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Customs Audit

Customs Audit

★Concerned about a customs audit?

★Trust the seasoned experts at K&K. With over a decade of experience in handling customs audits, our specialists understand the importance of precision at every step.

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What is Customs Audit?

A Customs Audit is an investigation conducted by customs authorities to assess the legality of an import/export company's customs clearance activities. This process involves verifying the accuracy of declared tax amounts in compliance with relevant trade laws, such as the Customs Act, the Foreign Trade Act, and the Foreign Exchange Transactions Act.

Types of Customs Audit

Corporate Audit (Regular Audit): An audit conducted every four years on companies that meet certain criteria, such as the scale of imports and exports, to examine the overall legality of their customs clearance processes.

Planned Audit (Ad Hoc Audit): An audit conducted on selected companies based on the basic plan for planned audits and the results of customs compliance analysis, to examine the legality of customs clearance on an ad hoc basis.

Comprehensive Audit (Regular Audit): An audit conducted on Authorized Economic Operators (AEOs) starting two years after certification and continuing until six months before the expiration of the certification period, to assess compliance with AEO certification standards and verify the legality of customs clearance in relevant areas.

Procedure

STEP01
Selection of Audit
Target Companies
STEP02
Pre-notification of
Customs Audit
STEP03
Execution of
Customs Audit
STEP04
Notification of Customs
Audit results

➀ Selection of Audit Target Companies
The Commissioner of the Korea Customs Service selects companies for customs audits on an annual or semi-annual basis and notifies the relevant customs office.

➁ Pre-Notification of Customs Audit
Each auditing customs office delivers an audit notification to the target company at least 15 days before the audit begins and provides a list of necessary documents (including electronic data) that should be prepared for submission during the audit.

➂ Execution of Customs Audit
Generally, customs audits are conducted by reviewing trade-related documents and interviewing relevant personnel. The on-site audit period is within 20 business days, but if necessary, the audit period can be extended within the scope of an additional 20 days. (The total audit period, including post-audit, is 120 days.)

➃ Notification of Customs Audit Results
Upon completion of the customs audit, an evaluation meeting is held on the final day with the attendance of the company's representatives to explain the audit results. The audit result notification is then delivered to the audited company within a certain period after the audit's completion.

Key issues in Customs Audit

Customs Valuation: • Verification of the appropriateness of the customs value of imported goods, including indirect payments and statutory additions (such as royalties, production support costs, etc.)
• Verification of the appropriateness of transfer pricing for multinational corporations
• Verification of the appropriateness of changes in import prices and the application of the reference exchange rate, etc.

HS code: • Verification of the appropriateness of tariff rate application, fulfillment of import/export requirements, application of exemptions, and the correctness of classification of imported and exported goods.

Customs Compliance: • Items subject to Customs Officer's Confirmation
• Compliance with the Integrated Public Notice

Duty Exemption: • Verification of the appropriateness of customs duty reductions and exemptions applied according to the Customs Act and FTA agreements
• Verification of the appropriateness of post-management for goods subject to duty exemptions

Duty Refund: • Verification of compliance with refund requirements
• Verification of the appropriateness of consumption quantities

Foreign Exchange Transactions: • Verification of whether the foreign exchange authority has been notified of reportable import/export transactions and capital transactions
• Verification of illegal foreign exchange inflows and outflows

Other: • Verification of the appropriateness of country of origin labeling, etc.
• Verification of the import/export of goods infringing intellectual property rights

The most common instances of additional duties being assessed as a result of customs audits typically occur in the area of customs valuation, particularly when evaluating the appropriateness of transfer pricing for multinational corporations.

Key Services of K&K

• Pre-audit customs diagnostics(Customs Health Check) in preparation for customs audits • Regular customs risk reports for clients • Pre-audit, on-site, and post-audit representation services • Representation for pre-audit remedies (e.g., pre-assessment reviews, objections) • Representation for post-audit remedies (e.g., objections, administrative appeals)