South Korea

Lee & Ko has once again been ranked Tier 1 across all eight evaluated practice areas in the IFLR1000 2025 Edition (International Financial Law Review 1000). This achievement marks the fourteenth consecutive year that the firm has secured Tier 1 recognition in every category, an enduring testament to Lee & Ko’s market-leading capabilities in finance and corporate law. In addition to the firm-wide rankings, sixty-one of our professionals have been named Leading Lawyers across the individual practice areas, reaffirming our exceptional depth of expertise and the strength of our team. Notably, Hyunjoo Oh, a partner in our Banking & Finance Group, has been honored as a Women Leader for the sixth consecutive year. With more than 27 years of experience in capital markets, Ms. Oh is a highly respected finance specialist whose practice covers the full spectrum of capital markets transactions, including securities and derivatives, together with capital markets regulation, disputes, foreign exchange regulation, and other areas of corporate finance. [Tier 1 Rankings] Banking and Finance Capital Markets: Debt Capital Markets: Equity Capital Markets: Structured Finance and Securitisation Mergers & Acquisitions (M&A) Private Equity Project Development Restructuring and Insolvency [Leading Lawyers] Banking and Finance: Sangwoo Ahn, Lachlan Barth, Yong-Jae Chang, Young Je Cho, Eun Sam Choi, Eui Yeon Jo, Woo Young Jung, Dong Eun Kim, Insoo Kim, Kwang Yul Kim, Hun Ko, Myoung Chul Kwak, Paul (Jung Woo) Moon, Yunjeong Seo, Dong Seok Woo, Paul H.J. Yoon, Yeo Kyoon Yoon Capital Markets: Sae Ho Ahn, Hyunji Bae, Jun Woo Cho, Kyoung Jun Cho, Kyu Hyeok Choi, Seung Hoon Choi, Wonkyu Han, Seunga Hyun, Donga Jung, Dongyon Kim, Jiseon Kim, Minsik Kim, Jin Hong Kwon, Han Kyung Lee, Eui Cheol Na, Hyunjoo Oh Corporate and M&A: Yong Seok Ahn, Da Hye Cho, Seok Pyo Hong, Sungmee Hong, Hwan Jeong, Ki Wook Kang, Sanggon Kim, Sung Min Kim, Daehoon Koo, Gu Beom Kwon, Eunjai Lee, Je Won Lee, Hyeong Gun Lee, Kyu Wha Lee, Ho Joon Moon, Joohyun Oh, Kyu Seok Park, Kyung Gyoon Park, Hyesoo Won, Yong Joon Yoon Investment Funds: Je Won Lee Project Development: Sangwoo Ahn, Lachlan Barth, Eun Sam Choi, Weon Sik Chung, Jinyoung Jung, Samsung Kim, Insoo Kim, Kwang Yul Kim, HyunJae Nam, Jungmin Pak Restructuring and Insolvency: Seok Pyo Hong, Sungmee Hong, Eunjai Lee, Jung Hyun Lee, Wanshik Lee, Jiwoong Lim IFLR1000 is the only global legal directory focused exclusively on ranking law firms and lawyers for their expertise in finance and corporate transactions worldwide.

