SOUTH KOREA Law and Practice Contributed by: Je-Heum Baik, Chang Hee Lee, Maria Chang and Min Kim, Shin & Kim
irregular and often unannounced, and are triggered by concrete indications of tax evasion, the existence of slush funds, or intentionally abusive reporting prac - tices. High-profile or technically complex cases are frequently assigned to specialised investigation units, including the Seoul Regional Tax Office’s Investigation Bureau 4, which is widely regarded as the NTS’s most aggressive enforcement arm. While many audits are conducted as desk reviews based on submitted documentation, the NTS makes frequent use of field audits where closer scrutiny is warranted. During a field audit, tax officials visit the taxpayer’s business premises to examine original records, interview employees and directly observe business operations. Where there is a substantial risk that evidence may be concealed, destroyed or altered, the NTS is authorised to dispense with the standard advance notice requirement and initiate the audit through an unannounced on-site visit or “dawn raid”. When a matter escalates from an administrative audit to a formal tax offence investigation, the NTS’s pow - ers expand significantly. Pursuant to the PTOA, tax authorities may conduct searches and seizures of a suspect’s residence or business premises based on a judicial warrant. In exigent circumstances – such as when an offence is ongoing or evidence faces an imminent risk of destruction – the NTS may conduct a warrantless search, provided that judicial approval is obtained within 48 hours thereafter. During such investigations, authorities may seize computers, servers, hard drives, accounting records and physi - cal safes, and may deploy technical and decryption specialists to access encrypted or otherwise secured digital evidence.
Minimum Tax, and reporting requirements for foreign- related parties. Failure to comply with these man - dates, such as the submission of mandatory Local or Master Files, can result in substantial fines of up to KRW100 million, while Pillar Two (QDMTT) violations allow the NTS to directly determine tax liabilities and impose additional surcharges for non-filing or evasion. Beyond tax concerns, the movement of capital and goods falls under the jurisdiction of the Korea Cus - toms Service and the Financial Supervisory Service. The Foreign Exchange Transactions Act regulates the flow of money across borders; while simple procedur - al failures in reporting capital transactions may lead to administrative fines, serious criminal violations – such as unregistered money transfers – can result in up to three years of imprisonment or fines reaching KRW300 million. Furthermore, the Customs Act gov - erns the physical movement of goods and their valu - ation, imposing the strictest sanctions for smuggling or false export declarations, which can lead to up to five years of imprisonment or fines equivalent to the total value of the goods involved. 6.2 Criminal Penalties In Korea, criminal penalties for tax fraud and evasion are primarily governed by the PTOA, with significantly harsher sanctions applied to large-scale evasion under the AAPSC. As of 2026, these penalties are strictly structured based on the amount of tax evaded and the presence of fraudulent intent. Under the general provisions of the PTOA, individuals or corporations found to have evaded taxes through “fraud or other improper means” – such as secret accounting books, destruction of records, or the fabrication of invoices – face up to three years of imprisonment or a fine of up to triple the evaded amount. The use of a tax invoice without supplying goods or services may be punish - able by imprisonment for up to three years or a fine equivalent to up to three times the amount of VAT. For more severe cases, the AAPSC removes the option of a simple fine and mandates prison time. When the evaded amount is between KRW500 mil - lion and KRW1 billion, the law requires a fixed prison term of at least three years, alongside a fine of two to five times the evaded amount. If the evasion exceeds KRW1 billion, the penalty escalates to five years to
6. Penalties and Sanctions 6.1 Tax Penalties
Cross-border transactions are governed by a multi- layered legal framework that necessitates a clear distinction between tax-related penalties and trans - actional or regulatory sanctions. In relation to cross- border tax issues, compliance is primarily overseen by the NTS under the LCITA. This Act governs critical areas such as transfer pricing, the Pillar Two Global
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