied with the tax law. However, the aggressive tax audit practice is tolerated in part due to the generally accepted view that taxpayers are not fully compliant with the tax law.
In order to mitigate the possibility of a lengthy tax controversy, taxpayers should keep good records and, where the tax treatment is unclear, consider obtaining an advance tax ruling from the tax authority. To avoid a potential dispute with respect to transfer pricing, the taxpayer should consider applying for an advance pricing agreement (APA). Effective management at the tax audit level may be a good preventative measure to mitigate a potential tax controversy that may arise after completion of the tax audit.
The general view of practitioners in Korea is that the OECD recommendations pursuant to the BEPS Action Plans are likely to contribute to an increase in tax controversies. Since the main purpose of the BEPS project was to prevent tax avoidance and Korea recently ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), the tax auditors shall be provided with additional tools to challenge potentially tax abusive structures and transaction issues involving tax avoidance more aggressively. In accordance with the BEPS recommendations, Korea revised its tax law to prevent artificial avoidance of permanent establishment (Action 7), and tax auditors can challenge Permanent Establishment (PE) issues more aggressively based on the revisions made to significantly broaden the definition of PE. Moreover, based on BEPS Actions 8–10 and 13, Korean transfer pricing regulations have been revised to include the concept of a “commercially realistic outcome” and also provide for more stringent compliance requirements and harsher penalty provisions. Lastly, as an OECD member country, South Korea is closely following the OECD’s approach to taxing digital commerce under the two-pillar approach (“Pillar One” and “Pillar Two”) in order to secure the taxation of foreign companies which would otherwise be subject to little or no tax in respect of revenue generated in Korea.
Korea has a “pay and fight” system so that, in order to avoid the accrual of interest while the dispute is ongoing, taxpayers are required to pay the amount shown in the TAN (which usually includes interest for under-payment of tax). Although this requirement to pay the tax upfront will not change the ultimate net tax position, it can cause harm to a taxpayer’s cash flow position if the amount is substantial. However, in the case of cross-border transactions that are covered by the mutual agreement procedure (MAP) under a tax treaty, acceptance by the competent authorities of a tax dispute within 90 days of issuance of the TAN would suspend further accrual of interest. Where a MAP request is made after the 90 days has passed, the Korean tax authority may allow the posting of a bond or collateral in exceptional cases (eg, transfer pricing disputes). In all other cases, following the expiration of 90 days, interest at the rate of 8.03% per annum would accrue on the amount shown in the TAN (same rate applies to under-payment of taxes generally), and, in large cases, the Korean tax authority may attempt to seek a preliminary attachment or lien over the taxpayer’s property. In the case of interest on under-withholding of tax, a maximum of 10% applies. Certain additional taxes are applicable to a tax deficiency on cross-border transactions and non-compliance with transfer pricing regulations.
Generally, there are two types of tax audit in Korea: a periodic audit that occurs every four or five years, coinciding with the statute of limitation period (SOLP) for initiating a tax audit; and a special audit that is focused on a certain industry or segment of population that carries a “high risk” of tax evasion which can occur randomly. Industry-focused tax audits may also be driven by the tax authority’s interest in certain types of revenue or items of deductions, and even accounting treatment dealing with timing for revenue recognition and deduction.
Recently, the tax auditors have intensified their audit scrutiny of foreign-owned Korean companies as well as high net worth individuals who are engaged in offshore tax evasion or reduction of inheritance and gift tax. For the large, family-run conglomerates, known in Korea as “Chaebols”, the tax audits are continuous and ongoing, and recently, the focus has extended to foreign subsidiaries.
Generally, a notice of tax audit is served on taxpayers 15 days in advance of an audit. One exception is where a taxpayer is suspected of engaging in criminal activities, where the tax audit is made with an unannounced “dawn raid”: a team of tax auditors physically enter the taxpayer’s premises and the notice of tax audit is served in person. The only other exception is where the SOLP is about to run out and so the TAN, known as a jeopardy assessment, is issued without conducting a tax audit.
Unlike in many neighbouring countries, the format of a tax audit in Korea is typically quick and intensive, with the field component typically lasting between eight and 12 weeks, unless suspended or extended with the taxpayer’s consent. It is rare for the taxpayer to withhold consent and the suspension period may last several months.
Under Korean tax law, the SOLP is generally five years from the original due date of the tax filing and seven years for cross-border transactions. In the case of withholding tax on cross-border payments, the SOLP is five years from the last day of the month in which the transaction subject to withholding occurred. However, for non-compliance, fraud or concealment of cross-border transactions, the SOLP can be extended to seven, ten or 15 years, respectively.
Tax audits are generally conducted at the taxpayer’s premises and all requested documents specified in the notice of tax audit must be made available upon arrival of the tax auditors; however, tax auditors often agree with the taxpayer to conduct the audit in a specially prepared room within or near the taxpayer’s premises. This is designed to avoid business disruption, as well as to provide the tax auditors with sufficient work space to review documents, working papers, and tax returns, and also to conduct interviews with employees of the taxpayer.
The request of documents in the notice of tax audit generally includes corporate documents such as board of directors’ minutes, internal guidelines, accounting policies, books, records and journal entries, tax accrual papers, transfer pricing studies and related documentation, and any other documents deemed relevant to the tax auditors to adequately conduct their tax audit.
For multinational companies with Korean subsidiaries, the focus is twofold: first, whether transfer-pricing arrangements between a Korean subsidiary and its overseas-related party are reasonable and undertaken at arm’s length; and, second, whether Korean withholding agents properly withheld an appropriate amount of tax on payments made to foreign recipients, regardless of whether such foreign recipients are related or unrelated. In particular, the tax auditors will aggressively examine whether any reduction or exemption of withholding tax claimed by the foreign recipient under a tax treaty was justified, invoking both domestic anti-abuse rules as well as a tax treaty’s beneficial ownership requirements. One other area of focus is whether any expenses incurred are deductible under the domestic law’s narrow definition of what constitutes a deductible business expense.
The trend of sharing cross-border exchanges of information has been slow in Korea; however, given that Korea has fully ratified the MLI as well as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS), it is likely that the tax auditors will seek more co-operation from their counterparts in foreign jurisdictions. It should be noted that Korea has over 90 tax treaties containing mutual assistance provisions related to tax and financial information, and recently it has also implemented a number of agreements covering special information exchange and co-operation on tax matters.
