Recent Developments

The Korea Fair Trade Commission (KFTC) has issued the advance notice of the proposed amendment to the Notification Guidelines for Business Combinations (Notification Guidelines) for public comment from September 9, 2026 to September 30, 2026. The amendment to the Notification Guidelines has been proposed to clarify that acquihires, which are transactions becoming more common in emerging high-tech sectors (e.g., AI), may be subject to mandatory merger review and reporting obligations. Acquihires refer to transactions that utilize hiring arrangements and related agreements to transfer personnel in lieu of executing a formal business transfer agreement. Acquihire transactions have received significant attention by regulators due to large global tech companies’ execution of this transaction structure to systematically recruit key personnel while bypassing merger review. Because acquihire transactions may constitute a business transfer under the Monopoly Regulation and Fair Trade Act (MRFTA)—one of five types of regulated business combinations—the KFTC is seeking to amend the Notification Guidelines so that acquihire transactions clearly fall under the scope of a business combination subject to notification as a type of business transfer. Under the MRFTA, the transfer or lease of an entire or material part of a business is subject to merger notification if the transaction parties meet the relevant size thresholds or the transaction value exceeds a certain amount with the target entity having substantial activities in Korea. The KFTC will collect public comments during the period of the advance notice and proceed with implementation of the proposed amendment following deliberation and plenary session resolution.    

I. Key Contents of the Proposed Amendment

    A. Clarification of “business” to capture organized personnel

        The current Notification Guidelines define “business” under Article 9(1)(iv) of the MRFTA (Restriction on Business Combinations) as a bundle of property rights organized for the company’s business purpose functioning as an integrated operational unit, including sales rights, distribution systems, intellectual property rights such as patents and trademarks, and other items of economic value such as government permits and licenses. The proposed amendment to the Notification Guidelines specifies that when personnel organized into a functioning unit, combined with their technology or knowledge, perform a core business function, such personnel fall under the definition of “business.”  

    B. New standards for “material part” of business and calculating transfer price in acquihires

        The current Notification Guidelines provide that a “material part” of a business exists when (i) the part to be transferred or leased is capable of being operated as an independent business unit, or the transfer or lease causes a material decrease in the transferor’s sales, and (ii) the transfer price is at least 10% of the transferor’s total assets as of the end of the immediately preceding fiscal year, or at least KRW 10 billion.         The proposed amendment to the Notification Guidelines expands requirement (i) to include cases when the acquiring company is able to conduct the same business activities as the transferor, to now address acquihire transactions where key personnel (rather than an independently operable business unit) transfer to the acquiring company.         In addition, the proposed amendment to the Notification Guidelines revises how the transfer price is calculated for acquihires. The transfer price will now include any economic consideration (such as money or property benefits) paid to the transferor as consideration for the transaction, regardless of how it has been characterized. Examples include consideration for the release of rights relating to transferred personnel and license fees for intellectual property necessary for business activities.  

    C. New standard for “implementation” in acquihires

        The current Notification Guidelines define the implementation of a business transfer agreement as the completion of final payment. When final payment has not yet been completed, the business transfer is deemed to have been implemented upon delivery of movable assets, registration of real property, or registration of trademarks. The proposed amendment to the Notification Guidelines provides that the cessation of the transferor’s business in the context of an acquihire will also constitute implementation of the business transfer.  

II. Implications of Proposed Amendment

    In light of the proposed amendment to the Notification Guidelines, companies planning to transfer employees through an acquihire transaction should carefully assess whether the transaction may now trigger a merger notification obligation and factor any resulting notification requirement and review timeline into the transaction schedule.     The KFTC has also stated that the proposed amendment to the Notification Guidelines was developed through the exchange of information with foreign competition authorities, including the EU, Germany and the United Kingdom, and expects further international cooperation and response to new types of business combinations by large global tech companies. Given this exchange, companies planning acquihires should take into account potential coordination between the KFTC and multiple competition authorities during the merger review process. If you have any questions or require legal assistance on the matters addressed in this newsletter, please contact Lee & Ko's Antitrust & Competition Practice Group. Authors and relevant professionals : - Hwan JEONG Partner ( hwan.jeong@leeko.com ) - Jeong-Ho SUN Partner ( jeongho.sun@leeko.com ) - Min-Ho LEE Partner ( minho.lee@leeko.com ) - Suruyn KIM Partner ( suruyn.kim@leeko.com ) - Jungwon KWON Partner ( jungwon.kwon@leeko.com ) - Jeong Yoon CHOI Partner ( jeongyoon.choi@leeko.com ) - In Seon LEE Partner ( inseon.lee@leeko.com ) - Frank S. SHYN Senior Foreign Attorney ( frank.shyn@leeko.com )  

On September 3, 2026, the Ministry of Employment and Labor (MOEL) issued new guidelines elaborating the scope of "labor disputes" under the Trade Union and Labor Relations Adjustment Act (TULRAA), entitled the "Guidelines on the Scope of Labor Disputes, Including Company Performance-Based Bonuses" (New Guidelines). For context, the latest amendments to the TULRAA—also known as the Yellow Envelope Act—significantly expanded the scope of permissible "labor disputes" by including disagreements concerning the "determination of working conditions" (e.g., wages, working hours, welfare, termination and employee status) as well as "managerial decisions that affect working conditions." Since the Yellow Envelope Act took effect on March 10, 2026, labor unions have increasingly sought to bargain over matters that are traditionally viewed as falling within the realm of management-level decision-making – e.g., bonuses tied to a certain percentage of operating profit or strategic investment decisions made by management. As these topics have garnered more public attention in recent months, there has been considerable confusion about the meaning and scope of "managerial decisions" over which employers must engage in collective bargaining under the amended TULRAA. The New Guidelines—built upon the general interpretive framework set out in its earlier guidelines issued in February 2026—represent the MOEL’s latest attempt to provide more concrete standards for interpreting and applying the amended TULRAA in the context of collective bargaining, labor-dispute mediation, industrial action, and unfair labor practice proceedings. Below, we address key aspects of the New Guidelines and their practical implications for employers.    

