No Way to Evade Customs Duties by Borrowing a Name

 

As I explained in the article ‘Basic principle of tax administration – ACTUAL TAXATION’, declaring the person who actually owns the imported goods at the time of filing an import declaration as a taxpayer is important in customs administration. Both the person who permits any third person to file a declaration for duty payment using their name and the person who files a declaration for duty payment using a third person’s name are treated as criminals pursuant to Article 275-3 of the CUSTOMS ACT (관세법).

CUSTOMS ACT   Article 275-3 (Offense of Lending Titles) A person who conducts any of the following acts for the purpose of evading customs duties (including internal taxes, etc. collected by the head of a customs office) or disposition on default of taxes or acquiring proprietary interests shall be punished by imprisonment with labor for not more than one year, or by a fine not exceeding 10 million won:  1. A person who permits any third person to file a declaration for duty payment under Article 38 using the person’s name; 2. A person who files a declaration for duty payment under Article 38 using a third person’s name. [This Article Wholly Amended on Dec. 31, 2022]

 

In addition to the penalty provision, Article 21 (3) of the CUSTOMS ACT was newly inserted on Dec. 31, 2023, making it possible to levy uncollected customs duties on the person who is the actual owner of the imported goods, even after the general limitation period for assessing customs duties.

CUSTOMS ACT   Article 21 (Limitation Period for Assessing Customs Duties) (1) No customs duty may be assessed after the lapse of five years from the date on which the relevant customs duties were due to be assessed: Provided, That no customs duties shall be assessed after 10 years elapse from the date the relevant customs duties are due to be assessed where a trader evades customs duties or claims a refund, reduction, or exemption of customs duties by improper means:  <Amended on Dec. 31, 2011; Aug. 13, 2013> 1. Deleted;  <Aug. 13, 2013> 2. Deleted.  <Aug. 13, 2013> (2) In any of the following subparagraphs, notwithstanding paragraph (1), a rectification or other necessary dispositions may be made in accordance with the relevant decision, ruling, result of reply, or application for rectification, until the relevant periods prescribed in the following paragraphs:  <Amended on Dec. 22, 2020> 1. In any of the following cases: One year from the date on which the relevant decision or ruling is final and conclusive: (a) Where a decision is made with regard to an application for objection, examination, or adjudication filed under Section 2 of Chapter V (Articles 119 through 132); (b) Where a decision is made with regard to a request for examination filed under the Board of Audit and Inspection Act; (c) Where a ruling is made with regard to litigation instituted under the Administrative Litigation Act; (d) Where a decision is made to return seized goods pursuant to Article 313; 2. Where a request has been made to a customs office of a country that issued a certificate of origin or other agency that has authority to issue a certificate of origin, to verify the authenticity, accuracy, etc. of a certificate of origin and supporting documents for the certificate of origin in order to determine whether the bound tariff rate is applicable, the amount of tariff, etc., as prescribed by this Act, the Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements, agreements, treaties, etc.: One year from any of the following date which arrives first: (a) On the date a reply to such request is received; (b) On the date a reply period prescribed by this Act, the Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements, agreements, treaties, etc. expires; 3. In any of the following cases: Two months from the date of requesting a correction or the date of notifying a decision: (a) Where an application for rectification is filed pursuant to Article 38-3 (2) and (3) or Article 38-4 (1); (b) Where notice of a decision on application for adjustment pursuant to Article 38-4 (4) is given. (3) Notwithstanding paragraph (1), if the fact of title lending is confirmed pursuant to the decision or judgment under subparagraphs 1 (a) through (c) of paragraph (2), the original imposition may be canceled, and rectification or other necessary measures may be taken against the person who actually managed the business within one year from the date on which the decision or judgment becomes final. <Newly inserted on Dec. 31, 2023> (4) The date customs duties may be assessed pursuant to paragraph (1) shall be determined by Presidential Decree.  <Amended on Dec. 31, 2023>

 

Since a foreign entity is not allowed to be declared as the Importer Of Record (IOR) and Taxpayer, determining the IOR and Taxpayer for non-commercial goods imported with the delivery term DDP can be tricky. Currently, it is common practice to declare the person who will receive and use the imported non-commercial goods as the IOR and Taxpayer.

 

In other cases, it is highly recommended to file a formal inquiry with the customs authorities, providing detailed information about the specific transactions. A Supreme Court Ruling (No. 2002두8442) states that the term ‘owner who imported the goods’, liable to pay customs duties, refers to the actual owner who imported the goods. Whether they are the actual owner who imported the goods shall be determined by comprehensively considering specific circumstances such as involvement in the import process (including negotiation with the exporter, opening of a letter of credit, payment of the price, etc.), methods of domestic disposal and sale of imported goods, and the relationship of ownership with the profits resulting from the import.

 

Due to the Supreme Court Ruling, customs authorities find it challenging to generalize who can be the IOR and Taxpayer for non-commercial goods imported with the delivery term DDP. Therefore, it is advisable to obtain a written response from the authorities regarding a specific transaction before declaring an entity that is not the ultimate consignee and user of the non-commercial DDP goods as the IOR and Taxpayer.