Understanding the Focus of the Tax Audit
Korean tax auditors are very thorough in conducting their tax audits because they conduct a pre-tax audit of a taxpayer in advance of the official tax audit, and hence obtain a general understanding of the taxpayer’s strengths and weaknesses in respect of the various tax positions taken on its tax returns prior to a tax audit. Accordingly, they often begin their tax audit with a general understanding of the taxpayer’s position in respect of various items of income, deductions and credits, and have a basic understanding of the strengths and weaknesses of the targeted taxpayer in respect of the tax positions taken on the tax return. However, a robust defence prepared in advance by the taxpayer of any items challenged as well as good documentation of the positions taken on the return may result in influencing the tax auditor that their preconceived positions on certain issues require change or modification. Accordingly, it is important to quickly understand the focus and objective of the tax audit and be able to direct the tax auditor to the issues that the taxpayer is best prepared to handle. By narrowing the focus of the tax audit, issues and items that could prove to be difficult to defend may be mitigated and sometimes avoided altogether.
Maintaining Good Relationships With Tax Auditors
During the course of a tax audit, it is absolutely paramount to gain the trust and goodwill of the tax auditors so that the tax audit can proceed smoothly and quickly. In this regard, it should always be remembered that the investigatory powers of the tax auditors are broad, and attempts to prevent them from accessing specific documents which are known to them will prove to be difficult. When the tax auditors feel that the taxpayer is not co-operating, they can request suspension of the tax audit and even threaten to enlarge the scope of the tax audit to include a criminal investigation.
Handling Requests for Information/Documents
Accordingly, the best way to handle broad information and document requests is to provide basic, routine information which is generally relevant but not documents that were not specifically requested. In the event the tax auditors do point to a specific document, the taxpayer must carefully determine whether it would be more useful to provide a summary of the information contained in such material than the material itself. Often, when the document requested contains a substantial amount of data, the tax auditors welcome a customised or summarised version of the information, rather than the entire document, since it may require a substantial amount of time and resources to extract the relevant information from such a document. In addition, if the scope of the request is simply too broad or appears to be a “fishing expedition”, a taxpayer can politely request more specificity and detail as well as the reasons for requesting access to such documents, and their relevancy to the tax audit. In this regard, it would be extremely important to push back against the tax auditor’s general attempt to obtain access to the taxpayer’s e-ledgers and IT system (ERP, CRM, etc).
Prior to the conclusion of a tax audit, every effort should be given to resolving all issues that were raised during the tax audit. Unlike some countries, there is no formal mechanism to settle disputed issues after the tax audit. There is also no mediation procedure available under the Korean tax system. Accordingly, concessions on issues and positions, as well settlement discussions on assessment amounts, etc, must be finalised before the completion of the tax audit. In the event that an issue cannot be settled, the taxpayer must be prepared to dispute the issue at the Tax Tribunal (or other administrative forums to resolve disputes) or the courts, which can take several years.
Pre-Tax Assessment Notice (PTAN)
Once the tax audit of a taxpayer has been completed, the tax auditor will provide a notice to the taxpayer of its findings and the proposed amount of additional tax that will be assessed (PTAN). Keeping track of when the PTAN was received by the taxpayer is important since the taxpayer has 30 days to appeal to an administrative body within the National Tax Service (NTS) to review the strength of the legal basis of the proposed tax assessment. This process is referred to as a request for a Review of Accuracy of Tax Imposition (RATI). Once filed, the tax auditor’s right to issue a formal TAN which crystallises the taxpayer’s obligation is suspended until the RATI procedure is completed. The RATI is reviewed by a panel of reviewers comprised both of NTS officials (head office or regional office, depending on the amount involved) as well as outside experts such as professors, accountants, licensed tax representatives, and attorneys who have good standing with the NTS. However, a senior official of the NTS has the final say in all decisions and sometimes conducts several hearings, in the event that this senior official disagrees with the decisions reached by the panel. The RATI procedure is informal and taxpayers are often provided with an opportunity to appear before the panel or submit additional documents in support of their position that some or all of the proposed tax assessment was unjustified. The RATI process typically takes several months to complete. In the event the taxpayer prevails, the RATI panel will issue a written decision that the proposed tax assessment should be cancelled and the tax audit shall close.
Tax Assessment Notice (TAN)
In the event the taxpayer decides not to file a request for a RATI within 30 days of its issuance, or if the taxpayer receives an unfavourable decision, the tax auditor will issue a formal TAN. From the legal perspective, the issuance of a TAN formalises the taxpayer’s obligation to pay the amount shown on the TAN (deficiency plus interest and penalty). Such an obligation must be settled (by payment or other arrangements such as posting a bond or obtaining a guarantee) within 30 days of receipt. In the event the taxpayer’s obligation is not settled, additional interest can accrue and, depending on the facts and circumstances, the tax authority can seek to attach or freeze a taxpayer’s assets and bank accounts.
Keeping an accurate record of when the taxpayer received the TAN is also important because the taxpayer will have 90 days to file an appeal to one of three administrative bodies of the government, the Tax Tribunal, the Board of Audit and Inspection (BOAI) or the NTS’s office of appeals. In the vast majority of cases, the taxpayers typically appeal to the Tax Tribunal as it is considered more independent than the BOAI or the NTS. Another important reason to file an administrative appeal is that, under the Korean tax dispute system, the taxpayer must file the appeal and wait at least 90 days before they can file a petition to the court.
The Tax Tribunal is established under the office of the prime minister and is administered by officials generally seconded from the Ministry of Economy and Finance (MOEF) and the NTS. Like the RATI panel, the adjudicators of the Tax Tribunal are comprised of Tax Tribunal officials and outside experts, and, like the RATI panel, a senior official at the Tax Tribunal has the final say in all decisions. A Tax Tribunal proceeding is less formal than a court proceeding but more formal than a RATI proceeding. Similar to a court proceeding, the taxpayer and the tax authority are expected to submit briefs with technical arguments and applicable evidence. The taxpayer will also be given a formal opportunity to speak and plead before the adjudicators, although recently some of these hearings have been held by videoconference.
