Tax Disputes Comparative Guide

1 Legal framework

1.1 Which laws govern taxation and tax disputes in your jurisdiction?

The National Basic Tax Law sets out the general legal principles and procedures with respect to tax disputes; while statutes such as the following regulate specific aspects of the tax regime:

• the Corporate Income Tax Law;
• the Individual Income Tax Law;
• the Security Transaction Tax Law; and
• the Inheritance and Gift Tax Law.

Tax disputes are also subject to the Administrative Procedure Law, supplemented by the Civil Procedure Law for matters not addressed therein.

1.2 Do any other regional, national or supranational rules or regulations have relevance in this regard?

The Constitution mandates that taxes must be prescribed in the law, adhering to the principle of legality of taxation. Consequently, taxes can be levied only in accordance with statutory provisions. While laws may delegate tax bases to subordinate decrees or regulations, this is permissible only when the law explicitly outlines the fundamental aspects of the delegation, including its content and scope, enabling subordinate decrees or regulations to anticipate the delegated content. South Korean tax laws delineate the requirements and procedures for taxation and delegate certain operational specifics to subordinate decrees and regulations. However, the comprehensive delegation of tax bases to such decrees and regulations is prohibited by law, rendering taxation via subordinate decrees and regulations without proper statutory backing illegal.

1.3 Which authorities are responsible for enforcing the tax laws? What is their general approach to enforcement?

The Ministry of Economy and Finance (MOEF) serves as the governing body responsible for drafting the tax legislation; while the National Tax Service (NTS) is tasked with enforcing these laws.

Tax laws can be enacted through two primary avenues:

• parliamentary legislation, initiated by members of the National Assembly (the legislature); or
• government legislation, initiated by the lead agency – typically the MOEF in the context of tax laws.

The predominant method for enacting or amending tax laws is through government legislation. The MOEF unveils a proposed tax law amendment bill around July each year. Following a 14-day legislative preview period, the MOEF finalises the amendment bill around August, submitting it to the National Assembly in early September. Subsequently, the National Assembly's Planning and Finance Committee convenes in November, with the amended tax law requiring approval by the plenary session of the National Assembly before December's conclusion to take effect. Amendments to presidential decrees and enforcement regulations typically follow a similar legislative preview process, being enacted in the early months of the following year.

1.4 To what extent do the tax authorities cooperate with (a) other national authorities and (b) their international counterparts in enforcing the tax laws? Does this vary depending on the applicable tax?

The NTS actively engages in international collaboration to enforce international tax laws, employing various mechanisms to facilitate information exchange and compliance. Notably, South Korea participates in initiatives such as the following to enable the annual exchange of financial information with tax authorities from other nations:

• the Multilateral Competent Authority Agreement;
• the Common Reporting Standards; and
• the U.S. Foreign Account Tax Compliance Act.

Furthermore, South Korea is committed to international tax law cooperation through its active involvement in initiatives led by the Organisation for Economic Co-operation and Development, particularly those aimed at addressing base erosion and profit shifting.

2 Tax investigations

2.1 How do the tax authorities monitor compliance with the tax laws? Does this vary depending on the individual taxpayer or the applicable tax?

The National Tax Service (NTS) reviews taxpayers' returns for accuracy, relying on the information provided by taxpayers themselves. Should the NTS identify potential discrepancies or errors in these returns, it reserves the right to initiate a tax audit. Furthermore, upon receiving reports of tax evasion, the NTS diligently investigates the matter to determine whether taxes have indeed been evaded, with the possibility of initiating a tax audit if warranted.

Moreover, the NTS collaborates with the South Korea Financial Intelligence Unit to obtain information regarding financial transactions suspected of tax evasion. Additionally, it accesses records of real estate transactions from various authorities to verify taxpayers' compliance with tax obligations relating to such transactions. In cases where taxes have not been properly paid, the NTS is empowered to levy tax assessments and penalties as deemed appropriate.

2.2 What typically triggers a tax investigation in your jurisdiction?

Tax audits are typically categorised as either 'regular audits' or 'special audits' (the latter is contingent upon some underlying rationale). The majority of tax audits fall under the classification of regular audits, in which taxpayers exceeding a designated income threshold are mandated to undergo a routine examination by the local tax office or relevant authority once every five years. However, taxpayers that file and discharge their tax obligations in good faith may be exempted from such routine scrutiny altogether.

