Risk of non-issuance of corrected import tax invoices

 

Under Article 4 and 30 of the VALUE-ADDED TAX ACT (부가가치세법), 10% VAT is levied on the importation of goods unless exempt from VAT pursuant to Article 27 of the ACT.

VALUE-ADDED TAX ACT   Article 27 (Importation of Tax-Free Goods) An importation of any of the following goods shall be exempt from value-added tax: 1. Unprocessed foodstuffs (including agricultural products, stock farm products, marine products, and forest products which are served for food) which are prescribed by Presidential Decree; 2. Books, newspapers, and magazines, which are prescribed by Presidential Decree; 3. Goods which are imported by academic research organizations, educational institutions, the Korea Educational Broadcasting System established under the Korea Educational Broadcasting System Act, or cultural organizations for scientific, educational, or cultural purposes and which are prescribed by Presidential Decree; 4. Goods which any foreign country donates to religious, charitable or relief organizations for the purposes of religious rites, charity, relief, or other public interest and which are prescribed by Presidential Decree; 5. Goods which any foreign country donates to the State, local governments, or local government associations; 6. Low-priced and duty-free goods that are received by residents; 7. Goods imported as a result of relocation, immigration, or inheritance, which are exempt from customs duties or to which the simplified tariff rates in Article 81 (1) of the Customs Act apply; 8. Personal effects, separately delivered baggage, and mailed parcels of travelers, which are exempt from customs duties or to which the simplified tariff rates in Article 81 (1) of the Customs Act apply; 9. Goods imported as samples or advertising materials, which are exempt from customs duties; 10. Goods which are imported, free of charge, for the purpose of display in any fairs, exhibitions, prize contests, film festivals, or other similar events held in the Republic of Korea and which are exempt from customs duties; 11. Goods which are exempt from customs duties in accordance with treaties, international laws and regulations, or international customs and which are prescribed by Presidential Decree; 12. Goods re-imported after exportation, as prescribed by Presidential Decree, from among those eligible for duty reductions or exemptions: Provided, That in cases of a duty reduction, the value-added tax exemption shall only be given in proportion to such reduction; 13. Goods imported temporarily under conditions of re-exportation, as prescribed by Presidential Decree, from among those eligible for duty reductions or exemptions: Provided, That in cases of a duty reduction, the value-added tax exemption shall only be given in proportion to such reduction; 14. Tobacco provided for in Article 26 (1) 10; 15. Duty-free or duty-reducible goods, other than those under subparagraphs 6 through 13, which are prescribed by Presidential Decree: Provided, That in cases of a duty reduction, the value-added tax exemption shall only be given in proportion to such reduction.

 

Since the tax base for VAT on the importation of goods is the sum of the taxable value for customs duties and the customs duties, individual consumption tax, liquor tax, education tax, special rural development tax, and traffic, energy and environment tax on such goods, importers usually pay more for VAT compared to customs duties.

 

For the VAT paid, an import tax invoice is issued to an entity declared as a taxpayer in the import declaration.  If the imported goods are used for business purposes, the issued import tax invoice can be utilized to deduct input tax amounts when filing a VAT return.

What if import declarations are corrected to collect deficient duties, resulting in more VAT payment? Can the import tax invoice be issued for the additional payment? The answer is ‘case-by-case’. This is because, under Article 35 of the VALUE-ADDED TAX ACT and its subordinate statutes, cases in which the issued import tax invoice can be corrected are specified.

There were times when such cases were not specified in Article 35, and corrected import tax invoices were issued regardless of the reasons for collection by customs authorities. Article 35 has undergone several changes, initially making the issuance of corrected import tax invoices more challenging, and more recently, somewhat less so.

