Korea, Republic of
In Korea, the taxable year is on a fiscal-year basis as elected by the taxpayer. However, it cannot exceed 12 months.
A corporation must file an interim tax return with due payment for the first six months of the fiscal year, and the filing/payment must be made within two months after the end of the interim six-month period.
A corporation must file an annual tax return with due payment for the fiscal year, and the filing/payment must be made within three months (four months for the consolidated tax return) from the end of the fiscal year. In case the external audit is not completed and the financial statements are not fixed, a corporation can request for extension of tax filing by one month with delinquent interest of 1.2% per annum.
Payment of tax
Where the tax amount to be paid by a resident corporation is in excess of KRW 10 million, part of the tax amount to be paid may be paid in instalments within one month of the date of the expiration of the payment period (two months for SMEs).
Where the tax amount to be paid is KRW 20 million or less, the excess of KRW 10 million may be paid in instalments; and where the tax amount to be paid exceeds KRW 20 million, 50% or less of the tax amount may be paid in instalments.
In instances where the taxpayer adopts to use a foreign currency as its functional currency, there are three ways to calculate the CIT base: (i) calculate the tax base using the financial statements in functional currency and translate it into Korean won; (ii) prepare the financial statements in Korean won and calculate the tax base; or (iii) translate the financial statements into Korean won and calculate the tax base. Once elected, the same method must be consistently used.
Tax audit process
There are two main categories of tax audits, periodic (regular) and non-periodic (special) tax audits. Periodic audit is conducted to verify compliance with tax obligations where an alleged non-compliance is found as a result of the tax compliance measurement analysis, where the random selection of sample items to be verified is used and where a company has not been subject to any tax audit for the last four years (i.e. period of audit cycle) or longer. Non-periodic audit is conducted where a taxpayer does not comply with tax compliance obligations under tax laws, where transactional facts are not in line with what was reported (e.g. transactions without authentic documentation, disguised or fictitious transactions), where concrete information on its tax evasion is reported, and where an obvious evidence of omission or error is found from the submitted documentation.
An official notification of an intended tax audit must be made 15 days prior to the audit. The notification must be given in writing with prescribed details, including tax items and period subject to audit and reason for examination.
Statute of limitations
The statute of limitations is generally five years from the statutory filing due date of the annual CIT return but is extended to seven years in case of ‘cross-border’ transactions when a party or parties to the transaction include(s) non-resident(s) or foreign corporation(s) (excluding domestic business places of non-resident(s) or foreign corporation(s)). However, the statute of limitations is extended further in the following cases:
- Seven years if a taxpayer does not file its tax base by the statutory due date (ten years involving cross-border transactions).
- Ten years if a taxpayer evades taxes by fraud or unjustifiable means (15 years involving cross-border transactions).
Period of extinctive prescription for collection of national taxes
The period of extinctive prescription for collection of national taxes is five years (ten years for national tax payable worth KRW 500 million or more) from the date on which the government’s right to collect a national tax becomes exercisable. Along with the five-year extinction prescription period of national tax collection, the extinction prescription period of tax refund request of taxpayers is five years.
Topics of focus for tax authorities
The recent topics of focus for tax authorities are as follows:
- Implementation of new tax information reporting systems as planned in the BEPS project.
- Increased tax audit on tax avoidance through internal transactions or gifts among group companies and major shareholders.
- Increased scrutiny over the prevention of offshore tax evasion through a cross-border tax information exchange program.
- Selection of tax audit targets through a sophisticated analysis and verification system by adding new measures, including accounting transparency such as auditor's opinion, hours spent for external audit, etc.
- Increased application of forensic and electronic audit schemes and use of big data analysis to examine potential tax avoidance.
Meanwhile, the National Tax Service (NTS) announced its national tax administration policy for 2021, addressing the support for taxpayers in undertaking tax reporting and compliance through digital transformation of the NTS services, such as expanded mobile applications for notification and payment of taxes. It also includes navigation services to provide taxpayers with specific information by category and characteristics. In addition, the policy calls for improving the basis of tax fairness through focused audits aimed at booming or emerging industries and increased efforts to fight tax avoidance and evasion attempts.