Effective September 15, a new provision of the Framework Act on National Taxes (“FANT”) will authorize the Korean tax authorities (“NTS”) to impose an enforcement penalty on taxpayers who, without justifiable cause, do not provide requested information and documents during an audit (“New Enforcement Penalty Provision”). This article provides a brief overview of the New Enforcement Penalty Provision, its key features, and practical considerations for taxpayers in light of its implementation. Legislative Background Generally, annual changes to the Korean tax law and regulations proceed in the following order: first, the proposed changes to the tax law (“Tax Law Amendment(s)”) are announced around July each year; second, the Tax Law Amendments are deliberated and passed at the end of December; and third, the related presidential decrees and enforcement rules (collectively, the “Regulations”) related to the Tax Law Amendments are published around February or March of the following year. Initially, the Tax Law Amendment published in July 2024 did not include the New Enforcement Penalty Provision. However, during the October 2024 National Assembly deliberations, it was suggested that the existing fine regime alone was insufficient to secure appropriate information and documents in tax audits of multinational enterprises, leading to subsequent policy debates. Consequently, in addition to the Tax Law Amendment proposal, the New Enforcement Penalty Provision was introduced through an amendment to the FANT on February 27, 2025. Furthermore, the new provisions of the Presidential Decree of the FANT, which set forth matters concerning the New Enforcement Penalty Provision, were promulgated on June 2, 2025. Differences between New Enforcement Penalty and Existing Fine Provisions Under the New Enforcement Penalty Provision, for tax audits commencing on or after September 1, 2025, if a taxpayer fails, without justifiable reason, to submit requested information and documents required under the tax law, an enforcement penalty may be imposed following deliberation by the Enforcement Penalty Deliberation Committee. When notifying a taxpayer that the penalty may apply, the head of the regional tax office must grant a period of at least 30 days from the date of notification (“Grace Period”) during which the taxpayer may provide the requested information and documents. If the materials are not submitted within 30 days from the day after the Grace Period ends, the enforcement penalty may be imposed every 30 days, calculated at 0.1% to 0.2% of the taxpayer’s average daily revenue, which is a very significant penalty since there is no cap on the maximum penalty. The penalty period runs from the day after the Grace Period until the day before the taxpayer submits all requested information and documents or, if the tax audit ends before submission, until the day before the audit ends. Any period during which the audit is suspended is excluded from the penalty period. In other words, until all requested materials are submitted or the tax audit is concluded, the enforcement penalty may continue to accumulate. However, the enforcement penalty and a fine cannot be imposed concurrently for the same reason. The New Enforcement Penalty Provision differs from the existing fine provision for failure to submit materials in that it does not have an upper limit on the amount imposed, whereas the existing fine provision had a cap of KRW 50 million. In addition, while the existing fine could, according to court precedents, be imposed only once in the same tax audit, the newly introduced enforcement penalty may be imposed repeatedly every 30 days. Furthermore, the New Enforcement Penalty Provision also differs from the existing fine provision in that the enforcement penalty is imposed following deliberation by the newly established Enforcement Penalty Deliberation Committee, and any challenge must be made through administrative litigation. These points are discussed separately in the following sections. Enforcement Penalty Deliberation Committee The new enforcement penalty may be imposed only after deliberation by this committee. In addition, the head of the tax office may, taking into account the degree of effort made to submit the requested materials and the reasons for non-submission, reduce the amount of the enforcement penalty by up to one-half or grant an exemption, following deliberation by the Enforcement Penalty Deliberation Committee. The Enforcement Penalty Deliberation Committee will be established within the regional tax office, and the head of the regional tax office serves as its chairperson. The members will consist of (i) up to six officials of the regional tax office designated by the head of the regional tax office, and (ii) up to thirteen external experts appointed by the head of the regional tax office (hereinafter, “External Members”). For each meeting, the chairperson will designate six members (including at least four External Members) to convene the meeting of the Enforcement Penalty Deliberation Committee. It appears that there is not yet any explicit legislation regarding whether taxpayers will be granted an opportunity to present their views before the Enforcement Penalty Deliberation Committee. However, since taxpayers are guaranteed the opportunity to present their views in other committees convened during the course of a tax audit (e.g., the Review for Adequacy of Tax Imposition Committee and the Transfer Pricing Review Committee), it is possible. Therefore, it will be necessary to monitor whether subsequent legislation grants taxpayers the right to present their views. Appeals Against the Enforcement Penalty To contest the imposition of a fine, a taxpayer must file a written objection with the taxing authority, and as a result, the fine disposition loses its effect, with no need to pay the fine until the court’s decision becomes final. In contrast, to contest the new enforcement penalty disposition, the taxpayer must challenge it through administrative litigation, and since whether an appeal is filed does not affect the validity of the disposition, the general rule will be that the enforcement penalty must be paid while disputing it (similar