A typical Tax Tribunal proceeding involving a foreign entity or Korean entity with foreign investment or where an international tax issue is involved may last six months, although a large or complex transfer pricing case can last a year or more. During the proceedings, it is also possible that the adjudicators may order a re-investigation which is effectively a re-audit of the taxpayer. However, such a re-investigation is essentially a desk tax audit, which involves the reviewing of files prepared by the tax auditor rather than undertaking another field examination at the taxpayer’s premises.
As noted at 3.1 Administrative Claim Phase, Tax Tribunal proceedings can take between six months and a year. Once a written decision has been issued and received by the taxpayer, the statute of limitations for filing a petition to the court is 90 days. In addition, as noted at 3.1 Administrative Claim Phase, so long as the appeal has been filed with the Tax Tribunal for at least 90 days, the taxpayer has the option to file a petition to the court without waiting for a decision from the adjudicators. This option is often exercised when the taxpayer believes that the issue is well-known to the adjudicator and, notwithstanding the taxpayer’s view that the assessment was erroneously made, the adjudicators have consistently sustained the tax auditor’s position.
One such issue is the application of the source rule for royalties under the Korea-US Tax Treaty, where, despite nearly 30 years of consistent taxpayer victories in the Supreme Court, the adjudicators have consistently sided with the tax authority, holding that royalties paid to US licensors in respect of non-Korean registered patents are nevertheless Korean source income and hence subject to withholding tax under the Korea-US Tax Treaty. However, it should be noted that some taxpayers will still continue until the Tax Tribunal proceedings are completed in the hope of obtaining a favourable decision. This is because, unlike in the courts, where the parties can appeal an unfavourable decision of the District Court to the High Court and thereafter to the Supreme Court, a decision in favour of the taxpayer is final, preventing the tax authority from further appeal. By contrast, a decision unfavourable to the taxpayer can be appealed to a District Court within 90 days of receiving a written decision.
Judicial tax litigation in Korea for cancellation of tax assessments or rejection of tax refund requests is initiated by the taxpayer by filing a petition of complaint against the relevant tax office that issued the TAN or denied the tax refund request. The complaint sets forth the names of the parties involved, a description of the relevant facts and applicable law, and the relief sought. In addition, the complaint will usually be accompanied by exhibits, including evidentiary documents and other supporting materials. Once the case is docketed in court, the taxpayer will also receive a notice of payment (ie, court filing fees), which can vary depending on the disputed amount. However, court filing fees are generally viewed as modest and rarely seen as a barrier to accessing the courts. The taxpayer filing the petition of complaint is referred to as the “plaintiff” and the tax office responding to the complaint is referred to as the “defendant”.
The prevalence of tax disputes in Korea is skyrocketing, yet there are no formal tax courts to handle purely tax matters in Korea. All tax disputes are first litigated at one of many district courts in the country, which also handle other types of disputes, including all types of civil and criminal cases. In Seoul, tax cases are heard at the Court for Administrative Matters, which is a court specifically established to handle administrative grievances, including immigration, education, health, safety and security issues. District courts and the Court for Administrative Matters are often referred to as the “lower court” and “court of first impression”. Similar to the trial courts based on the continental system, district courts and the Court for Administrative Matters are comprised of three judges: a presiding judge, who is an experienced judge with 20 to 30 years of experience; and two associate judges, who are younger and less experienced. However, from time to time, and depending on the importance of the issues involved, an experienced judge may also be assigned to a case as an associate judge.
Until recently, the Korean judiciary had an unusual feature compared to most of the other jurisdictions in that judges were often appointed at a very young age with little or no experience. In many common law jurisdictions a judge can be expected to have a minimum of 15–20 years’ experience in legal practice before their first judicial appointment. In Korea, it was possible for law graduates without much experience in legal practice to be appointed as a judge. However, Korea has recently adopted a new policy for the appointment of judges, and now requires at least five years of post-bar admission experience to be appointed as a judge. This threshold will increase to seven years from 2025 to 2028 and ten years beginning from 2029.
Although the judges assigned to the Court for Administrative Matters are considered more familiar with tax issues than judges generally, they are rarely respected for their deep tax knowledge, and litigating parties are expected to assume that the judges are unfamiliar with tax law. Indeed, judges who are familiar with tax law are rare in Korea, and those who are familiar with international tax matters are even rarer. There are many explanations for this phenomenon but many would single out the fact that, until the end of the military dictatorship in the 1980s, disputing against the government was considered a futile exercise. Despite the democratisation of Korea, this view has stubbornly persisted amongst some taxpayers, who consequently prefer to settle at the tax audit level even though the taxpayer may believe that the additional tax assessment is not based on proper application or interpretation of law.
Once the petition of complaint has been filed in a timely manner, a notice will be sent by the court to the defendant with a copy of the complaint. This is the beginning of the investigation stage where briefs are filed and requests for information and documents are made to the court. Generally, the defendant will then file an answer to the complaint setting forth his or her reasons why the complaint should be dismissed. For reasons of timing and for strategic purposes, the complaint and the answer will both be something of a “skeleton argument”, ie, they will contain only the rudimentary reasoning and argument in support of their respective view or position. In practice, the plaintiff can expect to receive the answer in two to three months since the first court hearing usually takes place within four to six months from the date the petition of complaint was filed.
The first hearing is generally seen as a mere formality and limited to introductions and explanations to the judges of the basic issues in dispute before the court. However, for novel or unusual issues, the first hearing can be very important to the plaintiff’s counsel since it can serve to posture and frame issues in such ways that the judges can understand the key points that are relevant for proper disposition of the case; and competent counsel often introduce easily understood terms and examples that the judges may be more familiar with. Unless the issue is very well settled and the Supreme Court has consistently decided on the issue uniformly, it would be more important to provide a clear explanation of the background of the case and the facts and circumstances that brought the parties to court at the first hearing.