This exemption is primarily predicated on the provision in South Korean tax law of a five-year statute of limitations. In the case of regular tax audits, the law does not necessitate specific reasons for initiating the audit. In contrast, special audits are instigated by the NTS under specific circumstances, such as:

• a taxpayer's failure to fulfil reporting obligations prescribed by tax law; or
• the presence of conspicuous indications of tax evasion or reporting inaccuracies.

Special audits demand concrete grounds, such as the detection of potential tax evasion during internal analytics conducted by the NTS, to trigger the audit process.

2.3 What is the limitation period for commencing a tax investigation in your jurisdiction?

The NTS has the authority to assess taxes in cases where taxpayers fail to submit their tax returns punctually, with a requisite assessment window of five years (extended to seven or 10 years for cross-border transactions) from the date on which the tax becomes assessable.

Typically, the tax audit process takes two to six months. Accordingly, it is imperative for the NTS to commence the tax audit no less than six months prior to the tax assessment deadline. However, it is rare for the NTS to initiate tax audits in close proximity to the deadline. Instead, the NTS endeavours to conclude tax audits within a reasonable timeframe, ensuring adequate processing and resolution of tax matters.

2.4 How does a tax investigation typically unfold in your jurisdiction?

In the context of a regular tax audit, the taxpayer is typically served with a tax audit notice 15 days prior to the scheduled commencement of the audit. However, in instances necessitating a special tax audit, such as those prompted by tax evasion reporting, the NTS may conduct a raid without prior notice. Often referred to as a 'dawn raid', this involves an investigative team entering a taxpayer's premises, including his or her home, and personally delivering a notice of investigation when criminal activity is suspected.

2.5 What is the typical timeframe for the investigation?

In South Korea, tax audits are intensive, typically lasting between eight and 12 weeks, unless suspended or extended with the taxpayer's consent.

2.6 What powers do the tax authorities have in conducting their investigation, in relation to (a) the taxpayer itself, (b) its employees and (c) third parties?

Tax officials are empowered to demand the submission of relevant books and materials essential for conducting tax investigations, as well as require taxpayers and their employees to provide tax-related statements as necessary. Furthermore, statements may be sought from third parties involved in transactions, such as business counterparts; and financial data may be requested from financial institutions.

In instances of a special tax audit prompted by a tip-off regarding tax evasion, the NTS may conduct a special audit on a business premises to seize and search computer files and other pertinent materials. To execute such a raid, the NTS must obtain a court warrant. Taxpayers legally have the right to refuse a search by the NTS without a warrant.

Nevertheless, as a means to prevent tax evaders from concealing or destroying evidence, the NTS has adopted a practice of raiding companies and securing consent from company representatives to conduct a search once the NTS deems it appropriate to proceed. While taxpayers retain the option to withhold consent, refusal may heighten suspicion of tax evasion and lead to intensified scrutiny by the NTS. Consequently, many taxpayers opt to cooperate voluntarily by submitting to the special audit, even without a warrant.

2.7 On what grounds, if any, can taxpayers refuse to disclose commercial information during the investigation?

While it is generally very difficult for taxpayers to refuse to produce documents when the NTS asks for them, taxpayers can refuse to produce documents that:

• contain personal information about others;
• are outside the scope of the examination; or
• are not relevant to the subject matter of the examination.

2.8 Can the taxpayer object to or challenge the tax investigation? Are any other avenues available for resolving the matter?

Where a taxpayer suspects specialities in the tax investigation process, such as concerning the selection criteria for tax audits, it reserves the right to petition for a rights protection review by the Taxpayer Protection Committee, a governmental body established within the NTS.

Should the Taxpayer Protection Committee reject the taxpayer's request, the tax investigation will proceed as planned. Subsequently, if the taxpayer wishes to contest the tax assessment, it may initiate administrative appeal – most commonly to the Tax Tribunal.

If the taxpayer's administrative appeal is unsuccessful, the taxpayer has the right to appeal to the courts.

2.9 What actions can the tax authorities take if the taxpayer does not cooperate in the investigation?

If the taxpayer refuses to submit requested documents, the NTS can obtain a court-ordered search warrant to obtain the necessary documents.

In addition, if a taxpayer makes a false statement or refuses to submit documents, the NTS may impose penalties for failure to cooperate of up to KRW 50 million.

