Customs authority bears the burden of proof.

 

On October 12, 2023, the Seoul Newspaper uploaded an interesting article regarding customs litigations after Congressman Taeho Jung raised an issue about customs investigation involving multinational companies based on the materials submitted by the Korea Customs Service, covering January 2019 to August 2023.  (Original news link: https://www.seoul.co.kr/news/newsView.php?id=20231012002005)

Main points of the article are that:

·      Korean entities of multinational companies are reluctant to submit data and materials requested by customs auditors. They claim that the requested information is irrelevant to Korea Customs or that it is stored on overseas servers, which causes delays and difficulties in customs investigations.

-      Delays and rejections in submission of customs investigation data (Domestic companies vs Multinational companies): 23 vs 51 for January to August 2023

·      Since customs authority bears the burden to prove that the collection of customs duties has been legitimate, there are many cases where customs authority has lost the litigations due to a lack of evidence.

-      Number of litigations (Domestic companies vs Multinational companies): 311 vs 77

-      Number of lost litigations (Domestic companies vs Multinational companies): 70 vs 36

·      Comparing the litigations filed by multinational companies with those filed by domestic companies, the customs authority’s loss rate is much higher in the former litigations.

-      Loss rate (Domestic companies vs Multinational companies): 22.5% vs 46.8%

-      Loss rate (Domestic companies vs Multinational companies) for January to August 2023: 9.4% vs 75.0%

·      Refunded taxes after losing the litigations filed by multinational companies amounted to 213 billion won (83.7% of the total amount refunded by the customs authority). Countermeasures are necessary to tackle this non-submission of requested data and materials.

 

On January 29, 1991, the Supreme Court ruled that, even if the burden of proving necessary expenses, which are required for taxation, lies with the tax office in a tax lawsuit, if the plaintiff confesses this, the tax office is exempt from the need to prove the necessary expenses (Case No.: 90누5054). On the other hand, on December 7, 1993, the Supreme Court ruled that, in order to use the transaction price adjusted by adding the paid technology usage fees, etc. to the actual price paid for the imported goods as the taxable value, it is not enough that they are related to the imported goods, and it must be acknowledged that they were paid as a condition of transaction for the goods in question, and the burden of proof lies with the tax office (Case No.: 93누500).

 

The Supreme Court cases show that, if you anticipate that you won't be able to reach a mutually acceptable customs valuation conclusion with customs auditors, and you are prepared to endure years of litigation and challenging times, submitting fewer data and materials can lead to more favorable litigation outcomes.

 

However, it should be noted that avoiding and ignoring customs auditors will not be easy, and they will eventually find a rationale to collect taxes. In such cases, you will need to convince the judges that the customs authority’s argument lacks legitimate evidence, on a case-by-case basis.