1. Whether Profit-Based Bonuses Fall Within the Scope of Permissible "Labor Disputes"

    Profit-based bonuses can take various forms depending on how their eligibility, calculation, amount, and timing are structured. Such wide variance has created uncertainty as to whether—and under what circumstances—such bonuses would fall within the scope of permissible "labor disputes" requiring employers to engage in collective bargaining.     The New Guidelines clarified that:     ■ Bonuses directly linked to a fixed percentage of company profits—such as revenue, operating profit, or net income—generally fall outside the scope of "labor disputes." MOEL reasoned that requiring employers to bargain over such demands could result in a fundamental restriction against a company’s managerial freedom to conduct its business or interfere with the rights and interest of third parties, including shareholders.     ■ In contrast, MOEL reiterated that concerning employees’ wages, benefits, bonuses tied to individual performance (or fixed bonuses) or other terms and conditions of employment do fall within the scope of "labor disputes" and therefore require employers to engage in collective bargaining.  

2. Meaning of "Managerial Decisions Affecting Working Conditions"

    MOEL’s earlier guidelines issued in February 2026 took the position that a "managerial decision" may become subject to a labor dispute where it results in "substantive and specific changes" to working conditions. Conversely, where the managerial decision’s potential impact on working conditions remains merely abstract or speculative at the time of the decision, the managerial decision would fall outside the scope of permissible "labor disputes".     The New Guidelines clarified that:     ■ As a general rule, a managerial decision, in and of itself, does not constitute a mandatory subject of collective bargaining. Thus, at a stage where a "managerial decision" is under review or merely announced, the mere possibility that the "managerial decision" may ultimately affect employees’ working conditions is insufficient to trigger an obligation to engage in collective bargaining.     ■ However, the "managerial decision" may become a mandatory subject of collective bargaining if it moves into the implementation stage and detailed plans (e.g., workforce arrangements) are formulated so that changes to employees’ working conditions can be objectively anticipated. The New Guidelines further illustrate how this framework is intended to operate in practice through examples such as corporate investments (e.g., plant establishment or relocation to abroad), business acquisitions or sales, or the introduction of new technologies like AI.  

3. MOEL’s Enforcement Approach

    The New Guidelines also explain how MOEL intends to approach cases where a labor union nevertheless seeks to bargain over a managerial decision itself or demands that a fixed percentage of company profits be allocated as bonuses:     ■ Mediation through LRC. At the mediation stage, the Labor Relations Commission (LRC) will encourage the union to modify its bargaining demands and present a reasonable alternative. If the union declines to do so, the LRC may issue administrative guidance (i.e. declining the union’s filing) on the basis that the relevant demand does not fall within the scope of permissible "labor disputes" under Article 2(5) of the TULRAA.     ■ Industrial Action Over Out-of-Scope Matters. Where a union engages in industrial action primarily to pursue matters that fall outside the scope of permissible "labor disputes," the legitimacy of such industrial action will be assessed in accordance with the standards established by Supreme Court precedent. In other words, industrial action may be found unlawful.     ■ Unfair Labor Practice Implications. An employer’s refusal to bargain over matters falling outside the scope of permissible "labor disputes" would not constitute an unfair labor practice, given that managerial decisions themselves (or demands for profit-based bonuses) do not trigger an obligation to engage in collective bargaining.  

4. Implications

    The New Guidelines provide meaningful clarification by confirming that profit-based bonus demands and managerial decisions with only an abstract or speculative impact on working conditions generally fall outside the scope of permissible "labor disputes".     That said, the New Guidelines are unlikely to eliminate uncertainty altogether for the following reasons:     ■ First, the exclusion for profit-based bonuses appears to focus on bonuses directly linked to certain profit metrics (e.g., revenue, operating profit or net income), potentially leaving room for unions to formulate bonus demands using other metrics.     ■ Second, because profit-based bonuses have not been categorically excluded and bargaining over this matter is not prohibited, unions may continue to pursue such demands alongside other matters that fall within the scope of permissible "labor disputes."     ■ Third, the legal basis for certain aspects of the New Guidelines may itself be subject to challenge, particularly as to whether MOEL has gone beyond the scope of authority delegated to it under the TULRAA. If these uncertainties persist, they may also lend further momentum to legislative proposals to amend the Korean Commercial Code to require shareholder approval for the payment of company performance bonuses that an employer is not contractually obligated to provide. Lee & Ko’s Labor and Employment Practice Group has been closely monitoring recent developments surrounding the amended TULRAA (i.e., Yellow Envelope Act) and continues to engage with clients through newsletters and seminars addressing key issues arising under the Yellow Envelope Act. On September 10, 2026, Lee & Ko will host a seminar on the Serious Accidents Punishment Act and the Yellow Envelope Act, where we will provide a more detailed explanation of the New Guidelines and discuss practical response strategies for corporate clients. Lee & Ko remains committed to providing clients with timely guidance and legal support as they navigate the amended TULRAA. If you need assistance with the New Guidelines or related labor-management issues, please do not hesitate to contact Lee & Ko. Author Chang Soo JIN Partner, Hyunseok SONG Partner, Young Jin KIM Partner, JungwooLEE Partner, William KIM Senior Foreign Attorney, Shawn HAN Senior Foreign Attorney

On August 3, 2026, the Ministry of Economy and Finance announced the 2026 Proposed Tax Law Amendments (the Proposals). The Proposals encompass a broad range of measures including, inter alia, revision of the domestic treasury shares taxation rules, introduction of new tax credits for domestic production of strategically important products, adoption of preferential tax incentives to promote regional R&D and investment activities, revision to the preferential flat tax regime for foreign expats, a reduction in the threshold tax rate for the Korean controlled foreign company (CFC) rule to align with Pillar Two global minimum tax rules (GloBE Rules), and the introduction of the Side-by-Side Package agreed by the OECD/G20 Inclusive Framework (the Side-by-Side Package). The following is a brief summary of some of the Proposals that may affect multinational companies doing business in Korea, as well as domestic companies. * The Proposals remain subject to legislative approval, and certain provisions may be amended or withdrawn during the legislative process. Accordingly, the discussion below describes the key changes that would take effect to the extent that the relevant provisions of the Proposals are enacted substantially in their current form. For ease of reference, the discussion below may use terms such as “will” when describing the proposed changes; such usage should not be understood to indicate that the relevant changes are necessarily expected to be enacted or take effect.    