to contesting a tax assessment by paying the assessed amount and litigating). Scope of Requested Information and Documents Submissions In a tax audit, requests for material submissions are based on the NTS’ statutory power to question and inspect. However, the relevant provisions of the tax law only state that “books, records, and other items” may be ordered to be submitted, without specifying their concrete scope or limits. In practice, tax auditors often request an extensive range of materials. While, in principle, such requests should be limited to materials necessary to determine the tax base and tax liability, it is not uncommon for requests to extend to internal documents, such as internal audit records and profit and loss statement of related parties, beyond ordinary accounting books. In particular, in tax audits of Korean subsidiaries of multinational enterprises, there are cases where the NTS requested submission of accounting records of the headquarters, which the subsidiary does not possess, or contracts containing trade secrets, leading to conflicts between taxpayers and the NTS. The New Enforcement Penalty Provisions also define the triggering condition as a failure to fulfill the submission obligation “without justifiable reason,” without further elaboration on the scope of materials covered. This vagueness makes it difficult to assess when the penalty under New Enforcement Penalty Provisions will apply and raises the risk of arbitrary imposition. As a result, the ambiguities inherent in the current fine provision remain unresolved under the New Enforcement Penalty Provisions. Going forward, once the New Enforcement Penalty Provisions takes effect, refinement of the system will be necessary. Specifically, criteria should be reinforced for recognizing what constitutes a “justifiable reason,” as well as guidelines for determining when a taxpayer’s submissions are deemed sufficient. In addition, based on judicial determinations regarding the types of materials and situations in which submission may not be reasonably possible, we expect the New Enforcement Penalty Provisions will be imposed only where a taxpayer deliberately withholds materials that are so critical that their absence would materially impede the tax audit. Takeaways As discussed above, the New Enforcement Penalty Provision is expected to have its details supplemented and refined after it takes effect from September 15, 2025. In particular, the Presidential Decree to the FANT grants the Commissioner of the NTS the authority to prescribe, by public notice, matters necessary for the imposition and collection of the new enforcement penalty that are not otherwise specified in the Regulations. Taxpayers should keep a careful watch on forthcoming notices and monitor how the penalty will enforced in practice, as well as how appeals will be resolved. In addition, for taxpayers expecting a tax audit in the near future, it will be prudent to conduct a pre-tax audit review/health check not only to assess overall tax risks, but also to distinguish in advance between materials that can and cannot be submitted, and, where submission is possible, to consider the practical preparation time required in order to respond efficiently to the New Enforcement Penalty Provisions. In particular, for multinational enterprises, it is important to review in advance and establish response strategies regarding whether the new enforcement penalty may be imposed on documents that the Korean subsidiary is not required to maintain under the tax law, materials of foreign affiliates that are not possessed or managed, or materials whose collection and organization would require a significant amount of time. If you have any questions regarding this article, please contact below: Tom KWON ([email protected]) Steve Minhoo KIM ([email protected]) Philje CHO ([email protected]) Taehwan KIM ([email protected]) Gijin HONG ([email protected]) Kyu Bin KANG ([email protected]) For more information, please visit our website: www.leeko.com

The financial regulators recently provided a preliminary consultation on the responsibilities map to 53 large financial investment companies and insurers (each with at least KRW 5 trillion in total assets or at least KRW 20 trillion in assets under management), following earlier consultations with 18 financial holding companies and banks, and announced the major deficiencies and recommendations identified during the consultation process. In addition, the regulators announced their commitment to facilitating the new responsibilities map regime through a series of initiatives, including holding briefing sessions and conducting further status reviews. Pursuant to the amended Act on Corporate Governance of Financial Companies (the “Corporate Governance Act”), which became effective as of July 3, 2024, large financial investment companies and insurers were required to prepare and submit a responsibilities map to the financial authorities by July 2, 2025. In an effort to facilitate the smooth operation of the responsibilities map regime, the Financial Supervisory Service (the “FSS”) announced a plan to conduct a responsibilities map pilot program intended for large financial investment companies and insurers. The FSS accepted applications to participate in this pilot program until April 11, 2025 and conducted a preliminary consultation for the participating companies, by reviewing their responsibilities maps and providing guidance and advice. On May 26, 2025, the FSS announced the key findings from the preliminary consultation through a press release titled “Status and Future Plans for the Responsibilities Map Pilot Program.” The key deficiencies and recommendations identified by the FSS from the pilot program are as follows: Different Standards for Allocating Responsibilities Under the System of Independent Representative Directors In the case of financial companies that have adopted a multiple independent representative director system (which typically operates as a two-person system consisting of a management representative director and a sales representative director), the financial regulators indicated that it would be advisable to allocate responsibilities among the