2.10 Can the tax authorities exercise discretion in their treatment of the taxpayer in exceptional circumstances (eg, insolvency)?

If a taxpayer is facing serious business difficulties due to insolvency as a result of a fire or other disaster, or due to illness, the taxpayer may be able to postpone the tax audit, even if it has already been decided.

2.11 Do tax authorities have any leeway to settle in the course of tax investigations?

It is difficult for the tax audit team to exercise discretion on issues that have precedent in the courts or the Tax Tribunal. However, in cases where there is no precedent, there is a certain amount of negotiation between the tax audit team and the taxpayer during the course of the investigation as to whether the tax should be assessed and how much should be assessed.

2.12 If the investigation concludes that taxes are overdue, what powers do the tax authorities have to collect them? Does this vary depending on the applicable tax?

If the taxpayer fails to pay the tax or arrears in full by the specified due date, the NTS may levy a tax lien on the taxpayer's property. The NTS may additionally:

• seize the taxpayer's property in accordance with the International Collection Law; and
• sell the seized property at public auction to enforce collection of the arrears.

2.13 On what grounds are penalties imposed and how are these calculated?

Tax penalties are complicated, but are generally as follows.

• a penalty of 20% on the tax due (or, in the case of a corporation, 20% of the tax due or 0.07% of the amount of undeclared income, whichever is greater) for failure to file a tax return;
• a penalty of 10% for underpayment;
• a penalty of 40% (or, in the case of a corporation, 0.14% of the amount of undeclared income, whichever is greater) for failure to file taxes or under-reporting of taxes through fraudulent acts such as fraudulent bookkeeping; and
• a penalty of 60% for such fraudulent acts in connection with international transactions.

The interest for late payment is equal to the underpaid tax multiplied by 0.022% per day (8.03% per annum), plus a 3% penalty if the tax is not paid by the due date on the payment notice. However, the underpayment (overpayment) period can only be up to five years. This interest rate changes from time to time.

If the withholding agent fails to fulfil its withholding obligations, the withholding agent will be charged up to 10% of underpaid tax as penalties.

2.14 On what grounds is interest levied and how is this calculated?

Please see question 2.13.

2.15 What defences are typically available to the taxpayer?

If a taxpayer suspects unfair treatment or bias during the tax investigation process, such as in relation to the selection criteria for tax audits, it has the option to request a rights protection review by the Taxpayer Protection Committee.

Following the closure of the investigation but before the assessment is finalised, a taxpayer may submit a pre-assessment claim. Should the taxpayer's claim be substantiated through the aforementioned procedure, it may potentially avoid the assessment altogether. This avenue offers taxpayers a mechanism to address concerns regarding the validity of the investigation and ensure fair treatment in the assessment process.

2.16 Can the results of the tax investigation have criminal implications for the taxpayer? Does this vary depending on the individual taxpayer?

If indications of tax evasion – such as the issuance of false tax invoices via double booking, document falsification, deceptive contracts or fictitious expense accounting – emerge during the tax investigation, the inquiry may escalate into a tax crime investigation.

Tax crime investigations are not limited by entity size or structure; they can encompass large corporations, small businesses, sole proprietors and individuals. Regardless of the taxpayer's profile, if evidence suggests potential criminal wrongdoing related to taxes, law enforcement agencies may initiate a criminal investigation to pursue legal action.

2.17 If the tax investigation has criminal implications for the taxpayer, are the answers to any of the above questions different?

If the investigation confirms the suspicion of a crime, the tax investigator will file a complaint with the prosecutor's office, and the investigation will lead to a criminal trial.

However, in the case of a lesser offence, the NTS may impose a penalty through a notice; and if the taxpayer pays the penalty, the case is closed without criminal prosecution.

3 Voluntary disclosure and amnesties

3.1 Are any voluntary disclosure or amnesty programmes applicable in your jurisdiction? Does this vary depending on the applicable tax?

Even after initially filing their tax return, taxpayers retain the option to submit a revised return if they discover underreported taxes, potentially leading to a reduction in penalties. Furthermore, in cases where a taxpayer fails to meet the deadline for filing a tax return, they may still be able to file a late return before the National Tax Service issues a levy, thereby potentially reducing penalties.

Additionally, penalties may be waived under certain circumstances if the taxpayer can demonstrate a legitimate reason for failing to fulfil its tax obligations. Such reasons may include events such as natural disasters, fires, severe injuries or death which significantly impede the taxpayer's ability to meet its tax responsibilities.