1. Reduction of the Threshold for Deemed Dividends of Controlled Foreign Companies (Article 27 of the International Tax Coordination Law)

    The effective tax rate (ETR) test under the Korean CFC regime to determine deemed dividends of a CFC in a low tax jurisdiction will be reduced from 17.5% to 15%.     Under the current regime, a Korean shareholder may be subject to deemed dividend taxation with respect to a CFC if certain requirements are met, including, among other things, the ETR test, which currently requires the CFC’s ETR in that jurisdiction to be 17.5% or lower. This reduction also aligns with the 15% global minimum tax rate under the GloBE Rules. If enacted, this Proposal would apply to fiscal years beginning on or after January 1, 2027.     [ Practical Implications ]     The lowering of the ETR threshold to trigger deemed dividend under the CFC rules should widen the range of retention and distribution strategies available for Korean multinational companies with foreign subsidiaries. However, as the ETR is based on the actual tax burden (as defined) in that jurisdiction in a given year, groups should reassess the ETRs of relevant foreign subsidiaries annually to determine whether the CFC rules would apply.  

2. Enhanced Oversight of Foreign Trusts – Expanded Whistleblower Rewards and Increased Penalties for Reporting Violations (Article 84-2 of the National Tax Basic Law and Article 65-4 of the Presidential Decree thereto; Article 91 of the International Tax Coordination Law)

    Oversight of foreign trusts will be strengthened by expanding whistleblower rewards and increasing penalties for reporting violations under the International Tax Coordination Law.     Currently, such rewards are available only for material information leading to the detection of violations of overseas financial account reporting obligations. The Proposals would expand the program to include material information leading to the detection of violations of the obligation to submit foreign trust statements.     The reward structure would also be revised. Under the Proposals, the current 5% tier for fines exceeding KRW 500 million would be eliminated, with the 10% rate applying to the entire portion exceeding KRW 200 million, thereby increasing rewards for large-scale violations.     The maximum administrative fine for failure to submit, or for falsely submitting, a foreign trust statement or related supplementary information will increase from KRW 100 million to KRW 1 billion. The existing calculation method, generally up to 10% of the unreported or under-reported foreign trust assets, would remain unchanged. To prevent duplicative penalties, any trust assets already subject to a fine for failure to report overseas financial accounts would be excluded from the foreign trust statement fine. These changes would apply to submissions made on or after January 1, 2027.     [ Practical Implications ]     The tenfold increase in the maximum fine, together with expanded whistleblower rewards, would significantly increase compliance risks relating to foreign trusts. Individuals holding or administering foreign trusts should therefore review their reporting obligations and ensure that trust structures and asset valuations are properly documented.  

3. Clarification of the Scope of Administrative Fines for Failure to Comply with International Transaction Reporting Obligations (Article 87 of the International Tax Coordination Law; Article 144 of the Presidential Decree thereto)

    The scope of administrative fines for failure to comply with international transaction reporting obligations will be clarified. Under the current regime, an administrative fine is imposed where documentation is not submitted by the applicable deadline or where false documentation is submitted; the Proposals would extend the scope to include the submission of documentation containing material omissions or errors.     [ Practical Implications ]     Currently, taxpayers may have some room to avoid administrative fines where the required documentation is submitted by the applicable deadline, even if its contents are deficient in certain respects. Under the Proposals, however, the submission of documentation containing material omissions or errors will be expressly subject to administrative fines. Accordingly, when preparing and submitting international transaction documentation, including the Statement of International Transactions, Master File, Local File, Country-by-Country Reporting (CbCR), and GloBE Information Return, taxpayers should establish procedures and controls to verify the accuracy and completeness of the information reported, rather than treating on-time submission as sufficient in itself.  

4. Deemed Dividend Taxation on the Acquisition of Treasury Shares (Article 17 of the Individual Income Tax Law, among others; Article 16 of the Corporate Income Tax Law and the Presidential Decrees thereto)

    Under current Korean tax law, gains realized by a shareholder from a share buyback or redemption by the company may be treated as either deemed dividend income or capital gains, depending on the purpose of the buyback. Generally, the amount exceeding the shareholder’s tax basis is treated as deemed dividend income if the company intended to cancel such shares immediately, but as capital gains if the company intended to continue to hold such shares as treasury shares.     However, in light of recent amendments to the Korean Commercial Law, which now generally treat all acquisition of a company’s own shares from shareholders as a capital transaction and require the repurchased shares to be canceled (rather than held as treasury shares), the Proposals would revise the tax treatment of share buybacks. To align the tax treatment with the amended Korean Commercial Law, the Proposals would provide that any amount exceeding the shareholder’s tax basis is per se treated as deemed dividend income, regardless of the purpose of the share buyback.     The Proposal would apply to share buybacks for which the purchase price is paid on or after January 1, 2027.     [ Practical Implications ]     Under the current rules, the tax treatment of a share buyback as a deemed dividend or capital gains depends on the purpose for which the treasury shares are acquired. This historically resulted in disputes over the income characterization of the acquisition. Under the Proposals, however, a share buyback would give rise to deemed dividend treatment at the shareholder level regardless of the purpose of the acquisition. Accordingly, domestic companies considering share buybacks and their shareholders should take into account that deemed dividend treatment would apply to share buybacks for which the purchase price is paid on or after January 1, 2027, irrespective of the intent of repurchase/redemption.  