 

VALUE-ADDED TAX ACT   [Enforcement Date: 01 Jul 2013] [Act No. 11873, 07 Jun 2013, Whole Amendment] Article 35 (Import Tax Invoices) (1) Where the head of a customs house collects a value-added tax on imported goods, he/she shall issue to the importer a tax invoice for the imported goods (hereinafter referred to as "import tax invoice"), as prescribed by Presidential Decree. (2) The head of a customs house shall issue to an importer a corrected import tax invoice, as prescribed by Presidential Decree, if any of the following is applicable. In such cases, the head of the competent customs house shall submit a list of the total tax invoices by customer, which is prepared and corrected by applying Article 54 mutatis mutandis, to the head of the tax office who has jurisdiction over the location of the customs house: 1. Where the head of the competent customs house collects or refunds value-added tax because it is mistakenly paid or overpaid as provided in Articles 38 and 46 of the Customs Act; 2. Where the head of the competent customs house refunds value-added tax because the imported goods for which the value-added tax is collected fall under goods, etc. not meeting the contract terms under Article 106 of the Customs Act.   [Enforcement Date: 26 Jul 2013] [Act No.11944, 26 Jul 2013, Partial Amendment] Article 35 (Import Tax Invoices) (1) Where the head of a customs house collects a value-added tax on any imported goods, he/she shall issue a tax invoice for the imported goods (hereinafter referred to as “import tax invoice”) to the importer, as prescribed by Presidential Decree. (2) The head of a customs house shall issue, to an importer, an import tax invoice corrected, as prescribed by Presidential Decree (hereinafter referred to as “corrected import tax invoice”), in any of the following circumstances: 1. Where the importer files a corrected declaration, etc., as prescribed by Presidential Decree, before the head of the customs house decides or rectifies the tax base or the amount of tax pursuant to the Customs Act; 2. Where the head of the customs house decides or rectifies the tax base or the amount of tax, or the importer files a corrected declaration pursuant to the Customs Act knowing in advance that the tax base or the amount of tax will be decided or rectified following customs investigations by customs officers or other actions prescribed by Presidential Decree, in any of the following circumstances: (a) Where the tariff classification is modified by the Customs Co-operation Council under the International Convention on the Harmonized Commodity Description and Coding System or by the Tariff Classification Committee under the Customs Act; (b) Where the original person liable to pay the tax and the actual taxpayer is not the same due to succession to the liability to pay taxes, etc. following a merger; (c) Other cases prescribed by Presidential Decree, such as where an error in the entry is found to be caused by a simple mistake on the part of the importer or the importer proves that such error is not attributable to himself/herself. (3) The head of the customs house who issues corrected import tax invoices under paragraph (2) shall submit a list of total tax invoices by customer, which is prepared and corrected by applying Article 54mutatis mutandis, to the head of the tax office who has jurisdiction over the location of the customs house. (4) Matters necessary for the preparation and issuance of import tax invoices or corrected import tax invoices and other relevant matters shall be prescribed by Presidential Decree.   [Enforcement Date: 15 Dec 2015] [Act No.13556, 15 Dec 2015, Partial Amendment] Article 35 (Import Tax Invoices) (1) Where the head of a customs house collects a value-added tax (including deferring the payment of a value-added tax under Article 50-2) on any imported goods, he/she shall issue a tax invoice for the imported goods (hereinafter referred to as “import tax invoice”) to the importer, as prescribed by Presidential Decree.  <Amended by Act No. 13556, Dec. 15, 2015> (2) The head of a customs house shall issue, to an importer, an import tax invoice corrected, as prescribed by Presidential Decree (hereinafter referred to as “corrected import tax invoice”), in any of the following circumstances: 1. Where the importer files a corrected declaration, etc., as prescribed by Presidential Decree, before the head of the customs house decides or rectifies the tax base or the amount of tax pursuant to the Customs Act; 2. Where the head of the customs house decides or rectifies the tax base or the amount of tax, or the importer files a corrected declaration pursuant to the Customs Act knowing in advance that the tax base or the amount of tax will be decided or rectified following customs investigations by a customs official or other acts prescribed by Presidential Decree, in any of the following circumstances: (a) Where the tariff classification is modified by the Customs Co-operation Council under the International Convention on the Harmonized Commodity Description and Coding System or by the Tariff Classification Committee under the Customs Act; (b) Where the person originally liable to pay the tax and the actual taxpayer is not the same due to succession to the liability to pay taxes, etc. following a merger; (c) Other cases prescribed by Presidential Decree, such as where an error in the entry is found to be caused by a simple mistake on the part of the importer or the importer proves that such error is not attributable to himself/herself. (3) The head of the customs house who issues corrected import tax invoices under paragraph (2), shall submit a list of total tax invoices by customer, which is prepared and corrected by applying mutatis mutandis Article 54, to the head of the tax office who has jurisdiction over the location of the customs house. (4) The preparation and issuance of import tax invoices or corrected import tax invoices and other relevant matters shall be prescribed by Presidential Decree.   [Enforcement Date: 01 Jan 2018] [Act No.15223, 19 Dec 2017, Partial Amendment] Article 35 (Import Tax Invoices) (1) Where the head of a customs house collects a value-added tax (including deferring the payment of a value-added tax under Article 50-2) on any imported goods, he/she shall issue a tax invoice for the imported goods (hereinafter referred to as “import tax invoice”) to the importer, as prescribed by Presidential Decree.  <Amended by Act No. 13556, Dec. 15, 2015> (2) The head of a customs house shall issue, to an importer, an import tax invoice corrected, as prescribed by Presidential Decree (hereinafter referred to as “corrected import tax invoice”), in any of the following circumstances:  <Amended by Act No. 15223, Dec. 19, 2017> 1. Where the importer files a corrected declaration, etc., as prescribed by Presidential Decree, before the head of the customs house determines or rectifies the tax base or the amount of tax pursuant to the Customs Act; 2. Where the head of the customs house determines or rectifies the tax base or the amount of tax, or the importer files a corrected declaration pursuant to the Customs Act knowing in advance that the tax base or the amount of tax will be determined or rectified following customs investigations by a customs official or other acts prescribed by Presidential Decree, in any of the following circumstances: (a) Where the tariff classification is modified by the Customs Co-operation Council under the International Convention on the Harmonized Commodity Description and Coding System or by the Tariff Classification Committee under the Customs Act; (b) Where the person originally liable to pay the tax and the actual taxpayer is not the same due to succession to the liability to pay taxes, etc. following a merger; (c) Other cases prescribed by Presidential Decree, such as where an error in the entry is found to be caused by a mistake or slight negligence on the part of the importer or the importer proves that such error is not attributable to himself/herself. (3) If the head of a customs house fails to issue a corrected import tax invoice notwithstanding paragraph (2), the importer may file an application with the head of the customs house for issuance of the corrected import tax invoice within the period prescribed in Article 26-2 (1) 3 or (2) 1 of the Framework Act on National Taxes, as prescribed by Presidential Decree.  <Newly Inserted by Act No. 15223, Dec. 19, 2017> (4) The head of the customs house who issues corrected import tax invoices under paragraph (2), shall submit a list of total tax invoices by customer, which is prepared and corrected by applying mutatis mutandis Article 54, to the head of the tax office who has jurisdiction over the location of the customs house.  <Amended by Act No. 15223, Dec. 19, 2017> (5) The preparation and issuance of import tax invoices or corrected import tax invoices and other relevant matters shall be prescribed by Presidential Decree.  <Amended by Act No. 15223, Dec. 19, 2017>   [Enforcement Date: 01 Jan 2020] [Act No.16845, 31 Dec 2019, Partial Amendment] Article 35 (Import Tax Invoices) (1) Where the head of a customs office collects a value-added tax (including deferring the payment of a value-added tax under Article 50-2) on any imported goods, he or she shall issue a tax invoice for the imported goods (hereinafter referred to as “import tax invoice”) to the importer, as prescribed by Presidential Decree.  <Amended by Act No. 13556, Dec. 15, 2015> (2) The head of a customs office shall issue, to an importer, an import tax invoice corrected, as prescribed by Presidential Decree (hereinafter referred to as “corrected import tax invoice”), in any of the following circumstances:  <Amended by Act No. 15223, Dec. 19, 2017> 1. Where the importer files a corrected declaration, etc., as prescribed by Presidential Decree, before the head of the customs office determines or rectifies the tax base or the amount of tax pursuant to the Customs Act; 2. Where the head of the customs office determines or rectifies the tax base or the amount of tax, or the importer files a corrected declaration pursuant to the Customs Act knowing in advance that the tax base or the amount of tax will be determined or rectified following customs investigations by a customs official or other acts prescribed by Presidential Decree, in any of the following circumstances: (a) Where the tariff classification is modified by the Customs Co-operation Council under the International Convention on the Harmonized Commodity Description and Coding System or by the Tariff Classification Committee under the Customs Act; (b) Where the person originally liable to pay the tax and the actual taxpayer are not the same due to succession to the liability to pay taxes, etc. following a merger; (c) Other cases prescribed by Presidential Decree, such as where an error in the entry is found to be caused by a mistake or slight negligence on the part of the importer, or where the importer proves that such error is not attributable to himself or herself. (3) If the head of a customs office fails to issue a corrected import tax invoice notwithstanding paragraph (2), the importer may file an application with the head of the customs office for issuance of the corrected import tax invoice within the period prescribed in Article 26-2 (1) or (6) 1 of the Framework Act on National Taxes, as prescribed by Presidential Decree.  <Newly Inserted by Act No. 15223, Dec. 19, 2017; Act No. 16845, Dec. 31, 2019> (4) The head of the customs office who issues corrected import tax invoices under paragraph (2) shall submit a sum table of tax invoices by customer, which is prepared and corrected by applying mutatis mutandis Article 54, to the head of the tax office who has jurisdiction over the location of the customs office.  <Amended by Act No. 15223, Dec. 19, 2017> (5) The preparation and issuance of import tax invoices or corrected import tax invoices and other relevant matters shall be prescribed by Presidential Decree.  <Amended by Act No. 15223, Dec. 19, 2017>   [Enforcement Date: 01 Jul 2023] [Act No.19194, 31 Dec 2022, Partial Amendment] Article 35 (Import Tax Invoices) (1) Where the head of a customs office collects a value-added tax (including deferring the payment of a value-added tax under Article 50-2) on any imported goods, he or she shall issue a tax invoice for the imported goods (hereinafter referred to as “import tax invoice”) to the importer, as prescribed by Presidential Decree.  <Amended by Act No. 13556, Dec. 15, 2015> (2) The head of a customs office shall issue, to an importer, an import tax invoice corrected, as prescribed by Presidential Decree (hereinafter referred to as “corrected import tax invoice”), in any of the following circumstances:  <Amended by Act No. 15223, Dec. 19, 2017; Act No. 19194, Dec. 31, 2022> 1. Where the importer files a corrected declaration, etc., as prescribed by Presidential Decree, before the head of the customs office determines or rectifies the tax base or the amount of tax pursuant to the Customs Act (excluding cases where a corrected declaration is filed pursuant to subparagraph 3); 2. Where the head of the customs office determines or rectifies the tax base or the amount of tax pursuant to the Customs Act (limited to cases where the importer does not fall under any of the following subparagraphs in relation to the importation of relevant goods): (a) Cases of being accused of violating Article 270 (including cases of attempted crimes under Article 271 (2)), Article 270-2, or Article 276 of the Customs Act, or being subject to a notification disposition under Article 311 of the same Act; (b) Cases of under-reporting the tax base or tax amount of customs duties by an improper act under Article 42 (2) of the Customs Act or unjust means under Article 36 (1) 1 proviso of the Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements; (c) Cases where the importer makes a serious mistake, as prescribed by the Presidential Decree, while reporting the tax base or tax amount, such as repeating an error already notified through a customs investigation, etc., in the next declaration. 3. Where the importer knows in advance that the tax base or tax amount will be decided or rectified due to an act prescribed by the Presidential Decree, such as a customs investigation by customs officials, and files a corrected declaration in accordance with the Customs Act before such decision or rectification. (3) If, after issuing a corrected import tax invoice pursuant to the decision, rectification, or corrected declaration under paragraph (2) 2 or 3, the head of the customs office becomes aware that the importer falls under any of the subparagraphs of paragraph (2) 2 , the head of the customs office shall issue a corrected import tax invoice to restore the initially issued corrected import tax invoice to its state before the correction. <Newly inserted by Act No. 19194, Dec. 31, 2022> (4) If the importer has received a non-indictment of not guilty or a confirmed judgment of not guilty after a corrected import tax invoice was not issued pursuant to paragraph (2) 2 or 3 due to falling under paragraph (2) 2 (a), or after a corrected import tax invoice was re-issued pursuant to paragraph (3), the head of the customs office shall issue a corrected import tax invoice to correspond to the original decision or rectification, or the corrected declaration filed by the importer. <Newly inserted by Act No. 19194, Dec. 31, 2022> (5) If the head of a customs office fails to issue a corrected import tax invoice notwithstanding paragraph (2) or (4), the importer may file an application with the head of the customs office for issuance of the corrected import tax invoice within the period prescribed in Article 26-2 (1) or (6) 1 of the Framework Act on National Taxes, as prescribed by Presidential Decree.  <Newly Inserted by Act No. 15223, Dec. 19, 2017; Act No. 16845, Dec. 31, 2019; Act No. 19194, Dec. 31, 2022> (6) The head of the customs office who issues corrected import tax invoices under paragraph (2) shall submit a sum table of tax invoices by customer, which is prepared and corrected by applying mutatis mutandis Article 54, to the head of the tax office who has jurisdiction over the location of the customs office.  <Amended by Act No. 15223, Dec. 19, 2017; Dec. 31, 2022> (7) In addition to the matters stipulated in paragraphs (1) through (6), the preparation and issuance of import tax invoices or corrected import tax invoices and other relevant matters shall be prescribed by Presidential Decree. <Amended by Act No. 15223, Dec. 19, 2017; Dec. 31, 2022>

