Overview (March 2001)

Introduction
Electronic Documents
Electronic Signature Act
Information and Communications Networks
Consumer Protection Guidelines
Tax Issues

Introduction

Korea had more than 19 million internet users as of the end of 2000 and this number is expected to increase steadily despite recent economic recess in Korea. The use of the Internet and continued reliance on electronic information has precipitated the advent of new information industries in Korea, perhaps more rapidly than in any other country in Asia.

In the past three years the government enacted more than 40 new laws and regulations in order to build a framework for a new digital information society. Furthermore, new provisions are expected to be introduced before the end of 2001, concerning:

• public information disclosure;

• protection of electronic IP rights; and

• facilitated use of encryption.

The following recent laws provide a comprehensive regulatory framework for the establishment and maintenance of electronic documents.

Electronic Documents

The Electronic Transaction Framework Act, enacted in February 1999, concerns electronic documents and digital signatures, and provides for the support and promotion of digital data.

The act:

• provides that electronic documents shall enjoy the same legal effects as their traditional documentary counterparts;

• establishes guidelines for the execution and recording of electronic documents;

• provides the basis for use of electronic documents;

• seeks to protect personal information obtained in the process of using electronic services or provided by the certification authorities; and

• establishes standards regarding e-commerce, government cooperation, consumer protection, management and establishment of support facilities, and protection of IP rights.

Electronic Signatures

The Electronic Signature Act, enacted in 1999, is modelled on Utah's Digital Signature Act.

The act:

• deals comprehensively with the establishment of certification authorities, and sets out their role in the management and use of digital signatures;

• lists guidelines concerning certification qualification and licensing;

• governs licensing procedures for companies seeking to gain government authorization, and procedures regarding authentication;

• emphasizes the need for safeguarding private keys; and

• imposes criminal and civil penalties for mishandling private keys and digital signatures (imprisonment for up to three years and fines of up to W30 million).

Information and Communications Networks

The Act Concerning the Promotion of Information and Communications Network deals specifically with the use and safety of information services networks and, in particular, the protection of personal information. The statute limits the use of personal information by information service providers and the amount of information that they can collect.

Further, the statute provides for the establishment of safety measures to guard against the leaking of protected information to third parties. Civil and criminal liability is imposed upon those who mishandle personal information or infringe users' privacy.

Consumer Protection Guidelines

In January 2000 the Korea Fair Trade Commission published e-commerce guidelines for businesses.

According to the guidelines:

• businesses must disclose information on cancellation of contracts, refund policies and payment methods;

• business entities must retain all information regarding electronic business transactions for five years. Personal liability is imposed for failure to keep safe private information transmitted through the Internet, even if the business concerned has assigned such duties to a third party;

• businesses may not obtain more personal information about a consumer than is necessary to conduct relevant transactions;

• businesses shall not collect personal information from juveniles without prior consent from their parents or guardians; and

• businesses must obtain the consumer's approval before using information obtained in the course of business transactions for purposes other than that for which the information was given.

The guidelines also deal with issues such as payment and delivery, exchange and consumer complaints regarding goods purchased through the Internet.

Tax Issues

Existing statutory and regulatory provisions have not yet been amended to provide for the tax treatment of electronic delivery of goods or services. However, as far as cross-border transactions are concerned, it seems that customs duties in Korea will not presently apply to goods delivered online.

Some commentators have suggested that the traditional source rules do not apply neatly to e-commerce, implying a need to develop new source rules. The domestic tax authorities, however, have not yet stated a formal position on this issue.

Recently, the Organization for Economic Cooperation Development (OECD) published its reports on taxation in electronic commerce. In June 2001 the OECD's Committee on Fiscal Affairs is expected to adopt the reports' findings and recommend their rules to its members, including Korea. Soon after the formal adoption of the reports by the OECD, the Korean tax authorities are expected to follow the rules in the reports in taxing electronic commerce.

Regarding domestic transactions, the government has no plans to enact new tax laws specifically addressing e-commerce. Rather, it is expected that existing laws will be adapted to deal with this issue.

For further information on this topic please contact Sai Ree Yun or Dong Soo Kim at Woo, Yun, Kang, Jeong & Han by telephone (+82 2528 5200) or by fax (+82 2528 5228) or by e-mail ([email protected] or [email protected]).