5. Reform of the Income Tax Incentives for Foreign Employees – Increase in the Flat Tax Rate for Foreign Employees and Tightening of the Eligibility Requirements for Foreign Engineers (Article 18 of the Special Tax Treatment Coordination Law, among others; Article 16 of the Presidential Decree thereto, among others)

    Under the Proposals, income tax incentives for foreign employees will be reformed. First, the flat tax rate under the Special Tax Treatment Coordination Law available to foreign employees for earned income will be increased from the current 19%1 to 21%2, while the sunset date will be extended from December 31, 2026, to December 31, 2029. If enacted, this Proposal will apply to income arising on or after January 1, 2027.     In addition, the educational requirement for the foreign engineer income tax reduction, which provides a 50% reduction of Individual Income Tax for ten years, will be tightened from “a bachelor’s degree or higher in the natural sciences, engineering, or medicine” to “a doctoral degree.” The sunset date for the reduction will also be extended from December 31, 2026, to December 31, 2029. If enacted, this Proposal will apply to employment contracts entered into on or after April 1, 2027.     The scope of qualifying research institutions at which foreign engineers may be employed will also be narrowed. Universities, government-funded research institutes, and the Agency for Defense Development, among others, will continue to qualify. However, a corporate research institute or dedicated R&D department established within a company will qualify only if the company: (i) claims the research and human resources development expense tax credit for national strategic technology or new growth and original technology; (ii) holds national strategic technology under the National Strategic Technology Fostering Law; (iii) holds strategic technology under the National Advanced Strategic Industry Law; or (iv) holds national core technology under the Industrial Technology Protection Law. If enacted, this Proposal will apply to employment contracts entered into on or after April 1, 2027.     [ Practical Implications ]     The higher flat tax rate would apply from January 1, 2027, and would also apply to foreign employees under existing employment contracts. By contrast, the tightened eligibility requirements for foreign engineer income tax reduction and the narrowed scope of qualifying research institutions will apply only to employment contracts entered into on or after April 1, 2027, and therefore will not apply retroactively to existing contracts. Accordingly, companies that may not satisfy the new requirements may wish to enter into employment contracts by March 31, 2027, so that the existing eligibility requirements, including the bachelor’s degree requirement, continue to apply.     Companies should also review whether their research institutions satisfy the new requirements when assessing the availability of the tax incentives for planned foreign engineer hires.  

6. Implementation of the Side-by-Side Package – Introduction of the Side-by-Side, UPE, Substance-Based and Simplified ETR Safe Harbours (Article 80 of the International Tax Coordination Law; Articles 138, 138-3 and 138-4 of the Presidential Decree thereto, among others)

    The Proposals would incorporate key elements of the OECD/G20 Inclusive Framework’s Side-by-Side Package into Korea’s GloBE rules. The principal changes include the introduction of the following four safe harbours:       The Proposals would also make the following related amendments:     ■ Transitional UTPR Safe Harbour: The end date would be extended from December 30, 2026, to January 3, 2027, to accommodate MNE Groups using 52-week or 53-week fiscal years.     ■ Foreign Tax Credit for QDMTT: QDMTT paid in a foreign jurisdiction would be included among foreign taxes potentially eligible for the Korean foreign tax credit, subject to applicable requirements and limitations.     [ Practical Implications ]     MNE Groups with Korean operations should assess whether the new safe harbours may reduce their Pillar Two tax or compliance burden, particularly in light of their UPE jurisdiction and existing tax incentives. Groups should also consider the potential availability of Korean foreign tax credits for QDMTT paid overseas.  

7. Other Proposals Relevant to Foreign Investors and Non-Residents

    Other proposals relevant to foreign investors and non-residents include the following:     ■ Expansion of Foreign Investor Omnibus Accounts: ETFs and ETNs (excluding leveraged and inverse products) will be added to the financial products tradable through foreign investor omnibus accounts. The specific eligible products will be prescribed by Presidential Decree. The Proposal will apply to payments made on or after January 1, 2027.     ■ Acquisition Cost upon Re-Entry after Exit Tax: Where a former Korean tax resident who paid exit tax upon emigration re-enters Korea more than 5 years after departure and subsequently disposes of the relevant shares, the deemed disposal value applied for exit tax purposes will generally be treated as the cost basis of the shares. Certain exceptions will apply, including where the exit tax was refunded or the share value at re-entry is lower than at departure. The Proposal will apply to persons re-entering Korea on or after January 1, 2027.     ■ VAT Reverse Charge for Services Supplied by Foreign Companies: Where a foreign company has a Permanent Establishment (PE) that issues a tax invoice for a service, the service will be deemed connected with that PE. The reverse charge will therefore not apply, and the PE will be responsible for reporting and paying VAT.     ■ Deadline for Non-Resident Housing Tax Reduction: The existing tax reduction for qualifying non-residents who acquired housing between March 16, 2009, and February 11, 2010, will be limited to transfers made on or before December 31, 2028.  

8. Other Proposals Relating to Investment and R&D Tax Incentives

    The Proposals introduce a new domestic production tax credit and make several other changes to investment and R&D tax incentives:     ■ Domestic Production Tax Credit: A new tax credit will be available to Korean residents and domestic companies that directly produce and sell qualifying items in Korea. Eligible items will be selected from 6 categories: solar power, wind power, secondary batteries, semiconductors, key materials, and AI robot components, with specific items to be prescribed by Presidential Decree. To qualify, core production processes must be performed in Korea, prescribed domestic expenditure requirements must be met, and the relevant assets generally must not have benefited from the integrated investment tax credit. The credit will apply to production and sales in tax years beginning on or after January 1, 2027, and will be available through December 31, 2036.     ■ Regional Preferences for R&D and Investment Tax Credits: The R&D tax credit and integrated investment tax credit will be increased based on the location of the relevant R&D activity or investment. The applicable base credit rate will be multiplied by a regional preference coefficient ranging from 1.0 to 1.5, with higher coefficients generally applying outside the Seoul metropolitan area and in preferred areas. Separate accounting by place of business will be required. The Proposal will apply to R&D expenses incurred and investments made on or after January 1, 2027.     ■ Eco-Friendly Company Vehicles: The annual depreciation and disposal-loss deduction limit for electric and hydrogen company vehicles will increase from KRW 8 million to KRW 10 million per vehicle, while the limit for other vehicles will decrease to KRW 7 million. The Proposal will apply to vehicles newly acquired or leased on or after January 1, 2027.     ■ Expansion of National Strategic Technology: The existing “hydrogen” category of national strategic technology will be expanded into a broader “next-generation energy” category, with qualifying technologies to be prescribed by Presidential Decree. The Proposal will apply to R&D expenses incurred and investments made on or after January 1, 2027.     ■ Technology-Specific Sunset Dates: Instead of a single sunset date per technology group, sunset dates will be determined individually by reference to each technology's or facility's designation year.     [ Practical Implications ]     Companies planning significant investments should consider these new domestic production credit and regional preference when determining the structure and location of future investments. Companies should also review the revised vehicle deduction limits and technology-specific sunset dates in assessing the availability and timing of relevant tax incentives. The Lee & Ko Tax Group has extensive experience and expertise in both domestic and international tax matters. If you require assistance with any tax matters, including the issues discussed in this newsletter, please feel free to contact the Lee & Ko Tax Group at any time. [ See footnotes below ] 1. 20.9% including local income surtax. 2. 23.1% including local income surtax. Author Sang Hoon KIM Partner, Tom KWON Senior Foreign Attorney, Jung Ho RYU Partner, Steve Minhoo KIM Senior Foreign Attorney, Philje CHO Partner, Ross HARMAN Senior Foreign Attorney, Yeonhyung KIM Associate, Hae Min CHU Associate, Kyu Bin (K) KANG Foreign Attorney  

