Tax officials must give notice of the tax items, period and grounds 20 days before an audit begins (Framework Act on National Taxes, Art. 81-7(1)). A re-investigation requires 7 days, and notice may be omitted where evidence might be destroyed.
The two lines to read first
Most people look at the dates first, but what actually fixes the scope of your response is the tax items and the period under audit. Article 81-7(1) of the Framework Act on National Taxes requires notice of the tax items, the period, the grounds and other matters prescribed by Presidential Decree 20 days before the audit begins. Whether the notice is limited to corporate tax or extends to VAT and withholding tax changes entirely which ledgers you prepare, and the fiscal years covered determine how much supporting evidence you need to retrieve. There is no need to pull out material beyond the stated scope in advance. Conversely, if material within scope is not ready, production slips — and that delay is itself a ground for extension.
Sometimes the 20 days never arrive
The proviso to the same article allows notice to be withheld where giving it would defeat the purpose of the audit, for example through destruction of evidence. So 20 days is the rule, and the law expressly leaves open audits that begin without notice. Where a re-investigation follows a decision on review, the period shortens to seven days. The practical implication is plain: if you treat the 20 days as your preparation window, then in a case where those days never come, your preparation time is zero. That is why the everyday state of your books and vouchers is your real capacity to respond.
How audit subjects are selected — not "because you are foreign"
The question we hear most often from foreign-invested companies is whether being foreign-owned makes them a target. Article 81-6(2) bases regular selection on the Commissioner finding indications of non-compliance after periodically analysing compliance using assessment data, tax information, and accounting-integrity material such as external audit opinions and the content of external audits — and it requires officials to select fairly on objective criteria. The test is the consistency of returns with accounting records, not the nationality of the investment. That said, foreign companies structurally carry more items that stand out in such an analysis: a high proportion of related-party transactions, head-office charges with a large effect on profit and loss, and frequent subjection to external audit. It is more accurate to say they have more to explain than that they are targeted.
Why audits get extended — delayed production can itself be a ground
Article 81-8 requires the audit period to be kept to a minimum in light of the tax items, industry, scale and difficulty, then lists grounds for extension. The first is where the taxpayer clearly obstructs the audit — concealing books and records, or delaying or refusing production. The second and third concern the need to examine counterparties, verify them on site, or verify financial transactions on site. The first ground sits squarely within the taxpayer’s control. Dumping large volumes of unordered material and letting requests sit for days both push in the same direction. Keep a production log recording the date requested, the date produced and the form of production, and produce material in units that can be explained in one pass. The surest way to shorten an audit is to be able to prove your own production history.
Where the real issues sit
The issues that recur in audits of foreign companies cluster around dealings with the parent. The first is price. Article 7(1) of the Act on Adjustment of International Taxes lets the authority assess or reassess on the arm’s-length price where the price of an international transaction with a foreign related party is below or above it. Whether the transaction happened and whether the price can be explained are separate questions, and an audit asks the second. The second issue is withholding. Interest, dividends and royalties paid to the parent are classified as domestic-source income, and a payer of income not attributable to a domestic place of business must withhold on payment and remit by the 10th of the month following withholding. The rate depends on which head of income applies, and a treaty’s reduced rate prevails where one does. A payment treated as a service fee but recharacterised as a royalty brings both a different rate and penalties. So the core of audit preparation is checking that the contract, the evidence the service was actually performed, and the cost-allocation basis travel together as one set.
The order in which to spend the 20 days
How you use the 20 days changes the outcome. First, transfer the items, period and grounds into a table and identify the accounts and fiscal years within scope. Second, extract every related-party transaction in that period and check it against the contract and the pricing basis. Third, organise the withholding actually performed in the same period by head of income and confirm the treaty documentation is in place. Fourth, pick the expense lines at highest risk of disallowance and fill the gaps in their evidence. Fifth, build the production log and put the explanation in writing. Finishing those five steps inside 20 days requires the material to exist already — which is why the conclusion points back to ordinary times.