Korea: Zero-rated VAT treatment unavailable for domestic portion of international freight forwarding services (Tax Tribunal decision)
Recent tax developments in Korea
The Tax Tribunal on March 5, 2025, held (Josim 2024Seo4286) that zero-rated value added tax (VAT) treatment did not apply to the domestic portion of international freight forwarding services provided by the taxpayer to overseas affiliates.
The Tax Tribunal strictly interpreted Article 32(2)(i) of the Enforcement Decree of the VAT law and held that because the taxpayer had neither directly entered into a contract with the shipper nor assumed full responsibility and risk for the transportation service, zero-rated VAT did not apply, even though the service was part of a broader international freight arrangement.
Read a July 2025 report prepared by the KPMG member firm in Korea
Other recent tax developments in Korea include:
- Clarification of new enforcement fine system for failure to submit documents during tax audits
- Tax authority cannot bypass pre-assessment review when delay was tax authority’s fault (Supreme Court decision)
- Taxpayer satisfied requirements for sales returns under the Value Added Tax (VAT) Act (Tax Tribunal decision Josim 2024Seo5252)
- Taxpayer cannot amend return based on discovery that reasonably derived and consistently applied statistical adjustment ratio for returns of unsold products produced inaccurate results (Tax Tribunal decision Josim 2023Seo7120)
- Transfer of leased commercial real estate did not qualify as VAT-exempt “transfer of business” because transferee did not continue leasing business (Tax Tribunal decision Josim 2025Joong0671)
- Customer discounts provided by a third party must be included in the VAT base (Tax Tribunal decision Josim 2024Seo5252)
- Additional payments under business transfer agreement based on adjustments to value of intangible assets under advance pricing agreement (APA) must be viewed as part of original consideration (tax ruling Seomyeon-2024-Beopgyubeobin-4190)
- Interpretation of conditions for excluding internal service transactions from application of the arm’s length rule under the consolidated tax regime (tax ruling Seomyeon-2023-Beopgyubeobin-2133)
- Use of bonded storage and blending facilities by foreign corporation does not constitute permanent establishment (PE) in Korea (tax ruling Seomyeon-2025-Gukjesewon-0819)
- Determination of special relationship based on control over business under Article 2 of the Law for the Coordination of International Tax Affairs (tax ruling Seomyun-2025-InteGookjesewon-0819)