Recent Changes to Korea’s Deferred Examination and Expedited Examination Systems In 2026, Korean patent examination practices saw the abolition of the two-month deadline that had applied to requests to modify or withdraw a request for deferred examination, as well as an expansion of the technologies eligible for expedited examination to include advanced fields such as physical AI and synthetic biology. In addition, the processing period for subsequent examination in expedited examination cases was reduced. The key aspects of these changes and practical considerations from the perspective of foreign applicants are outlined below. 1. Abolition of the Deadline for Modifying or Withdrawing a Request for Deferred Examination     Under Korea’s deferred examination system, an applicant may, within nine months from the date of filing the request for examination, submit a request designating a preferred time for deferral. This allows the applicant to specify a date for the commencement of examination that falls after 24 months from the date of the request for examination and no later than five years from the filing date.     Previously, an applicant wishing to change the preferred time for deferred examination or withdraw the request for deferred examination was required to file a withdrawal or amendment within two months from the date of filing the request for deferred examination. As a result, even where market conditions or product launch schedules changed after the request was filed, applicants faced practical constraints in adjusting the timing of examination.     The amended Article 40-3(2) of the Enforcement Rule of the Patent Act and Article 10-3(2) of the Enforcement Rule of the Utility Model Act removed the two-month deadline, effective May 14, 2026. Accordingly, before the examiner commences substantive examination, an applicant may advance or postpone the preferred time for deferred examination, or withdraw the request itself, without being subject to the previous two-month restriction.     As a result of this amendment, companies and applicants can more flexibly manage the timing of patent examination and the acquisition of patent rights in response to changes in business strategy, including financing, the pace of research and development (R&D), product launch schedules, and market competition. 2. Expansion of Expedited Examination for Advanced Technologies and Shortening of Processing Periods     ■ Expansion of Expedited Examination in the Physical AI and Biotechnology Fields         Expedited examination for advanced technologies is currently available in six fields: semiconductors, displays, secondary batteries, biotechnology, advanced robotics, and artificial intelligence. Following the addition of biotechnology, artificial intelligence, and advanced robotics to the advanced-technology expedited examination program in 2025, the scope of the artificial intelligence field was expanded in 2026 from technologies relating to artificial neural networks to include physical AI. In the biotechnology field, the scope of eligible technologies was also revised to include synthetic biology and related technologies. The eligible technologies and applicable periods were revised and extended pursuant to the notice dated January 30, 2026, designating biotechnology and artificial intelligence technologies eligible for expedited examination.     ■ Shortening of Processing Periods for First and Subsequent Examinations         According to the 2025 performance data released by the Ministry of Intellectual Property (MOIP), the average waiting period until the first examination result was 14.7 months for regular examination and 2.1 months for expedited examination. MOIP plans to reduce the overall average examination waiting period to 14 months within 2026. In particular, for expedited examination cases, MOIP intends to shorten the examiner's internal processing deadline from four months to two months after an applicant submits a response to an office action such as a written opinion or an amendment, thereby also reducing the period until the conclusion of examination.     ■ Considerations for Foreign Applicants         The advanced-technology expedited examination program is not available merely by claiming that the technology falls within a relevant field. To qualify, an application must meet the following requirements: ① the patent classification (CPC) specified in the designation notice must be assigned as the primary classification for the application, and ② additional requirements such as manufacturing or preparing to manufacture the relevant product in Korea. Therefore, foreign applicants should verify whether each individual application meets the requirements for advanced-technology expedited examination. If the requirements are not met, they should consider utilizing other expedited examination programs, such as the Patent Prosecution Highway (PPH) system. 3. Strategic Coordination of Deferred Examination and Expedited Examination     By leveraging both the 2026 amendments to the deferred examination system and the expansion of advanced-technology expedited examination along with the shortening of subsequent examination periods, applicants can manage the speed of patent examination and the timing of acquisition of patent rights more flexibly according to their business stages.     For technologies that require a prolonged period for commercialization, applicants may initially file a request for deferred examination to monitor technology development and market trends while reviewing claim strategies. Subsequently, when a business event occurs that requires prompt securing of rights—such as fundraising, product launch, technology transfer, or overseas expansion—applicants may consider a strategy of withdrawing the request for deferred examination before the examiner commences substantive examination and, if the application meets the requirements for expedited examination, filing a separate request for expedited examination.     Through this approach, companies can control in the initial stages when examination response costs are incurred while, when business needs require, obtaining at an early stage both the first examination result and the subsequent examination results following the applicant's response. However, it should be noted that expedited examination is merely a system that accelerates the examination procedure and does not guarantee a decision to grant a patent or registration. Author Hyungwon CHAE, Sanghyun KIM 2026 Updates to Trademark Examination Practice in Korea     The Ministry of Intellectual Property (MOIP) has been introducing a series of amendments to its regulations and examination practices aimed at making trademark examination faster and fairer.     The key changes include: ① clarification of when examination suspensions due to prior-filed applications are lifted; ② simplification of the advance-notice procedure before a decision to reject; ③ assignment of new examiners in remanded cases; and ④ revisions to goods classification and the criteria for determining similarity between goods. These changes are outlined below. 1. Clarification of When Examination Suspensions Based on Prior-filed Applications Are Lifted     Under current trademark examination practice, where a prior-filed application covers a mark identical or similar to the mark in a later-filed application, examination of the later-filed application may be suspended until the status of the prior-filed application is finally determined. Previously, however, it was unclear when examination of the later-filed application could resume, which sometimes resulted in prolonged delays.     Under the amended “Regulations on Trademark Examination Administration,” effective July 1, 2026, if a decision to reject the prior-filed application becomes final and conclusive with respect to the relevant designated goods, thereby eliminating the conflict with the designated goods in the later-filed application, the examination suspension is deemed lifted as of the date on which the decision becomes final and conclusive.     