4 Forum for tax disputes

4.1 In what forum(s) are tax disputes heard in your jurisdiction? Is there any choice of forum available?

After an audit, but before the National Tax Service (NTS) issues a final tax assessment notice (TAN), a taxpayer can file a pre-assessment appeal with the NTS to challenge the legitimacy of the tax assessment.

After a TAN has been made, an appeal may be filed with the NTS or alternatively with the Tax Tribunal or Board of Audit and Inspection. In practice, appeal to the Tax Tribunal is the most common administrative appeal process.

If the administrative appeal is rejected, an action for annulment of the assessment may be filed with the courts.

The trial court in the region where the relevant tax office is located has jurisdiction over the tax appeal. In Seoul, there is one court for tax appeals: the Administrative Court. In other regions, there are no administrative courts, so cases are heard by the administrative division of the local trial court. If a taxpayer is dissatisfied with the decision of the first-instance court, it can appeal to the high court of the relevant jurisdiction (court of appeals). And if the taxpayer is also dissatisfied with the decision of the high court, the taxpayer can appeal to the Supreme Court.

4.2 Who is the fact finder in a tax dispute? Does this change based on venue?

South Korea does not have a jury system and the facts are determined by the judges in charge. This does not change depending on the venue.

5 Filing a tax dispute

5.1 What is the limitation period for filing a tax dispute in your jurisdiction?

The limitation period to file an administrative appeal with the National Tax Service (NTS), the Tax Tribunal or the Board of Audit and Inspection is 90 days from the date of the final tax assessment notice (TAN). If the administrative appeal is dismissed, the taxpayer must:

• file a lawsuit with the court having jurisdiction within 90 days of the date of receipt of the administrative appeal decision; and
• pay the costs of the lawsuit.

Tax litigation is conducted in the order of the Seoul Administrative Court (or the administrative division of each district court), the Seoul High Court (or other high court) and the Supreme Court.

5.2 What are the formal requirements for filing a tax dispute?

To file administrative against a tax assessment, the taxpayer must go through one of the following procedures:

• an appeal to the NTS;
• an appeal to the Tax Tribunal; or
• an appeal to the Board of Audit and Inspection.

However, in the case of local taxes, a tax case can be filed directly without going through the above procedures.

To file a court appeal, the taxpayer must pay stamp duty and other court filing fees in order to commence legal action.

5.3 What are the procedural and substantive requirements for filing a tax dispute?

It is important to accurately identify the pertinent 'disposition' that is the subject of the lawsuit and subsequently furnish the disposition documents as evidentiary materials.

In the complaint, it is crucial to delineate with specificity the grounds concerning the alleged disposition and articulate why it is unlawful. Furthermore, if applicable, the taxpayer should provide additional grounds of misconduct or present additional evidentiary materials prior to closing arguments.

5.4 Is there any possibility for collective proceedings (eg, involving several taxpayers or multiple tax assessments)?

According to the Administrative Procedure Law, 'related claims proceedings' can be consolidated, meaning that tax cases with the same issues can be brought together through a motion for consolidation during the trial.

5.5 Must the sum in contention be paid into court before a tax dispute is filed?

Korea does not have a "pay as you go" system for tax assessment appeals. But if the assessment is not be paid before a tax appeal is filed, significant additional penalties for late payment will be incurred by the taxpayer if the case is lost. Consequently, it is customary to pay the tax due taxes and pursue the tax dispute procedure to avoid such potentially severe penalties.

Conversely, if the taxpayer appeals the assessment without paying the assessment, the NTS retains the authority to seize or place a tax lien on the taxpayer's property for the taxpayer's delinquency. However, it is prohibited from proceeding with a public auction of the seized property.

5.6 Has the filing of a tax dispute any effect on the payment of tax or the collection possibilities for the authorities?

Under the law, the taxpayer has a fundamental right to appeal tax assessments, even if the tax assessment is not paid after the issuance of the TAN. But it is more common for the taxpayer to pay assessment prior to filing of tax dispute. Please see above our response to Question 5.5.

5.7 If the tax dispute is decided in favour of the authorities, is late interest due if the tax has not been settled? If the tax dispute is decided in favour of the taxpayer and the tax had already been settled, is interest due by the state?