Following the first hearing, which may only last 20 to 30 minutes, the parties will begin submitting briefs which are more detailed before the next hearing. The plaintiff’s brief will rebut the defendant’s answer and the defendant will reply with additional arguments as to why its action was justified. Generally, one round of briefs is filed, but sometimes, two or even three rounds of briefs are filed before the next hearing, which would be held one to two months after the prior hearing (except in August when hearings are generally avoided due to a two week court shut-down). In the event that the court deems additional information or documents necessary, based on the respective pleadings made by the parties, it can specifically issue an order to produce such information and documents. Further, in the event that additional analysis is required on a particular issue, the court can instruct each party to address such an issue in greater detail by submission of supplemental briefs. In general, three to five rounds of briefs are expected to be filed at the District Court (or the Court for Administrative Matters) level, meaning there would be about three to five court hearings. However, in complex international tax cases involving transfer pricing and other concepts that are not familiar to the judges, additional rounds of briefs are expected to be filed and additional hearings are expected to take place. In complex cases, it is also usual for the parties to request a hearing where pleading by counsel would involve PowerPoint and other visual aids. Also, while not common, each party can submit a request for witnesses and experts to testify at a hearing in support of its position.
There is no formal cut-off period or procedure for ending the litigation. The decision to close the hearings is purely at the discretion of the court. However, if the court considers that the arguments made in the hearings, as well as in the evidentiary and supplemental documents submitted, are becoming repetitive, the court will inform the parties that the hearings will end and a decision will be rendered by a certain date, typically within several weeks. However, if one of the parties strongly objects and requests additional hearings, the court may agree to continue or request the objecting party to submit additional briefs within a certain timeframe. Once the decision is recorded and announced in the court’s database system, a formal written decision is sent to the parties electronically, usually within two weeks.
The entire litigation process at the District Court (or the Court for Administrative Matters) from the time of filing the petition of complaint to the issuance of a written decision to the parties will generally take between one to two years.
Since the Korean judicial system is heavily influenced by the continental legal system, litigation at the District Court and the High Court levels is conducted by a series of court hearings led by a tribunal of three judges. During the initial investigation stage of tax litigation, evidence is submitted to the court accompanied by a brief as well as requests for information or documents from the opposing party. A witness or expert testimony in person is rarely requested by the court. Unlike in some common law jurisdictions, a jury of peers is not involved in determining the veracity or accuracy of the facts submitted by the parties. In this context, the Korean approach is that an expert judge is in most instances able to analyse and assess the veracity of the evidence purely from an examination of the written statements and other submitted documents. Where each party’s factual position differs, the courts will attempt to reconcile them based on all the evidence submitted by the parties as well as the circumstances supporting the facts alleged by the parties. In addition, in tax litigation, the focus is usually on the interpretation and application of a tax provision rather than the facts relating to the amount of revenue generated or expense incurred by the taxpayer.
It is important to note that even though there are no formal investigation rules, the plaintiff is well-served by submitting as many facts and as much evidence as possible, placing less emphasis on the legal arguments or supporting authority at the early stages of litigation. In tax disputes where the plaintiff is arguing that an assessment was erroneously made or an application for a tax refund was rejected without proper legal basis, Korean judges are inclined to side with the tax authority unless the facts and evidence clearly support the taxpayer’s position. Moreover, the plaintiff’s arguments at the mature stage of litigation are often more persuasive by referring to the evidence already submitted, instead of introducing new evidence at a later stage when the judges may have already formed their views based on their reviews of the previously submitted evidence, and may at this stage be unwilling to review the additional evidence in detail. In addition, where evidence submitted at different stages of litigation appears conflicting or causes confusion, the judges are likely to show deference to the evidentiary position taken by the tax authority.
Technically, the tax authority as the defendant has the burden of proof to establish that the assessment or rejection of a taxpayer’s request for a tax refund was lawful and based on the relevant provision of the law. In this respect, the legal system in Korea differs from many other jurisdictions, where the burden of proof in non-criminal tax litigation proceedings is often on the party bringing the case to court, ie, the taxpayer. However, in Korean practice, the level of threshold to meet such a burden is quite low, ie, so long as some semblance of reason exists for the tax authority’s action, the court will generally accept that the burden has been met. This means that even a subjective view such as “the taxpayer’s structure or transaction appeared unusual or abnormal” should be sufficient to shift the burden to the taxpayer to explain why the structure employed or transaction undertaken was legitimate and not undertaken to avoid taxes.
How to Approach Korean Judges
It is no secret that Korean judges are not familiar with tax issues, and, culturally and historically, taxation was not considered a subject matter that judges were expected to master. It is only a recent trend that some law students and lawyers who studied economics and accounting continue to pursue their interest in tax law after becoming judges. Given this background, it is important to provide, as clearly and succinctly as possible at the outset of litigation, the facts and circumstances that compelled the taxpayer to file a complaint and, most importantly, establish that it is an “innocent” and “compliant” taxpayer aggrieved by “unjust” actions taken by the tax authority. This is of paramount importance since, all things being equal, the judges are likely to assume that the taxpayer has understated its liability. Moreover, in tax disputes involving foreign entities or Korean companies owned by foreign shareholders, the opposing counsel usually tries to influence the judges by suggesting that they have an obligation to decide for the tax authority, which is only doing its “patriotic duty” in uncovering tax abusive structures and transactions.
Legal Analysis and Arguments
Once all pertinent facts and supporting evidence of why the tax authority has erred have been submitted, it is important for the taxpayer to then provide a full legal analysis of the supporting law. One mistake that inexperienced attorneys make is that they tend to argue from the position of being accused of wrongdoing rather than as a proactive taxpayer seeking to redress the unlawful actions committed by the tax authority. This results in arguments and analysis becoming defensive in nature, and could give the impression to the court that the taxpayer has done something wrong. A more fruitful approach is to make arguments and pose questions around the factual and legal basis for the actions taken by the tax authority, frequently reminding the court that it is the tax authority that has the burden of showing that its assessment of additional tax or rejection of a refund request was based on a sound understanding of the taxpayer’s facts as well as correct application of the law.