Accordingly, where examination of a later-filed application has been suspended due to a prior-filed application, it is expected to resume more promptly 2. Simplification of the Advance-Notice Procedure Before a Decision to Reject     Previously, even where an applicant did not submit a written response or amendment following a notice of grounds for rejection under Article 38(1) of the Trademark Act—such as grounds concerning the classification or description of designated goods—an advance notice reiterating the same grounds would still be issued before a decision to reject the application.     Under the revised practice effective July 1, 2026, this additional advance-notice step will be omitted where the applicant does not respond to the initial notice of grounds for rejection.     Accordingly, if an applicant does not respond to the initial notice, a decision to reject the application may be issued without further notice. Applicants should therefore not wait for an additional notice before responding and should submit any necessary written response or amendment within the period specified in the initial notice. 3. Assignment of New Examiners in Remanded Cases     Previously, when the Korean Intellectual Property Trial and Appeal Board (IPTAB) cancelled a decision to reject a trademark application and remanded the case to the MOIP, the examiner who had participated in the original decision could re-examine the application.     Under the amended regulations effective July 1, 2026, the principle that a person involved in the original decision should not participate in subsequent proceedings has been extended to the examination stage. Accordingly, an examiner who participated in the original decision to reject the application will not take part in the re-examination following remand. Instead, a new examiner will be assigned to the case.     This change is expected to further enhance the objectivity and procedural fairness of examinations in remanded cases. 4. Revisions to Goods Classification and the Criteria for Determining Similarity Between Goods     Since January 2026, the criteria for determining similarity between pharmaceuticals for human use and veterinary pharmaceuticals, as well as between medical devices for human use and veterinary medical devices, have been revised to better reflect actual market conditions.     In addition, the 13th edition of the Nice Classification took effect on January 1, 2026. Key changes include the transfer of spectacles/eyeglasses, spectacle/eyeglass lenses, and sunglasses from Class 9 to Class 10, as well as the classification of essential oils according to their intended purpose—for example, essential oils for use in manufacture in Class 1 and essential oils for flavoring food and beverages in Class 30     Accordingly, in fields affected by these changes, applicants should select the appropriate classes and designated goods in light of their current business activities and intended future use. 5. Practical Implications     Taken together, these revisions are intended to reduce unnecessary procedural steps and examination delays while enhancing the fairness of examinations in remanded cases.     In particular, if an applicant does not respond to the initial notice of grounds for rejection, a decision to reject the application may be issued without further notice. Applicants should therefore carefully manage the applicable deadlines and submit any necessary written response or amendment within the prescribed period. In addition, before filing an application, applicants should review the revised goods classification and the criteria for determining similarity between goods to avoid omissions or misclassification in their list of designated goods. Author Micheong LEE Online Oral Proceedings at Korean IPTAB Accessible from Overseas     The Korean Intellectual Property Trial and Appeal Board (IPTAB) has been fully implementing Internet Video Oral Proceedings starting in July 2026, utilizing the Korean government’s ‘On-Nara Personal Computer (PC) Video Conference System.’     Parties and their counsel in patent trials will now be able to participate in oral proceedings via the internet from their desired locations, such as offices or homes, without having to appear in person at the IPTAB (located in the city of Daejeon) or the Seoul Office of the Ministry of Intellectual Property (MOIP). In particular, it is expected that participation in the proceedings by overseas clients will be significantly expanded, as parties residing overseas will be able to attend oral proceedings and present their opinions without having to travel to South Korea.     Previously, attending oral proceedings required either appearing in person at the IPTAB (Daejeon) or participating, from the Seoul Office of the MOIP, in remote video proceedings connecting Daejeon and Seoul.     The newly introduced Internet Video Oral Proceedings allow parties to access and participate in the video conference system from anywhere via the internet, without having to visit the IPTAB or Seoul Office. By simply entering the participant’s name and the access code shared by the IPTAB on the On-Nara PC Video Conference System website 1) operated by the Korean government, multiple parties can simultaneously access the video conference system. In addition, a hybrid method is also possible, where legal counsel attends oral proceedings in person at the IPTAB while clients participate via Video Oral Proceedings from overseas or domestic locations. Accordingly, overseas clients can efficiently participate in proceedings while reducing overseas travel time and business trip expenses.     Therefore, the Internet Video Oral Proceedings are expected to be widely utilized by overseas clients, as Korean counsel and overseas parties can jointly participate in oral proceedings without location restrictions and present their arguments directly to the trial panel. 1) On-Nara PC Video Conference (https://vc.on-nara.go.kr:8089/guest/) Author Joonyoung KWAK, jaeyoung.park Recent Court Decision on the Criteria for Determining “Clinical Significance” of Cell and Gene Therapy Products     The Seoul Administrative Court recently rendered a decision (Case No. 2025 Guhap 55403, decided on July 9, 2026) setting aside the Ministry of Food and Drug Safety’s (MFDS) rejection of a marketing approval application for a stem cell therapy. In doing so, the Court clarified the meaning of, and the criteria for determining, “clinical significance,” a key criterion in the safety and efficacy review of advanced biopharmaceuticals.     RNL Regeneration Medicine Research Institute Co., Ltd. (hereinafter referred to as the “Plaintiff”), represented by Lee & Ko, applied twice for marketing approval of JointStem®, an autologous adipose-derived mesenchymal stem cell therapy (classified as a cell therapy product under the 「Act on the Safety of and Support for Advanced Regenerative Medicine and Advanced Biological Products」) indicated for severe knee osteoarthritis. However, the MFDS rejected the applications on the grounds that “there was insufficient evidence to establish clinical significance,” based on the findings of the Central Pharmaceutical Affairs Council that, “although statistical significance had been demonstrated in the Phase III clinical trial, superiority in therapeutic efficacy over osteoarthritis treatments already on the market had not been established.”     In this regard, Article 19(4) of the MFDS Notice, “Regulation on Marketing Approval and Review of Advanced Biopharmaceuticals,” provides the following standard for the review of clinical trial data in evaluating the safety and efficacy of advanced biopharmaceuticals:  