representative directors based on their jobs’ nature and subject matters, by comprehensively taking into account the duties and authorities of each representative director, the purpose of the responsibilities map system and other relevant factors. For instance, the responsibilities requiring company-wide review, management and operation (such as the preparation of a responsibilities map and the execution and operation of policies, including those pertaining to internal control) should be allocated solely to the management representative director considering their nature, while any responsibilities falling directly within each representative director’s scope of duties should be allocated to such representative director. Potential Conflicts of Interest Arising From Holding Concurrent Offices of Representative Director and Chairperson of Board of Directors The financial regulators’ position is that while the Corporate Governance Act does not prohibit a representative director from concurrently serving as a chairperson of the board of directors, the principle of checks and balances following the introduction of the responsibilities map may not be efficiently implemented under such dual hatting arrangement. Under the Corporate Governance Act, (i) the board of directors is required to supervise the representative director’s performance of his or her overall management obligations, including internal control, and (ii) the internal control committee, which is a committee within the board of directors, is required to review and assess whether the representative director and the officers have appropriately taken overall management and reporting measures, including internal control measures, and request improvements if necessary. In light of concerns that concurrently holding the positions of representative director and chairperson of the board of directors may create a conflict of interest, the financial regulators recommended that financial companies establish effective internal control mechanisms (e.g., having all of the internal control committee members consist of outside directors) to ensure that the principle of checks and balances under the responsibilities map regime can be effectively implemented. Overlapping Responsibilities Due to Multi-Layered Allocation of Responsibilities The financial regulators pointed out that in cases where a higher-ranking officer and a subordinate officer both perform identical duties but substantive internal control responsibilities for the relevant duties are allocated to a subordinate officer instead of a higher-ranking officer who receives reports and exercises the decision-making authority, the internal control system may not function effectively as intended. Accordingly, where a higher-ranking officer and a subordinate officer perform the same duties, it is considered more appropriate to assign internal control responsibilities to the higher-ranking officer. This approach aligns with the principle of the responsibilities map system, which states that the management’s responsibilities for internal control should not be delegated to subordinate officers. Failure to Allocate Responsibilities to Key Officers The financial regulators’ position is that it is necessary to allocate responsibilities to the officers who perform and supervise duties related to such responsibilities, in order to ensure the effective operation of internal control in financial companies, regardless of whether or not they are standing officers and have the authority to approve internal control-related matters. Accordingly, financial companies should ensure that they do not, among others, (i) readily exclude non-standing directors from those to whom responsibilities are allocated, (ii) refrain from allocating responsibilities to certain officers based solely on the reason that they do not have the approval authority over internal control matters, and (iii) allocate less responsibilities to certain officers compared to the scope of responsibilities allocated to such officers described in the business report. The following cases were presented by the regulators as the cases involving inadequate allocation of responsibilities: (i) the responsibilities were not allocated to the CEO (executive director) who is in a position to exercise substantive influence over material decisions, such as the establishment of management strategies and business plans, on the ground that he or she “only has the duty to monitor as a director under the Korean Commercial Code and does not have the internal control-related approval authority,” and (ii) the chairperson of the board of directors (executive director) was assigned only the responsibilities related to the chairperson role, although his or her duties were described as “overall management” in the 2024 business report. While large financial investment companies and insurers were required to submit their responsibilities map to the FSS by July 2, 2025, the responsibilities map submission deadline for small and medium-sized financial investment companies is July 2, 2026. Upon submission of the responsibilities map, the representative director and officers of relevant companies will assume overall management obligations, including those related to internal control. In particular, starting from July 3, 2025, after the conclusion of the pilot program period, large financial investment companies and insurers are subject to sanctions (i) if they fail to meet requirements under the responsibilities map regime (such as avoiding overlap, omission or concentration of responsibilities), or (ii) if there is a breach of overall management obligations, including internal control, by the representative director and officers. Therefore, subject companies should ensure the effective operation of internal control systems based on their responsibilities maps, taking into account the financial regulators’ views on the necessary improvements to the mechanisms for reviewing the adequacy of the responsibilities map and internal control systems and compliance with applicable legal requirements. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=32306