If the taxpayer fails to remit the tax and subsequently loses the lawsuit, additional late payment penalties (currently 8.03% per annum) of the overdue payment will be imposed. However, the period of non-payment – spanning from the day following the statutory due date until the actual payment date – is capped at a maximum of five years.

Conversely, if the taxpayer settles the tax prior to initiating a tax appeal and ultimately wins the case, the refund amount will include a refundable bank interest (currently 2.9% per annum), which is to be disbursed by the relevant tax office. Typically, such refunds are processed and issued within a two-week timeframe.

6 Disclosure and privilege

6.1 What rules apply to disclosure in your jurisdiction? Do any exceptions apply?

If the aggregate sum of national taxes outstanding exceeds KRW 200 million for more than one year after the date of delinquency, the personal information of the delinquent individual along with the delinquent amount may be disclosed. Nevertheless, certain exceptions delineated in Article 150(2) of the Presidential Decree of the National Tax Collection Act preclude such disclosure. These exceptions include scenarios where:

• a Tax Tribunal proceeding is ongoing concerning the delinquent national tax and over 50% of the delinquent tax has been settled within past two years;
• the taxpayer is suffering financial hardship;
• the case involves a minor; or
• the National Tax Information Committee deems that the disclosure of such information would yield no practical benefit.

6.2 What rules on third-party disclosure apply in your jurisdiction?

Tax officers are strictly prohibited from disclosing or utilising for other purposes any information submitted by taxpayers to meet their tax obligations under tax laws, or any data acquired during the discharged of their duties for the collection of national taxes, except in situations outlined in question 6.1. Consequently, the disclosure of information pertaining to third parties, aside from taxpayers themselves, is strictly prohibited.

6.3 What rules on privilege apply in your jurisdiction?

The list will remain undisclosed where any exceptions outlined in Article 105(2) of the Presidential Decree of the National Tax Collection Act apply. These exceptions include instances where:

• Tax Tribunal proceedings are underway regarding tax arrears and over 50% of the arrears have been settled within the past two years;
• the taxpayer is suffering financial hardship;
• the case concerns a minor; or
• the National Tax Information Committee concludes that disclosure of the information would yield no practical benefit.

Nonetheless, if a taxpayer (including an authorised representative such as a tax accountant) requests information which is essential for the taxpayer to assert its rights, the tax officer is obliged to promptly furnish the requested information.

7 Evidence

7.1 What types of evidence are permissible in tax disputes in your jurisdiction? Is expert evidence accepted?

In tax litigation, as in other types of litigation, the parties involved may:

• submit documents such as contracts and other pertinent records; and
• summon witnesses to provide testimony regarding the facts in question.

While expert opinions may be presented, the court will not consider them as evidence. Rather, they are regarded solely as supplementary references for the court's judgment.

7.2 What is the applicable standard of proof?

In a tax criminal case, the prosecutor bears the responsibility of demonstrating beyond reasonable doubt that the taxpayer is guilty. Conversely, in a tax administrative appeal case, the burden of proof rests with the National Tax Service (NTS) to substantiate the facts surrounding the taxable event, thereby justifying the assessment. However, tax administrative cases do not require the same strict standard of proof as in tax criminal cases.

7.3 On whom does the burden of proof rest?

In tax litigation, the NTS bears the burden of proof regarding the existence of taxable facts and the corresponding taxable value. However, if circumstances in a specific case imply the presence of a taxable event based on a presumption grounded on circumstantial or indirect evidence, the taxpayer must contest and demonstrate the absence of such an event. Nonetheless, the evidence presented by the taxpayer must be sufficient to raise a substantial doubt in the judge's mind regarding the fulfilment of the presumption. Should uncertainty persist regarding whether the presumption has been met and the judge remain unconvinced of the justification for the assessment, the burden of proof shifts to the NTS, potentially resulting in the cancellation of the assessment. Furthermore, if the judge misinterprets the burden of proof, leading to an erroneous judgment, such a ruling could serve as grounds for an appeal.

8 Proceedings

8.1 Are tax proceedings in your jurisdiction public or private? If the former, are any options available to the parties to keep the proceedings or related information confidential?

The preliminary tax assessment notice and appeals made to the National Tax Service (NTS) are maintained as confidential. During tax appeals and audits, the hearing process also remain undisclosed, but the resulting decision becomes public. However, the taxpayer's name is redacted from the published decisions.

