BKL Obtains Supreme Court Decision on Duplicate Customs Audits
BKL acted as legal counsel to a foreign tobacco manufacturer/importer appealing a customs duty imposition on the customs value of cutfillers by the customs authorities. This case was significant in that the customs authorities had conducted an audit on the customs value of cutfillers and subsequently conducted another audit within 16 months of the first audit. BKL represented the taxpayer in seeking a cancellation of the imposition based on the position that a customs imposition made based on a duplicate audit was in violation of the law.
In the decision, the Supreme Court holds that customs officials may not re-investigate taxpayers who have already been subjected to an audit on a specific matter, except in exceptional cases. Furthermore, it is unlawful to render an imposition based on such re-investigation unless there are special circumstances, such as the mere correction of an error. The Supreme Court goes on to state that this would not be any different even if the customs authorities were to arrive at the same imposition without the use of taxpayer information gathered from the re-examination. Although the question of whether the acts of the customs authorities amount to an “investigation” under the customs law depend on the facts and circumstances, the Supreme Court indicates that where the customs authorities contact the taxpayers and exercise their right to examine for a considerable period of time to investigate and confirm the history, and to conduct a series of acts of inspecting and collecting data necessary for taxation over a certain period of time, such acts come within the scope of “investigation” for which a re-investigation is prohibited. Based on this position, the Supreme Court held that a subsequent investigation of the customs value of imported goods following an initial review by the customs authorities fall within the purview of re-investigation prohibited under Article 111 of the Korea Customs Duty Act (KCDA).
The Supreme Court reversed the decision of the high court and rendered a decision in favor of the taxpayer based on the following: (i) the customs authorities initiated a subsequent investigation of the taxpayer at least 16 months after the initial investigation and requested information and documents; (ii) the document request contained detailed questions on trade secrets of the taxpayer and its affiliates; (iii) the taxpayer was required to exert extensive effort in preparing the documents requested; (iv) the customs authorities visited the business place and factory of the taxpayer on two occasions and followed up with numerous requests for information and documents; (v) although the initial investigation applied the fallback method whereas the subsequent investigation applied the transaction value method, both investigations were relevant to the determination of customs value on the same product; and (vi) a phrase contained in the results notice of the initial investigation stating that “there may be additional document requests” is insufficient to allow a subsequent investigation which should, in principle, be prohibited.
This case is important given that despite numerous precedents dealing with duplicate audits involving national tax issues, there were no similar decisions rendered by the Supreme Court dealing with duplicate audits in the context of customs audits. Going forward, this decision will serve as a meaningful guideline with respect to duplicate audit issues presented in reference to the KCDA.