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Amended Return and Claim for Rectification

28 Feb 2018

Overview

The process of filing tax base and tax liability thereof to a relevant tax office often involves errors such as mistakes or omissions due to the highly diversified transactions and the complexity of tax law. In this regard, Korean taxpayers are allowed to correct such errors by virtue of filing an amended return or a claim for rectification pursuant to the Basic Law for National Taxes.

 

Main Contents

(1) Amended Return (returns with increased tax liability)

Those taxpayers who timely filed their tax returns by the statutory deadline, which is within three months from their fiscal year-end, are entitled to filing an amended tax return and allowed reasons for filing it shall be as follows:

1. When the amount of tax base and tax liability thereof stated in the original tax return filed falls short of the amount that should have been declared had the taxpayer properly complied with the relevant tax law.  

2. When the amount of negative tax base (net tax loss) and tax refund thereof stated in the original tax return filed exceed the amount that should have been declared had the taxpayer properly complied with the relevant tax law.

3. Apart from (1) and (2) above, if an incomplete declaration was made due to the reasons prescribed in the presidential decree such as omissions in the process of book to tax adjustment or omissions by withholding agent/obligor in the process of settlement. (exclusive of cases where taxpayers are able to file a claim for rectification)

Those taxpayers who wish to file an amended return should prepare and submit a revised tax base declaration form within the statute of limitation, which is generally 5 years.

 

(2) Claim for Rectification (returns with decreased tax liability)

Those taxpayers who timely filed their tax returns by the statutory deadline, which is within three months from their fiscal year-end, are entitled to filing a claim for rectification and allowed reasons for filing it shall be as follows:

1. When the amount of tax base and tax liability thereof stated in the original tax return filed exceeds the amount that should have been declared had the taxpayer properly complied with the relevant tax law and therefore accurately filed the original return

2. When the amount of negative tax base (net tax loss) and tax refund thereof stated in the original tax return filed falls short of the amount that should have been declared had the taxpayer properly complied with the relevant tax law and therefore accurately filed the original return

Those taxpayers who wish to file a claim for rectification should prepare and submit a rectification claim form within 5 years from the statutory deadline for the original tax return (in case the extended deadline is granted, such extended deadline) and the head of tax office to which such claim is filed should notify the result of his review to the taxpayer within 2 months from the date the claim is filed.  

 

Implications

As for the amended tax return, there will be no case where tax liability amount is reduced as it should be filed when tax base and tax liability thereof are expected to increase. That said, depending on the timing of filing the amended tax return, there will be some abatement in penalties such as penalty for under-reporting of tax liability or penalty for over-reporting of tax refund, except for the case where an amended tax return is filed in anticipation of additional assessment by tax authorities.

1. In case an amended return is filed within 6 months from the statutory deadline: 50%

2. In case an amended return is filed after 6 months but within 12 months from the statutory deadline: 20%

3. In case an amended return is filed after 12 months but within 24 months from the statutory deadline: 10%

On the other hand, a claim for rectification has a bearing on the protection of the taxpayer's rights and interests and cannot be exercised when the allowed filing period stated above expires. Therefore, if it is found that there is a mistake or omission in the tax base and tax liability of already filed return for any prior years, it would be desirable to promptly discuss with tax experts to correct it.


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