Witness Evidence: Live Witnesses Versus Affidavits
From time to time, the intent, purpose and motive of directors and management personnel are important to establish whether the actions undertaken by the corporate taxpayer were for legitimate business purposes, or for tax avoidance. As these relate to a state of mind and can be quite subjective or even confidential, often such views or thoughts are not recorded or reflected in documents. Where they are considered to be important to the outcome of the case, instead of calling such witnesses to the court, it may be more effective for the taxpayer’s counsel to submit as evidence an affidavit or a signed written statement describing the facts and the thought process involved that resulted in taking certain action, which the tax authority suspects as being driven by a tax avoidance motive. This sort of substitution of a witness with an affidavit is usually welcomed by the court, since it is more efficient and avoids the need for setting up a recording device; this is especially preferred in the case of a potential foreign witness who is unable to speak Korean, which would then necessitate the use of a translator if the witness were to give evidence live in court. When a witness is submitting an affidavit, care should be taken by the counsel to make sure that the statements made are clear and concise. The judges are likely to frown on long-winded statements with self-declarations about how the tax authority is being unreasonable and how the case should be decided.
PowerPoint and Visual Aids
Another effective tool that can be leveraged by the taxpayer is use of a PowerPoint presentation or other visual aids, by requesting a special court hearing to explain and illustrate the various points made in its written briefs already submitted to the court. Such demonstrative pleading can be enormously beneficial when the facts involve complex financial transactions or a type of business or industry that are unfamiliar to the judges. Similarly, where an outcome of a case may hinge on whether the taxpayer has sufficient business substance in a particular geographic location, embedding a video recording or photographs of the physical premises, and showing employees working in such premises, may be used to counter the tax authority’s assertion that the taxpayer is a mere “paper company”.
One final item that should be noted as a recent trend in litigation practice is the submission of an expert opinion. These opinions are typically written by academics who are law or tax professors of well-known universities and may have published many articles related to an issue being disputed in the court. Usually, they relate to the interpretation and application of tax principles and new legal concepts or principles introduced into the law from the OECD or other jurisdictions. For example, the various rules implementing the OECD BEPS Action Plans are likely to be the subject of disputes in the near future, and academics specialising in international tax law are likely to be courted by both taxpayers and the tax authority to submit expert opinions in support of their respective positions.
Korea has adopted the continental legal system; thus, although the decisions of the Supreme Court are followed by the High Courts and the District Courts, it does not create law in the form of binding precedents, as would be the case in a common law system, and, hence, the authority of a Supreme Court decision is loosely applied by some lower courts except where the Supreme Court has issued decisions consistently and repeatedly regarding a particular issue. Similarly, while influential, the tax authority may not follow the interpretation of certain laws provided by the Supreme Court, although it will generally acquiesce after several consistent and uniform decisions have been issued.
As a member of the OECD, Korean courts may mention the Commentary to the OECD Model Tax Convention as well as the OECD Transfer Pricing Guidelines in support of decisions involving tax treaty interpretation and transfer pricing issues. However, although the taxpayer as a plaintiff may introduce related and influential court decisions from other OECD jurisdictions in support of their position, Korean courts have rarely cited such cases as supporting authority for their decision. In the near future, it is likely that the reports of the OECD BEPS Action Plans will also be referenced by the courts in decisions involving international taxation.
Both the plaintiff and the defendant have the right to appeal decisions that are wholly or partially unfavourable, and, in practice, the losing party is virtually certain to appeal a District Court’s decision to the High Court that has competent jurisdiction. For example, a plaintiff appealing the decision of the Seoul Court for Administrative Matters can appeal to the Seoul High Court for Administrative Matters. The appeal period is two weeks from receipt of the written decision (unless extended due to a national holiday) and must be strictly adhered to. In the petition for appeal, it is normally sufficient to submit a statement describing the subject matter and the nature of the appeal as expected to submit the reason for appeal within a reasonable timeframe, typically within two to four weeks.
In Korea, the High Court has original jurisdiction and hence is not limited to reviewing the conduct of litigation or erroneous application of law by the District Court. The High Court functions much like the District Court and therefore the parties have no discovery restrictions and can freely submit additional evidence at any time during the litigation. Moreover, the parties can also introduce new legal arguments that were not raised at the level of the district courts. However, one notable difference is the length of litigation, as typically the entire proceedings in the High Court involve only one or two rounds of exchanging of briefs before the hearings are concluded. Accordingly, litigation at the High Court generally takes between six months and a year to complete.
In terms of composition of judges, the High Courts are comprised of a presiding judge and two associate judges like the District Courts. These judges tend to be more senior and experienced. However, the likelihood is that the High Court judges have even less experience than the District Court judges in matters involving taxation and, given that international tax disputes have only proliferated over the past ten to 15 years, they are unlikely to be familiar even with rudimentary international tax concepts (except at the High Courts based in Seoul or Suwon). Accordingly, the odds of having the District Court’s decision reversed in favour of the appealing party at the High Court is somewhat higher for tax matters than matters involving general civil or criminal law.
Under the Korean judicial appeal system, all decisions of the High Court can be appealed as a matter of right by the aggrieved party to the Supreme Court within two weeks from receipt of a written decision by the appealing party. However, unlike the District Court or the High Court, the Supreme Court does not have original jurisdiction and its role is limited to reviewing the technical accuracy of the legal analysis that formed the basis for the decisions rendered by the High Court. Moreover, after reviewing legal issues raised in the petition for appeal, the Supreme Court can decide to dismiss the petition without considering the merits of the appeal on the basis that that same issue has already been decided several times by the Supreme Court. Generally, this initial review process takes about four months and, if the appellant’s petition has not been dismissed, it is an indication that the Supreme Court will undertake a substantive review of the case, which may take up to two or even three years before a decision is rendered.
During the review process, the parties are expected to file briefs (ordinarily not to exceed 30 pages per brief) as often as they feel necessary. In these briefs, the focus will be more on the interpretation and application of law rather than facts, and, unless already raised at the lower courts, new legal concepts introduced will not be included in the scope of review. Moreover, all pleadings in the Supreme Court will be performed by written submissions, as there are no oral hearings or witness testimony. Following the conclusion of the review process, the Supreme Court will render a decision, either upholding the decision of the High Court or reversing the High Court’s decision, in which case the Supreme Court will render its own decision. From time to time, the Supreme Court will reverse the High Court’s decision but, instead of rendering its own decision, it will remand the case to the lower courts with specific instructions for further proceedings. Unless the case is remanded to the lower courts, the decision of the Supreme Court is final and not subject to further review. If a decision instructs the tax authority to refund taxes to the taxpayer, this refund must be paid by the relevant tax office immediately; otherwise, the taxpayer can demand additional interest from the tax office at the rate of 5% per annum, and if the relevant tax office fails to provide the refund, the taxpayer may file a lawsuit and may be entitled to additional interest at the rate of 12% per annum in respect of the amount that has not been refunded, calculated from the date the Supreme Court’s written decision has been received by the tax office. However, such lawsuit against the NTS is infrequent as it provides refunds within a period of seven days.
