Uniqlo Korea Corporation Loses Additional Tax Lawsuit… Court Rules "Taxation Justified"

[Image source=Yonhap News]

[Asia Economy Reporter Seongpil Cho] Uniqlo Korea Corporation filed a lawsuit seeking to cancel the customs authorities' imposition of additional taxes for excluding the application of preferential tariff rates on sweaters imported by the company, but lost the case.

According to the legal community on the 3rd, the Seoul Administrative Court Administrative Division 5 (Chief Judge Sangkyu Jeong) ruled against the plaintiff in the lawsuit filed by Uniqlo Korea Corporation FRL Korea against the Seoul Customs Office head to cancel the additional tax imposition. The court stated, "The preferential tariff rate under the Korea-ASEAN FTA does not apply to the import declaration," and "There is no justifiable reason to exempt FRL Korea from the additional tax."

Earlier, from May 2014 to September of the following year, FRL Korea imported sweaters from its Japanese headquarters produced in Cambodia and applied the preferential tariff rate (0%) based on the certificate of origin under the Korea-ASEAN FTA when declaring to the customs authorities. According to the Korea-ASEAN FTA, which came into effect in 2007, sweaters are exempt from tariffs if they meet certain conditions such as the regional value content (40%) or more. Simply put, if the proportion of Cambodian raw materials in the sweater price exceeds 40%, the product is considered "Made in Cambodia" and is exempt from taxes.

However, the imported sweaters were found not to meet the regional value content requirement based on the customs authorities' investigation. Seoul Customs revoked the tariff exemption and imposed a total of about 250 million KRW in customs duties, value-added tax, and additional taxes on FRL Korea. FRL Korea contested the additional tax portion (about 70 million KRW) of the imposed charges by filing an appeal with the Tax Tribunal, but after it was dismissed in May last year, they filed a lawsuit.

FRL Korea argued, "The imported sweaters meet the Change in Tariff Classification (CTC) criteria, so the preferential tariff rate under the Korea-ASEAN FTA should apply." They claimed that even if raw materials were imported from other countries, since processing was done in Cambodia, the product's origin should be recognized as Cambodia. FRL Korea also argued that "there is justifiable reason to exempt the additional tax because they fulfilled their duty of care regarding the fulfillment of origin determination criteria."

The court did not accept any of FRL Korea's claims. Regarding the CTC fulfillment argument, the court said, "While it is acknowledged that a two-level tariff classification change occurred, there is no objective evidence to show that the additional required processes of cutting and sewing, necessary for the application of the preferential tariff rate, were performed." Regarding the duty of care claim, the court rejected it, stating, "The plaintiff only requested origin verification from the export transporter contracted by the Japanese headquarters, but did not make efforts to avoid breaching obligations by inquiring with the headquarters or the Customs Service about whether the origin determination criteria were met."

This content was produced with the assistance of AI translation services.