8.2 How do the proceedings unfold in your jurisdiction?

Please see question 4.1.

8.3 What is the typical timeframe for proceedings?

At first instance, the typical duration from the moment the trial court (or Administrative Court) receives the complaints to the finalisation of the judgment is typically one to two years.

If an appeal to the high court is pursued following the first-instance decision, the process is typically extended by an additional one to 1.5 years for the second trial.

In the event of an appeal to the Supreme Court, the Supreme Court may dismiss an appeal that merely challenges the second trial's finding of fact without hearing it, as the Supreme Court focuses primarily on matters of legal interpretation. Such dismissals without prejudice must be made within four months of the date on which the record is filed with the Supreme Court. However, if this four-month period expires, the Supreme Court must proceed to render a decision after considering written argument. Typically, this process takes approximately three to five years.

8.4 Are settlements possible between the taxpayer and the tax authorities once judicial proceedings have been opened?

In Korea, tax cases do not undergo mediation or arbitration procedures. Nevertheless, to expedite case resolution, the court may propose a settlement in which the NTS agrees to cancel the assessment and the taxpayer agrees to withdraw the lawsuit. Should both parties accept the settlement, the case is effectively resolved.

8.5 Do the courts in your jurisdiction have full power to review facts and legal questions?

In cases involving admissions of fact, only the evidence requested by the parties can be examined and admissions of fact are solely based on such evidence. However, if the requested evidence fails to substantiate the facts or if additional evidence is deemed necessary, the court has the authority to independently examine such evidence.

Moreover, the interpretation or application of the law may be judged by the court on its own, regardless of the claims or defences presented by the parties. It is the court's responsibility to independently discern the applicable legal provisions concerning the facts established by the claims and evidence presented by the parties.

9 Remedies

9.1 What remedies are available in tax disputes in your jurisdiction?

Taxpayers have the right to appeal decisions rendered by the trial court (or Administrative Court) to the higher courts, including the high court and the Supreme Court. Furthermore, if the taxpayer thinks the basis for a tax assessment is unconstitutional, it retains the option to file a lawsuit with the Constitutional Court, either through a tribunal or by representing itself.

9.2 What factors will the court consider in deciding on the appropriate remedies?

N/A.

10 Appeals

10.1 Can the decision of the court be appealed? If so, on what grounds and what is the process?

A party that receive an adverse judgment, in whole or in part, from the trial court (or Administrative Court) may file an appeal to the high court within two weeks of the date of the judgment. It must also pay relevant stamp duty and court filing fees.

The reasons for initiating an appeal may include:

• the absence of reasons provided in the judgment;
• inconsistencies observed in the reasoning behind the judgment; and
• violations of constitutional rights or legal provisions that have influenced the judgment.

Should disagreement persist with the decision of the high court, it is imperative to file a notice of appeal with the high court within two weeks of the date on which the judgment is served. The person filing the appeal must submit a statement of reasons for the appeal within 20 days of receiving the notice of the high court's receipt of the record of the case.

Generally, the same process applies if the party appeals the high court's decision to the Supreme Court. However, there are generally no hearings on appeal to the Supreme Court (unlike at the high court).

11 Costs, fees and funding

11.1 What costs and fees are incurred in tax disputes in your jurisdiction? Can the winning party recover its costs?

When a taxpayer makes an administrative appeal (eg, to the Tax Tribunal, which is the most common administrative appeal) to request to cancel a tax assessment, no fees are incurred by the taxpayer. Consequently, there are no reimbursable costs if the taxpayer's claim is unsuccessful.

However, if the taxpayer's claim is dismissed and the taxpayer subsequently files a lawsuit in trial court, the taxpayer is responsible for covering expenses such as stamp duty, delivery fees and related costs.

Should the taxpayer prevail at the court level, there may be an opportunity to reclaim from the National Tax Service the expenses incurred, including stamp duty, delivery fees and any attorneys' fees awarded by the court.

11.2 Are contingency fees and similar arrangements permitted in your jurisdiction?

In tax administrative cases, parties have the liberty to engage in both time-based and contingency fee arrangements.

However, in tax criminal cases, contingency fee arrangements are prohibited where the payment of attorneys' fees is contingent on acquittal or probation.

11.3 Is third-party funding permitted in your jurisdiction?

Litigation funding is not expressly prohibited by law in South Korea. However, the Korean Bar Association holds a negative stance toward third-party funding of litigation, which extends to disciplinary measures against lawyers involved in such activities.