On February 14, 2025, an amendment to the Act on the Consumer Protection in Electronic Commerce (the “E-Commerce Act”), which strengthens regulations on dark patterns, went into effect, along with related amendments to the Enforcement Decree and Enforcement Rules of the E-Commerce Act (the “Enforcement Regulations”). In particular, the amended Enforcement Regulations (i) specify obligations and prohibitions regarding dark patterns as stipulated under the E-Commerce Act, and (ii) include specified criteria for imposing business suspensions and administrative fines for non-compliance with these obligations. The amendments to the Enforcement Regulations aim to reinforce consumer protection in the online platform and e-commerce sectors by clarifying the regulations on dark patterns. The key details of the amended Enforcement Regulations are as follows: Specification of Obligations Regarding Dark Patterns Under E-Commerce Act The amended E-Commerce Act sets forth obligations and prohibitions concerning six types of dark patterns: (i) hidden renewals, (ii) gradual disclosure of costs, (iii) pre-selection of purchase options, (iv) false hierarchies, (v) obstruction of cancellation or withdrawal, and (vi) repeated interference. The amended Enforcement Regulations specify the consent period for consumers related to hidden renewals and provide exceptions for gradual disclosure of costs and repeated interference. Hidden Renewals: Obligations/Prohibitions Under Amended E-Commerce Act: E-commerce providers are required to obtain prior consent from consumers when increasing a subscription fee or converting a free service to a paid service (Article 13 (6) of the amended E-Commerce Act). Relevant Details in Amended Enforcement Regulations: Specification of consent period: Consumer consent must be obtained at least 30 days prior to any increase in a subscription fee or conversion of a free service to a paid service (Article 20-2 of the amended Enforcement Decree). Gradual Disclosure of Costs: Obligations/Prohibitions Under Amended E-Commerce Act: E-commerce providers are prohibited from displaying or advertising only a portion of the total price of goods without justifiable grounds (Article 21-2 (1) 1 of the amended E-Commerce Act). Relevant Details in Amended Enforcement Regulations: Exception: In cases where the total amount to be paid is difficult to list/advertise, the reasons must be disclosed on the first screen that displays the price information. The disclosure should specify the fees and items excluded from the initially advertised price, along with the reasons for their exclusion (i.e., why it is difficult to list the total amount at the outset). However, on pages with limited space, providing the justifiable grounds via a direct link to a pop-up page is allowed (Article 11-4 of the amended Enforcement Rules). Repeated Interference: Obligations/Prohibitions Under Amended E-Commerce Act: E-commerce providers are prohibited from repeatedly requesting that consumers change their choices (e.g., through pop-up windows) (Article 21-2 (1) 5 of the amended E-Commerce Act). Relevant Details in Amended Enforcement Regulations: Exception: If consumers are given the option to opt out of receiving requests to change decisions that they have already made for at least seven days, these requests will be excluded from the scope of repeated interference (Article 27-2 of the amended Enforcement Decree). Criteria for Imposing Business Suspension and Administrative Fines The amended Enforcement Decree provides for the imposition of business suspensions and administrative fines for violations related to the aforementioned six types of dark patterns. It also specifies the base duration of business suspensions and the base amounts of administrative fines imposed based on the number of violations, as outlined below. First Violation: Business Suspension: 3 months Administrative Fine: KRW 1 million Second Violation: Business Suspension: 6 months Administrative Fine: KRW 2 million Third Violation: Business Suspension: 12 months Administrative Fine: KRW 5 million Implications Hidden Renewals: To ensure that consumer consent is obtained at least 30 days before a scheduled increase in subscription fees or the conversion of a free service to a paid service, e-commerce providers must allocate sufficient time to complete the process. Gradual Disclosure of Costs: Regarding the wording and method of disclosing justifiable grounds for the gradual disclosure of costs, e-commerce providers may refer to the samples in the Korea Fair Trade Commission’s (the “KFTC”) press release dated February 10, 2025, which are related to the costs for installing air conditioners (Link). Repeated Interference: Cases where consumers have opted to not receive any requests to change their decisions for at least seven days will be excluded from repeated interference. Therefore, e-commerce providers should consider establishing a process that offers consumers options through a pop-up window, including a message such as “do not show again for [seven] days,” ensuring that the period lasts at least seven days. The KFTC has already imposed sanctions for violating the E-Commerce Act on the following entities: (i) five over-the-top (“OTT”) service providers for requiring consumers to go through cumbersome procedures to cancel contracts, (ii) an online retailer for labeling and advertising products at a discounted price even though it was unable to supply them, and (iii) an accommodation booking platform operator for failing to disclose that it displayed certain accommodations at the top of its search results page in return for advertising fees. The KFTC included its commitment to monitor and prevent dark patterns in its Annual Enforcement Plan for 2025. In addition, on February 13, 2025, it published a Q&A document regarding regulations on dark patterns to provide guidance to market participants on the enforcement of the amended Enforcement Regulations. Such proactive efforts to regulate dark patterns as a means of protecting consumers will likely continue under the new administration. Accordingly, companies should carefully follow regulatory developments regarding dark patterns and take adequate precautionary measures. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=32297