National Tax Service

□ The EUCCK Luncheon Meeting in General

○ Yongsup Lee, Commissioner of National Tax Service(NTS), has been
invited to a luncheon meeting with executives and members of the European Union
Chamber of Commerce in Korea(EUCCK), including distinguished ambassadors of
EU member states, at the Hyatt Hotel on June 4, 2004. He delivered a speech
entitled "NTS Policy for a Business-friendly Tax Climate" on the overall
reform of tax administration which he has been implementing since he took office
last year; the up-to-date achievements and the future plans, focusing on the
NTS current policies for foreign companies. He also expressed his opinions
on the suggestions and inquiries made on the spot.

<Outline>

□ Key Points of the Speech

○ The basic policy of tax administration reform is to create a business-friendly
tax climate without discrimination between domestic and foreign companies with
the ultimate goal of making a Trustworthy National Tax Service through Fair
Taxation and Transparent Tax Administration.

-In this context, he spoke on the recent performance and future
plans of tax administration reform mostly related to policies on foreign firms.

■■ To introduce Various Tailored Services to Foreign Taxpayers

○ In general, world-class taxpayer services through「Home Tax Service」,「National
Tax Consultation Center」and「NTS Weekly Newsletter」are being provided. Also,「National
Tax Administration Real Name System」has been initiated for an accountable tax
administration.

○ In particular, to better cater the needs of foreign taxpayers, the following
taxpayer services are introduced ;

-Publication & Distribution of a variety of tax information
regarding tax incentives and tax return filing

-Refurbishment of the NTS English web site to provide useful
tax information to foreigners

·「Taxpayer Help」section features 3 categories of「FAQ」,「Q&A」and「Foreign
Taxpayer Advocate Service」, designed to offer advice on tax problems to foreign
taxpayers and to allow them to make suggestions.

-Regular meetings with foreign business communities in Korea
as well as occasional gatherings to collect comments and to ensure that foreign
taxpayers\' needs are accommodated

-Operation of Help-line for English Speakers (Headquarters &
Seoul Regional Tax Office〔SRTO〕) and「International Tax Advocate Service」(SRTO)

■■ To set up a Fairer and More Transparent Tax Audit System with No Discrimination
between domestic and foreign companies

○ Advance publication of audit policy such as candidate selection criteria
for tax audits, i.e. the「2004 Tax Audit Policy Directions」for domestic and
foreign companies is to be announced around the middle of this month.

-The basic principle of the Directions is to reduce the ratio
of taxpayers selected for tax audit and to heighten audit intensity on those
who are mainly chosen among taxpayers with high levels of tax evasion. This
is to spread the idea that compliant return filing from the beginning is in
one\'s favor.

○ Dedicated duty officers are assigned in the「Tax Audit Service Center」to
deal with tax problems of foreign taxpayers only in a fair and transparent manner
during a tax audit.

-Apart from 「Tax Disputes Committee」,「International Tax Disputes
Committee」has been initiated for foreign taxpayers. It is expected to raise
consistency and adequacy of tax assessments on cross-border transactions.

○ Tax audits on foreign companies are being conducted in a more flexible
way as follows ; expansion of「In-Tax-Office Audit」, minimization of the amount
of documents to be submitted, and allowance of sufficient time to submit offshore
documents required for an audit.

○ Improvement of the transfer pricing audit system in a way to reduce the
inconveniences foreign taxpayers encounter

-In principle, a tax audit focusing only on the transfer pricing
issue will not be made.

-The number of business years subject to an audit is being reduced
from 5 to 3 unless there is clear indication of tax evasion.

-Before a tax assessment through transfer pricing audit is finalized
in the local tax offices, the headquarters of the NTS will review its validity
in advance to preclude unreasonable and arbitrary tax assessment.

■■ To spread a Tax Compliance Culture where Honest Taxpayers receive Preferential
Treatment

○ In relation to the operation of the Exemplary Taxpayer System aiming at
a tax environment where taxpayers are more willing to pay their fare share,
the NTS will be more proactive in identifying foreign companies that exhibit
high degree of compliance.

※Four out of fifty one Exemplary Taxpayers up to now are foreign
invested companies.

■■ To raise the Consistency and Predictability of Taxation by clarifying
International Taxation Rulings

○ Rulings that have been controversial and cumbersome to taxpayers are in
the process of being revised in line with global standards such as the OECD
Model Tax Convention Commentaries.

○ Basic Tax Ruling on the application of the「Law of Coordination of International
Tax Affairs」will be put into effect in coming July. Also, court cases related
with international taxation are to be categorized and disclosed on the NTS web
site.

※ For particulars, please apply to the following personnel.

· Director: Chae Gyung-Soo ☎ 397-1431
·
Deputy Director: Kang Min-Soo ☎ 397-1446

" [Speech
at EUCCK] NTS Policy for a Business-Friendly Tax Climate "