Unless the case involves an important question of law, a panel of three out of 13 judges of the Supreme Court will review the appeal. The process of selecting the judges to form the panel is purely random and based simply on which day the appeal has been docketed for review. However, where an important legal issue is raised in the appeal, the Supreme Court will hear the case en banc, meaning all 13 judges of the Supreme Court will be involved in the review process.
It is also noteworthy that not all judges of the Korean Supreme Court are career jurists, as is the case for judges sitting in the District Courts or the High Courts. From time to time, law professors and senior prosecutors are appointed directly to the Supreme Court Bench by the president. Notwithstanding this fact, many legal practitioners in Korea and around the world have remarked that the Korean Supreme Court has demonstrated a level of independence and autonomy, not witnessed in the highest courts of other Asian countries.
There are no ADR mechanisms available in Korea to resolve tax disputes.
There are no settlement possibilities as there are no ADR mechanisms available in Korea.
There are no mediation or arbitration systems in Korea.
There are two types of ruling request in Korea. The first type is the ruling request for clarification or interpretation of law. The request for this type of ruling is common and frequently issued by the tax authority. However, it is merely considered persuasive to a tax auditor and not binding.
The second type of ruling is the formal advance tax ruling which is available in certain situations and in respect of certain provisions of the law. Although an advance tax ruling is not legally binding on the tax auditor either, under the general principle of good faith and reliance, the tax auditor is not allowed to issue a tax assessment that is inconsistent with the advance tax ruling which was specifically issued to that taxpayer, so long as the actual facts are the same or similar to the facts upon which the advance tax ruling was issued. For transfer pricing matters, APAs are commonly used to obtain certainty, and, once issued, the tax auditor is generally forbidden to challenge the transfer price agreed to in the APA for as long as the APA is in effect.
There is no applicable information in this jurisdiction.
There is no applicable information in this jurisdiction.
Although a tax audit can begin with a notice to the taxpayer that an administrative tax investigation (which can ultimately result in referral to the prosecutor’s office) is also being conducted at the same time, generally such investigation at this stage is designed to provide the tax auditors of the administrative investigation division with broad powers to investigate and obtain information (including documents) to determine whether an administrative offence has been committed. Moreover, even if a wrongdoing is found, so long as it is limited to violations specifically provided in the tax law and the amount of tax evaded is within a certain threshold, punishment is monetary rather than penal in nature. Accordingly, administrative tax investigations conducted at the tax audit level dealing with intentional non-compliance of the tax law (especially in the VAT area) or aggressive tax avoidance structures, generally lead to, if at all, administrative fines so long as the amount of tax deemed evaded is not viewed as egregious.
By contrast, a criminal investigation is initiated by the prosecutor’s office and, although the ultimate goal of the accused may have been to avoid paying taxes, there must be a specific violation of the Criminal Code. The types of violations that prosecutors focus on include fraud, concealment of income or assets, or fabricated transactions. Accordingly, although it is common for a tax audit to be accompanied by an administrative investigation on whether specific provisions of the tax code have been violated, it rarely leads to a criminal investigation, especially when the investigation is targeted at a large foreign multinational corporation or its Korean subsidiary.
The procedures for initiating administrative and criminal investigation, as well as indictments, are separate and independent of each other and often both procedures can proceed in parallel. There is no rule that the administrative procedure be suspended while the criminal procedure proceeds to completion, leads to an indictment by the prosecutor’s office and conviction in a criminal court. The only potential overlap is where an administrative fine is assessed against the taxpayer and the taxpayer disagrees with the fine and fails to pay. In this situation, the administrative investigators may refer the matter to the prosecutor’s office, which can then initiate a separate investigation that may lead to a criminal indictment and, following a trial, result in imprisonment as part of sentencing.
The initiation of a criminal investigation would begin when the administrative investigation team of the tax office formalises the matter by having an internal hearing on whether a referral to the prosecutor’s office for criminal action is appropriate given the substantial amount of tax evasion involved. If there is an agreement, the tax office will contact the prosecutor’s office and discuss the case. The prosecutor’s office can then decide to proceed with a separate criminal investigation and later proceed to a criminal indictment or closing the case on the basis that no criminal wrongdoing occurred.
The administrative investigators of the tax office will first conduct their investigation with the principal purpose of determining whether administrative violations or infringements occurred. However, in the event that the evidence collected points towards a violation of criminal law, an internal discussion with the tax office takes place to determine whether it would be appropriate to refer the matter to the prosecutor’s office.
In so far as the process at the prosecutor’s office is concerned, the decision whether to proceed or drop the matter is purely at the discretion of the team leader assigned to the case. In criminal matters involving tax, the key driver will be the amount of tax involved. In high-value cases involving a well-coordinated design and scheme, the prosecutor’s office will aggressively investigate with a view to indicting the criminal perpetrators, which may ultimately lead to their incarceration and imprisonment. In low value or less significant cases, the prosecutors may only issue a fine, a warning or a sanction. Like all criminal matters, the indicted must be found guilty following a trial at the criminal court before facing penal sentencing.
In the case of an administrative fine, paying the fine to the tax office in full would conclude the matter. If the fine is paid within ten days of receiving the notice and without an appeal, then it will be reduced by 20%. In the event the fine is not paid, the administrative investigator can refer the matter to the prosecutor’s office. If the taxpayer continues to protest their innocence but is ultimately found guilty of a criminal conduct at the criminal proceeding, the taxpayer can attempt to reduce or mitigate the length of incarceration by agreeing to pay some or all of the taxes evaded.
In a criminal tax trial based on a taxpayer’s evasion of taxes, the payment of outstanding taxes, interest and fines can impact the sentencing.
The avenue of appeal against an adverse decision rendered by the criminal court is the same as the other appeal procedures described in this chapter.