12 International tax disputes

12.1 What is your jurisdiction's position on the resolution of international tax disputes (eg, advance pricing agreements, mutual agreement procedures, arbitrations)?

Both domestic dispute procedures and the mutual agreement procedure (MAP) are available in cases:

• where double taxation arises due to additional taxation on the same income; or
• involving transfer pricing adjustment among multinational enterprises.

Moreover, taxpayers have the option to utilise unilateral, bilateral and multilateral advance pricing agreements to pre-emptively address or alleviate disputes stemming from transfer pricing matters among multinational enterprises.

12.2 Has your jurisdiction implemented the Organisation for Economic Co-operation and Development (OECD) minimum standards with respect to international tax dispute resolution or is it a party to other agreements in this respect?

In line with its membership in the Organization for Economic Co-operation and Development (OECD), South Korea has adopted the International Tax Coordination Law (ITCL) to establish matters related to tax administrative cooperation and procedures for the resolution of tax issues arising from international transactions, in compliance with internationally recognised and standardised norms. The ITCL specifically stipulates the MAP for the resolution of international tax disputes and matters related to tax administrative cooperation, encompassing aspects such as tax collection and the exchange of tax information between nations.

12.3 Does your jurisdiction's position differ significantly from Article 25 of the OECD Model Tax Convention (including commentary)? If so, in what respects?

The position is broadly similar to that in Article 25 of the OECD Model Tax Convention.

12.4 How do domestic and international tax dispute resolution mechanisms interplay in your jurisdiction?

Understanding the interaction between tax litigation and the MAP is crucial, as taxpayers have the option to pursue both simultaneously – and many do pursue both options.

Tax litigation must typically be initiated within 90 days from the receipt of the notice of assessment or decision on the assessment claim. However, if the MAP is initiated, this timeframe is not constrained solely to the period between the initiation and termination of the MAP.

If a court issues a final judgment during the MAP process, the MAP is automatically terminated. Nevertheless, if both the MAP and the appeal proceed concurrently and a written agreement is reached through the MAP before the judgment is finalised, the applicant must withdraw the court appeal. Subsequently, the Ministry of Economy and Finance or the National Tax Service (NTS) is obliged to implement the judgement of the MAP process, which is binding on the NTS.

13 Trends and predictions

13.1 How would you describe the current tax dispute landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

According to statistics published by the National Tax Service, individual taxpayers win about 20% of all tax cases, while the success rate of corporate taxpayers is around 30%.

Notably, taxpayers tend to have a higher success rate in international tax cases compared to general tax cases, with success rates exceeding 50% in transfer pricing cases.

In line with the implementation schedule of the OECD/G20 Inclusive Framework (IF), the South Korean government has undertaken the necessary harmonisation process, including the enactment of domestic laws in 2022. In the first half of 2022, a taskforce composed of experts in corporate income tax and international taxation was established to study the domestic codification of the IF. The findings of this study were incorporated into the 2022 Tax Law amendment bill.

Regarding specific timelines, discussions are ongoing for the implementation of Pillar 1 in 2025. Pillar 2 was integrated into the tax reform bill as of 31 December 2022, with certain provisions becoming effective for tax years beginning on or after 1 January 2024.

14 Tips and traps

14.1 What would be your recommendations to parties facing a tax dispute in your jurisdiction and what potential pitfalls would you highlight?

Since negotiations and settlements are not possible after a tax audit concludes, taxpayers are advised to make every possible effort to resolve potential tax issues before the tax audit is finalised and the final tax assessment notice (TAN) is issued, including consulting and negotiation with tax officials.

However, if the issue remains unresolved at the tax audit stage and a TAN is issued, the taxpayer may file an administrative appeal claim, typically with the Tax Tribunal. Should the arbiter dismiss the taxpayer's administrative appeal claim, the next course of action entails filing a lawsuit for the cancellation of the assessment with the trial court (or Administrative Court).

While the judges in the Tax Tribunal typically possess expertise in tax matters, the trial court judges rotate and do not exclusively specialise in tax.

Consequently, the role of lawyers is very important to ensure that the trial court judges comprehend the intricacies of tax law and to secure a favourable ruling for the taxpayer. Thus, it is imperative to engage a competent tax lawyer when addressing tax-related issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.