4. Evaluation: Clinical significance shall be recognized where the review of the submitted clinical trial data demonstrates such with respect to the relevant indication(s). For confirmatory therapeutic clinical trials, significance must be established in accordance with the pre-specified statistical analysis plan, unless exceptional circumstances are recognized.

    In its decision, the Seoul Administrative Court held that (i) once statistical significance has been established in accordance with a pre-approved clinical trial plan, clinical significance should be recognized, and (ii) the statutory requirements for marketing approval under the Pharmaceutical Affairs Act are limited to “safety and efficacy,” and it is unlawful to require proof of “superiority” over existing therapies.     This decision is particularly significant in that it establishes a clear standard for determining “clinical significance,” which had previously been subject to the discretion of regulatory review practice, holding that where statistical significance is demonstrated in a Phase III clinical trial in accordance with the pre-specified statistical analysis plan, clinical significance, along with safety and efficacy, should, in principle, be recognized.     In particular, in the field of advanced biopharmaceuticals, including cell therapy products and gene therapy products, direct comparison with existing therapies is often difficult, and products are frequently developed through small-scale clinical trials. As a result, whether “superiority over existing therapies” is required has served as an obstacle to obtaining marketing approval. By making clear that such a superiority requirement is an unlawful criterion without any basis under the Pharmaceutical Affairs Act, this decision has served as a catalyst for enhancing the legal predictability of the marketing approval review process. For more detailed information regarding this decision, please refer to the Lee & Ko Healthcare Group Newsletter. Author Jayoung KOO, Yongju LEE  