In Korea, the GAAR (provisions in the tax law dealing with substance over form), the law on denial of unfair transactions, the law of matching bank accounts with real owners, and transfer pricing rules, are all designed for tax assessment purposes, and therefore being subject to these rules would not generally give rise to criminal actions, unless the taxpayer also committed an administrative or criminal tax offence.
Where a double taxation situation occurs due to an additional tax assessment on the same income or if a transfer pricing adjustment in a cross-border situation occurs, it is common to invoke both the domestic dispute resolution mechanism (ie, administrative tax appeal and litigation) and the MAP. In order to cancel such additional tax assessment, the taxpayer would ordinarily file an appeal to the Tax Tribunal and, if necessary, to the courts. During this process, the MAP may be invoked (within three years of receiving the TAN) if available under a tax treaty.
Since taxpayers are permitted to proceed with tax litigation and the MAP simultaneously, it is important to understand how those two processes interplay. First of all, an MAP may not be invoked under the Korean domestic tax law if, inter alia, the final judgment has been entered on the subject matter in the court of Korea or the other jurisdiction. Even if properly invoked, an MAP should halt once a court has rendered the final judgment on the subject matter. Where an agreement is reached and an MAP is concluded, the agreement reached should be implemented immediately once the applicant taxpayer has accepted the agreement, or, where the MAP and court litigation against the subject tax assessment were concurrent, the applicant taxpayer should voluntarily drop the litigation. If the applicant taxpayer does not drop the litigation within two months from the receipt of notice of the MAP conclusion, and unless the taxpayer otherwise submits their consent to the MAP conclusion to the competent authorities (ie, tax office or MOEF), the taxpayer may be regarded as having rejected the results of the MAP.
The Korean tax authority has aggressively applied the GAAR (in particular, the substance over form principle) to cross-border situations covered by a bilateral tax treaty, especially on the issue of whether the taxpayer is entitled to claim tax treaty benefits. For example, in the absence of the beneficial ownership requirement in a tax treaty in respect of capital gains to reduce or exempt Korean withholding tax, the tax authority has applied the domestic “substantive ownership rule”, which generally mimics the beneficial ownership test that is applicable to interest, dividends and royalties. More recently, the Supreme Court has issued decisions that appear to say that, if applicable, both the beneficial ownership as well as the substantive ownership requirements must be satisfied to be eligible for tax treaty benefits.
Transfer pricing adjustments made during tax audits of foreign invested Korean companies remain the most important source of tax revenue for the tax auditors. Although Korean transfer pricing rules are largely based on the OECD Transfer Pricing Guidelines, the application of the rules requires the determination of whether the transfer price was at arm’s length by reference to benchmarking comparable transactions undertaken by local Korean companies. Until recently, such companies had often conducted global transfer pricing studies to support the transfer price, which was consequently not specifically based on local Korean comparables. As a result, the proposed adjustments would often be completely unexpected or unanticipated and hence reaching a compromise or settlement has been difficult. Moreover, in light of the adoption of the so-called “commercial rationality and economic substance” test which has been applicable since 1 January 2019, tax auditors are expected to be even more aggressive with transfer pricing adjustments in the future.
Notwithstanding the frequency and size of the proposed transfer pricing adjustments, taxpayers have been successful in the courts. One reason for this is that taxpayers who are part of the multinational group often have substantial technical resources and data to defend their transfer pricing, including detailed economic analysis from transfer pricing economists and experts. Although the Korean tax authority has been building its transfer pricing analysis capability, insufficient expertise and analysis required to support the tax auditor’s argument in court justifying the adjustment have resulted in the taxpayer being less successful than in other general tax cases. This is likely to change in the future given the ever-increasing amounts at stake.
Unilateral, bilateral and multilateral APAs are secured by taxpayers to avoid or mitigate disputes in transfer pricing matters. Of these, the bilateral are most prevalent. As of the end of 2021, which is the latest data available, 233 APAs were being actively negotiated, some of which were filed by taxpayers several years ago and 39 cases (7 unilateral APAs and 32 bilateral APAs) were concluded in 2021. The average time taken to conclude those cases in 2021 was two years and two months for unilateral cases and two years and 7 months for bilateral cases. On a cumulative basis, from 1997 to 2021, the average time taken to conclude APA cases was one year and nine months for unilateral cases and two years and seven months for bilateral cases.
To secure an APA with the tax authority, a preliminary economic analysis should be undertaken and an informal pre-conference meeting should be held with the tax officials. At this meeting, the taxpayer would informally present its findings and propose the transfer pricing methodology to be employed as well as the transfer pricing rate for the transaction covered under the APA. If the tax officials react favourably, the taxpayer would undertake a detailed economic analysis which would accompany the APA application. Once filed, the taxpayer and the tax officials will meet several times to go over the application, and in bilateral APAs it is expected that the competent authorities on both sides will meet under the MAP mechanism and push back on the proposed transfer pricing rate to be applied if it is seen as too favourable to the other jurisdiction.
Over the last few years, tax treaties and withholding tax issues have dominated court litigations involving cross-border tax matters. Although transfer pricing adjustments and disputes occur frequently at the tax audit level, due to the significant amounts involved as well as the uncertainty of outcome (ie, the usual hazards of litigation), most transfer pricing disputes are settled at the tax audit stage or through the MAP. In addition, cases involving permanent establishment and the availability of tax incentives for foreign direct investments (repealed and inapplicable from 1 January 2019) find their way into courts.
This issue does not arise in Korea, a non-EU jurisdiction.
This issue does not arise in Korea, a non-EU jurisdiction.
This issue does not arise in Korea, a non-EU jurisdiction.
This issue does not arise in Korea, a non-EU jurisdiction.
Korea has not opted in to Part VI of the MLI and no existing tax treaties between Korea and other countries have a mandatory binding arbitration provision. However, in 2020, Korea amended its domestic tax law so that a taxpayer can submit an unresolved issue to arbitration where the competent authorities are unable to reach an agreement under the mutual agreement procedure (MAP), in accordance with the terms of the applicable tax treaties. This amended law was designed to accommodate future treaties containing an arbitration provision and has been applicable from 1 January 2021.
