Tax Audit Procedure

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1. 1Advance notice of tax audit
2. 2Preparing for the audit and retaining a tax agent
3. 3Start of audit and checking the scope
4. 4Examination of books and documents, and questioning
5. 5Notice of audit results
6. 6Request for pre-assessment review
7. 7Assessment and payment
8. 8Objection, request for review, request for adjudication
9. 9Administrative lawsuit

• Basic step
• Additional action / option
• Rejection / objection
• End of procedure

Time required

The audit period is set to the minimum for each case (within 20 days if annual revenue is under KRW 10 billion; extendable if there is a reason); the result notice comes within 20 days after the audit ends; if you go on to an objection, the decision period for each stage (objection 30 days, review/adjudication 90 days) and the litigation period are added

Cost

The Framework Act on National Taxes has no provision for fees for a tax audit or for an objection, request for review or request for adjudication; tax agent and attorney fees are separate; stamp fees for an administrative lawsuit are separate

Procedure guide

Read from start to finish in order. Red text marks deadlines set by law.

1. 1

   The tax office or regional tax office sends an advance notice stating the tax items (types of tax), taxable periods and reason for the audit by 20 days before the audit starts (Framework Act on National Taxes §81-7(1)). The scope stated in this notice is the basis of the audit, so check it carefully. If there is a ground set by law, such as damage from a natural disaster, a significant business loss or risk of default, a calamity such as fire, illness or a long business trip, or seizure of the books, apply for a postponement before the audit starts (§81-7(2), Enforcement Decree §63-7). If advance notice would defeat the purpose of the audit, for example through destruction of evidence, or if it is a tax crime investigation, the audit may start without notice.

2. 2

   Organize the books, supporting evidence, contracts and account records for the notified tax items and taxable periods, and check in advance any transactions that may become an issue. You may retain a tax agent, such as a tax accountant or attorney, to take part in the audit (§81-5). If you file an amended return before you learn the audit has begun, the penalty tax for underreporting can be reduced by 90% to 10% depending on how much time has passed since the filing deadline (§48(2)1). An amended return filed after learning that the audit has begun is not eligible for the reduction (Enforcement Decree §29), so consider this at the preparation stage.

3. 3

   The audit official hands you an audit ID card (identification) and the Taxpayer Rights Charter (§81-2) and starts the audit. The audit period must be set to the minimum considering the subject and size of the audit, and is within 20 days if annual revenue is under KRW 10 billion (§81-8(1)(2)); it is extended only when there is a reason such as delayed submission of materials or a need to examine business partners. To expand the audit beyond the notified scope, there must be a ground set by law, and the company must be notified (§81-9). If the audit expands without a written notice of expansion, request that the reason and scope be given in writing.

4. 4

   The audit takes place at the company's main office or place of business, or at the tax office (National Tax Service Regulations on Audit Affairs §33). The tax office cannot take and keep books at its own discretion; it can take only books the company has submitted voluntarily, and only for temporary custody with consent, in which case the auditor must give a temporary custody receipt (§81-10). You do not have to consent. If evidence of intentional tax evasion emerges during the audit, it turns into a tax crime investigation, which can lead to a notice of disposition or an accusation. So avoid hiding books or submitting false evidence.

5. 5

   When the audit ends, an audit result notice stating the audit findings and the expected tax to be assessed reaches the company within 20 days after the audit ends (§81-12). The date you receive this notice starts the period for requesting a pre-assessment review, so record the date of receipt. Review the grounds stated in the notice right away to see whether anything should be disputed.

6. 6

   If there is something to dispute in the result notice, file a request for a pre-assessment review (a request to review the legality of the tax before it is assessed) within 30 days of receiving the notice (§81-15). This is the stage at which you can correct things before the tax is assessed. The authority receiving the request decides within 30 days whether to accept it (accept or reject) after deliberation by the National Tax Review Committee.

7. 7

   If the request is not accepted or you do not file one, a payment notice arrives, and you pay the tax by the payment deadline stated in it (set within 30 days of the payment notice date, National Tax Collection Act §6(1)). The obligation to pay remains even during an objection, so consider an extension of the payment deadline or payment in installments (National Tax Collection Act §13). When granting an extension, the tax office may require tax collateral (National Tax Collection Act §15). If you leave it, penalty tax is added and it can lead to seizure.

   Current step
8. 8

   If you cannot accept the assessed tax, file an objection (§66), a request for review (§61) or a request for adjudication (§68) within 90 days of receiving the assessment notice. If you cannot accept that decision either, file a revocation lawsuit with the Administrative Court within 90 days of receiving the decision notice (§56(3)). You cannot sue without first going through a request for review or adjudication (§56(2)), so you must meet the deadlines of the earlier stages first. You can appeal a 1st-instance judgment within 2 weeks.

Frequently asked questions

Practical questions that come up right away in this procedure.

QCan I postpone the audit date?

Yes, you can. You can apply for a postponement if there is a natural disaster or a calamity such as a fire, or if the business has suffered a major loss or is at risk of default or bankruptcy.Illness or a long business trip of the representative (taxpayer) or the tax administrator, or seizure of the books, are also grounds. Before the audit starts, submit a postponement application to the competent tax office stating the period and reason.You will be told whether it is approved before the audit starts. The reason must be one set by law, so attach materials proving it (a medical certificate, a travel schedule, etc.).

QDo I have to hire a tax accountant or an attorney?

It is not mandatory. A taxpayer may have an attorney, certified public accountant or certified tax accountant take part in the audit or state opinions. If you have a bookkeeping tax accountant who usually handles your books, they know the company's situation well.So first discuss whether they will take part. If the audit may turn into a tax crime investigation (조세범칙조사) or the amount is large, also retain an attorney.

QWhere is the audit held, and for how many days?

It takes place at the company's main office or place of business, or at the tax office. If the company applies and it is approved, it can also be held at another suitable place.The period must be set to the minimum, considering the subject and size of the audit. If annual revenue (or transfer price) is under KRW 10 billion, it is within 20 days.An extension is also limited to 20 days at a time (with exceptions such as audits of transactions without documents or disguised transactions). When the audit period is extended, the reason and period must be notified in writing.So if it drags on without notice, you can ask why.

QThe auditor wants to take our books and computer files. Do we have to hand them over?

You do not have to agree. The tax office may take away and keep books and documents (temporary custody) only if the taxpayer consents. If you consent, the auditor must give you a temporary custody receipt.If you ask for them back, they must be returned within 14 days. If truly necessary for the audit, this can be extended once by up to 14 days after deliberation by the Taxpayer Protection Committee.If you consent, check the list page by page and keep copies or file copies before you sign. That way you can confirm what was taken and keep your business running.

QThe audit resulted in a large tax bill. Can I dispute it before the assessment notice arrives?

Yes, you can. If you file a request for a pre-assessment review (과세전적부심사) within 30 days of receiving the audit result notice, the legality of the tax is reviewed again before it is assessed. If accepted, the assessed tax is reduced or canceled.On the other hand, if you agree with the result, you can apply for an early decision to receive the assessment right away and reduce the accumulating penalty tax. This is because the penalty tax can keep growing while you wait for the assessment notice.

QI received an assessment notice but have no money to pay. If I file an objection, do I not have to pay?

No. Filing an objection or a request for adjudication does not stop the obligation to pay.If you miss the payment deadline, a late-payment penalty tax is added, followed by a demand notice and seizure. So it is best to apply to the tax office for an extension of the payment deadline or payment in installments before the deadline.When granting an extension, the tax office may require tax collateral (security provided in place of the tax). The objection procedure is pursued separately within 90 days of receiving the assessment notice.