 

With the amendments made in 2022, the principle of issuing corrected import tax invoices has changed from a positive list to a negative list.

Since Act No.19194 applies to the import declarations filed since July 1, 2023, according to Article 17 of the CUSTOMS ACT, there are few cases illustrating how such amendments affect importers.

CUSTOMS ACT   Article 17 (Applicable Statutes or Regulations) Customs duties shall be assessed in accordance with the statutes or regulations in force at the time an import declaration is filed: Provided, That customs duties on any of the following imported goods shall be assessed in accordance with the statutes or regulations in force on the date falling under each of the following subparagraphs: 1. Goods falling under any subparagraph of Article 16: The date on which the fact accrues; 2. Foreign goods shipped into a bonded construction work site in accordance with Article 192: The date on which an import declaration is accepted before such foreign goods are used.

 

In the recent tax appeal case (Case No. 조심 2023관0048) where the import declarations in question were filed between 16 Nov 2017 and 30 Oct 2019, the request for issuing corrected import tax invoices was not accepted based on the argument that failing to declare post-payment amount does not fall under the cases of slight negligence. If this case had been reviewed by applying Act No.19194, the tax judge’s decision might have been different.

Nevertheless, we cannot be certain about the issuance of corrected import tax invoices.  ‘Cases where the importer makes a serious mistake’ are still defined as instances where corrected import tax invoices shall not be issued, and the interpretation of ‘serious’ can vary significantly between importers and customs authorities.