As Korea currently has no tax arbitration procedures, there is no applicable information.
As Korea currently has no tax arbitration procedures, there is no applicable information.
There is no applicable information in this jurisdiction.
There is no applicable information in this jurisdiction.
Under the current standards of Pillar One, which applies only to multinational companies (excluding those carrying out extractives and regulated financial services) with greater than EUR20 billion in worldwide revenues and profitability before a tax margin of at least 10%, only two Korean companies – Samsung Electronics and SK Hynix – will be covered by Pillar One. Starting from 2030, when the revenue threshold decreases to EUR10 billion (KRW14 trillion), the scope of covered Korean companies may increase to several companies.
Under Pillar Two, which applies to multinational companies with total consolidated revenue above EUR750 million (KRW1 trillion) and with subsidiaries established in low-taxed jurisdictions, there are approximately 81 identified Korean companies subject to Pillar Two, and around 150 subsidiaries of those companies are found to be in low-taxed jurisdictions according to research.
The Korean government has undertaken the necessary harmonisation process in Korea, including the enactment of domestic laws in 2022, following the implementation timeline of the OECD/G20 Inclusive Framework (IF). To this end, during the first half of 2022, it launched a task force researching the codification of the IF in Korea, where professionals and experts in corporate and international taxes participated and then reflected the research results in the tax law amendment bill for 2022. In the case of Pillar One, discussions are ongoing with the goal of implementation in 2024. As for Pillar Two, it was included in the tax reform bill as of 31 December 2022, and is scheduled to be applied starting from the tax year commencing on 1 January 2024.
In 2023, the OECD will continue establishing specific rules for the GloBE Implementation Framework – for example, setting up the templates of reporting forms and other measures implementing the framework. In this regard, the Korean government expressed its willingness to participate in the process actively to minimise the burdens of businesses in implementing the framework. Furthermore, to address the double taxation problem caused by the adoption of Digital Tax, the Korean government endeavours to minimise the tax burdens of businesses by adopting measures such as allowing tax deductions or credits. Since the Korean government has shown its commitment to resolve the difficulties confronted by the companies, including double taxation problems, such efforts may mitigate potential controversies surrounding the adoption of Pillars One and Two in Korea.
Although Korea currently has no tax arbitration procedures, the judicial courts sometimes recommend that the parties settle the matter. Although the parties are not required to follow such a recommendation, it can lead to a settlement between the parties. Generally, the settlement process would start after the taxpayer agrees to withdraw the litigation and the NTS agrees to cancel its tax assessment against the taxpayer in whole or in part. The courts do not publish their reasons for the recommendation and the terms of settlement are not disclosed.
Since Korea currently has no tax arbitration procedures, the court’s recommendation to settle is the most common way for the taxpayers and the NTS to resolve tax disputes.
As Korea currently has no tax arbitration procedures, there is no applicable information.
No fees are payable by the taxpayer for filing an appeal to the Tax Tribunal to cancel the additional tax assessment or the rejection of a tax refund request.
The taxpayer who is filing a petition of complaint to the District Court is required to pay a court filing fee and, thereafter, on appeals to the High Court or the Supreme Court. By contrast, if the taxpayer prevails at the District Court and the appeal is lodged by the defendant, the taxpayer is not required to pay a court filing fee to defend lower court’s decision on appeal. The amount of court filing fees can vary due to the use of a formula based on the amount of tax that is at dispute. Moreover, the court filing fees are increased at each stage of appeal.
For example, if the amount of tax at dispute is KRW3 billion (approximately USD2.5 million), the court filing fees payable at the District Court will be KRW4,055,000 (approximately USD3,570), calculated as KRW3 billion x ⅓ x 0.0035 + KRW555,000. This amount is increased by 50% (USD5,350) if the decision of the District Court is appealed to the High Court, and by 100% (USD7,140) if the decision of the High Court is appealed to the Supreme Court. Each amount is discounted by 10% when proceeding by electronic litigation system.
There are no indemnities provided by the tax office if the court decision results in the cancellation of the tax assessment. However, a small amount of the attorney’s fee is awarded to the prevailing party (or to both parties if each party partially wins on its claim) based on the amounts involved in the dispute. The award is based on a statutory formula and is capped at approximately USD13,250 at each stage of litigation.
No alternative dispute resolution mechanism for tax issues exists in Korea.
Although the data on the number of the total tax appeals currently pending at the Tax Tribunal is not available, the number of tax appeals newly brought before the Tax Tribunal was 10,373 in 2022 and 13,025 in 2021. According to the statistics disclosed by the NTS for 2021, the number of tax cases disputed at the level of the District Courts was 1,717, while 700 cases were appealed to the High Courts and 214 cases were appealed to the Supreme Court.
The total 3,972 tax cases litigated in court by the NTS (including cases carried over from the previous years) in 2021 can be categorised as follows:
According to the statistics disclosed by the NTS, historically, the percentage of tax cases where the taxpayer totally succeeded is around 20%, while the NTS was at least partly successful in approximately 80% of the cases. For cases related to corporate income tax, the percentage of the corporate taxpayers’ success is around 30%. For large international tax cases, the success rate is higher and, although no specific data is available, based on information shared by litigators handling these types of litigation, the taxpayers’ success rate can be estimated to be around 40% to 50% and substantially higher in withholding tax cases.
Since negotiations and settlements are not possible after completion of the tax audit, taxpayers are advised to make every possible attempt to resolve all issues outstanding before the tax audit is concluded. However, if a resolution is not possible, taxpayers should consider using all the tools at their disposal, including the MAP, as well as filing an appeal to the Tax Tribunal and, if necessary, filing a petition of complaint to the District Court. Korean judges, while not necessarily experts in tax law, are nevertheless intelligent (usually selected from the top of their class) and highly dedicated public officials. Moreover, the courts are generally independent and decisions are rendered relatively quickly as the entire proceeding from the District Court to the Supreme Court can take as little as three to four years. In this regard, it is also noteworthy that litigating against the tax authority is a culturally accepted norm in Korea and taxpayers should have little to no fear of a potential backlash from the tax authority. Finally, in certain areas of corporate income tax law (transfer pricing), taxpayers have a good chance of prevailing in the courts so long as the facts are strong and the counsel is competent.