On June 26, 2026, ten members of Korea’s National Assembly, led by Representative Lee Kang-il of the Democratic Party of Korea, proposed a bill that, if enacted, would establish a statutory basis for imposing a digital services tax (DST) on certain foreign corporations providing digital services to users in Korea. If enacted, the bill would amend the International Tax Coordination Law (ITCL) to require an in-scope foreign corporations to pay an amount equal to 2% of its relevant Korean digital services revenue as corporate income tax. The bill would also introduce two supporting measures: it would require certain large online platform businesses to publicly disclose detailed information regarding their foreign related-party transactions, and would recharacterize certain excessive payments to foreign related parties as non-deductible deemed dividends. This newsletter focuses principally on the digital services tax, which represents the proposal's most significant departure from Korea's existing approach. The bill is currently pending before the Finance and Economic Planning Committee of Korea’s National Assembly. As a member-sponsored bill, it remains at an early stage of the legislative process and may be substantially revised or may not ultimately be enacted. Nevertheless, in view of the current implementation of Digital Services Taxes in some European countries including France and Italy, the proposal is a notable legislative development that warrants close attention from multinational digital businesses. 1. Key Provisions of the Bill     1) A 2% corporate income tax on Korean digital services revenue         The proposed Article 34-3 of the ITCL would apply where a foreign corporation (i) conducts an online platform or other business prescribed by Presidential Decree; (ii) provides online advertising or other prescribed digital services through an information and communications network to users in Korea; and (iii) earns revenue exceeding a threshold to be prescribed by Presidential Decree. An in-scope foreign corporation would be required to pay corporate income tax equal to 2% of the relevant revenue. The calculation of the revenue, the method for calculating the tax, and the filing and payment procedures would likewise be delegated to Presidential Decree.         The proposal is therefore incomplete in several crucial respects. In particular, the bill does not yet specify: the global or Korean revenue thresholds; the full range of covered digital services; the criteria for determining whether a user is located in Korea; the sourcing rules for Korean digital services revenue; or whether any relief would be available where the same income is already subject to Korean corporate income tax.         These matters, which would largely determine the scope and practical effect of the proposed tax, are expected to be addressed through subsequent Presidential Decree should the bill proceed.     2) Enhanced disclosure obligations for large online platforms         An online platform or other prescribed business would be required to publicly disclose information regarding transactions with foreign related parties where (i) its revenue for the preceding fiscal year is at least KRW 1 trillion and (ii) the amount of its foreign related-party transactions exceeds a threshold prescribed by Presidential Decree. The required disclosures would include the identity and location of the related party, the nature and amount of the transactions, the pricing basis, the detailed scope of the services received, comparable third-party prices and the transfer pricing method applied.         Failure to disclose the relevant information, or the submission of false information, could result in an administrative fine equal to 2% of the undisclosed or falsely disclosed transaction amount. 2. Why the Proposal Is Significant     The principal significance of the bill lies not merely in its 2% rate, but in the legal form in which the tax would be introduced. The proposal would insert a specific DST provision into the ITCL and expressly require the relevant foreign corporation to pay the charge as corporate income tax. This distinguishes the bill from Korea’s previous formally introduced legislative measures concerning foreign digital businesses, which generally focused on (i) expanding the VAT regime applicable to cross-border electronic services or (ii) requiring foreign corporations to provide the Korean tax authorities with information regarding their Korean business activities and revenue. Accordingly, the bill appears to represent Korea’s first formally introduced legislative proposal to impose a revenue-based DST in the form of corporate income tax.     The corporate income tax label may have been selected to position the charge within Korea’s existing direct-tax framework. However, the statutory label would not necessarily resolve questions concerning the tax’s treatment under Korea’s tax treaties or under foreign tax credit systems. Because the charge would be calculated on gross revenue and could apply without a permanent establishment or other traditional taxable presence in Korea, questions may arise as to whether it constitutes a covered tax for treaty purposes or a creditable income tax in the foreign corporation’s residence jurisdiction. 3. Korea’s Previous Approach to Digital Economy Taxation     Lately, Korea has generally sought to protect its tax base through the application and expansion of existing tax rules rather than through a separate gross-revenue tax. In tax audits and disputes involving multinational digital businesses, recurring issues have included whether a foreign enterprise maintains a permanent establishment in Korea; whether payments characterized as service fees should instead be treated as royalties; whether a Korean entity has received arm’s-length compensation for its functions, assets and risks, including functions considered under the development, enhancement, maintenance, protection and exploitation (DEMPE) framework; and whether the legal characterization of a transaction is consistent with its economic substance. This approach has enabled the Korean tax authorities to pursue digital economy related tax cases within the existing corporate income tax, transfer pricing, royalty and permanent establishment framework, but it has required highly fact-intensive analyses and has frequently raised difficult questions under Korea’s tax treaties, mostly leading to ultimate failures at the court.     Korea’s earlier legislative initiatives concerning the digital economy did not seek to impose a direct tax on the income or revenue of foreign digital businesses. Instead, they focused primarily on establishing a domestic nexus and expanding the scope of VAT on cross-border digital services. Here are some of the examples:     ■ In September 2018, lawmakers proposed amending the Act on Promotion of Information and Communications Network Utilization and Information Protection (the Network Act) to require certain large IT companies to install servers in Korea, which would have provided a domestic basis for taxation. The proposal was subsequently withdrawn.     ■ A bill introduced in November 2018 sought to amend the VAT Act to expand the definition of taxable electronic services supplied by foreign businesses to include online advertising, cloud-computing services, and sharing-economy services, as well as certain business-to-business transactions. The substance of that proposal was incorporated into an alternative bill, and the expanded rules took effect in July 2019.     ■ Another bill introduced in November 2018, also amending the VAT Act, proposed a broader list of covered services, including remote education, electronic publications, and remote website and computer-system installation, maintenance, and management services, but lapsed at the end of the National Assembly’s term.     ■ A proposal introduced in March 2019, which would have amended the VAT Act to extend the electronic-services regime to business-to-business transactions more generally, likewise lapsed.     These initiatives expanded Korea’s ability to tax cross-border digital transactions, but they did so principally through VAT imposed on consumption. They did not establish a direct tax on the Korean-source income or revenue of foreign digital businesses.     Viewed in this historical context, the current bill represents a material escalation. It seeks to establish a direct, market-based tax calculated by reference to revenue from Korean users, without regard to the existence of a traditional physical presence in Korea and without requiring the tax authorities first to prevail in a fact-intensive transfer pricing or permanent establishment dispute. Importantly, the bill would not replace Korea’s traditional tools; an affected group could face both the 2% DST and separate transfer pricing or withholding tax adjustments relating to its Korean operations. 4. International Context     The proposal arises against the backdrop of continuing uncertainty surrounding Pillar One of the OECD/G20 Inclusive Framework. Amount A of Pillar One was designed to reallocate a portion of the profits of the world’s largest and most profitable multinational groups to market jurisdictions, while the accompanying multilateral framework contemplated the removal of existing DSTs and a commitment not to introduce new measures of a similar nature. The absence of a fully implemented multilateral solution has nevertheless led a number of jurisdictions to retain or consider unilateral digital taxes.     In the rationale accompanying the proposal, the sponsoring lawmakers point to the continuing international debate over digital taxation as a response to perceived tax avoidance by large global IT companies. They also refer to overseas precedents, including the Canadian model 1, under which a specified percentage of revenue derived from digital services, such as digital advertising, is subject to a DST. Against this backdrop, the proposal is intended to establish a tax framework suited to the digital-platform economy and provide an explicit statutory basis for Korea to impose a DST. 5. Outlook     The bill remains at a preliminary stage, and many of its critical design features have been delegated to a future Presidential Decree. Its ultimate scope and prospects for enactment therefore remain uncertain. As a member-sponsored bill, the proposal must still clear committee review in the Finance and Economic Planning Committee and the Legislation and Judiciary Committee, followed by approval at a plenary session, before it can be promulgated. Even if enacted, subordinate legislation would still be required to implement numerous details delegated to Presidential Decree. Member-sponsored tax bills of this kind are frequently revised or consolidated into a committee alternative at the subcommittee stage, or lapse at the end of the National Assembly's term. Near-term enactment therefore appears unlikely, and in view of the government’s authority in tax legislative initiative, any eventual legislation may well emerge through the government's annual tax reform process rather than this bill in its present form.     Moreover, any unilateral DST would need to be considered against the risk of potential trade retaliation from the United States. President Trump recently warned that any country imposing a DST targeting U.S. companies could face a 100% tariff on goods exported to the United States, underscoring the broader political and trade considerations that could affect the proposal’s progress. 2 Indeed, even Canada, which the sponsoring lawmakers cite as a model for the proposal, rescinded its own DST in June 2025, halting collection on the eve of its first payment deadline in order to advance broader trade negotiations with the United States.     Nevertheless, the proposal needs to be monitored. Whereas previous legislative measures primarily expanded the scope of VAT or sought additional information from foreign digital businesses, the current bill would, if enacted, establish a substantive taxing right over revenue derived from the Korean digital-services market and expressly characterize the resulting charge as corporate income tax. Multinational digital businesses should therefore view the proposal not merely as another compliance initiative, but as a potential change in the basis on which Korea asserts taxing rights over participation in its digital market. Lee & Ko’s Tax Group has extensive experience advising on tax legislation and proposed statutory amendments, as well as international tax and digital-economy taxation matters. Notably, when DSTs, diverted profits taxes, equalization levies, and similar measures were under active international discussion in 2018, Lee & Ko advised in connection with the preparation and review of draft legislation. Please feel free to contact us should you require assistance with any tax-related matter, including the issues discussed in this newsletter. [See footnotes below] 1) It is noteworthy, however, that Canada subsequently announced on June 29, 2025, that it would rescind its DST and halt the collection scheduled for June 30, 2025, in order to advance broader trade negotiations with the United States. Department of Finance Canada, Canada Rescinds Digital Services Tax to Advance Broader Trade Negotiations with the United States (June 29, 2025). 2) See Financial Times, Donald Trump Warns of 100% Tariff on Countries Implementing Digital Services Tax (June 26, 2026). President Trump stated that the threatened tariff would apply notwithstanding existing or future trade agreements

In 2026, the Korea Fair Trade Commission (KFTC) has taken two significant steps to address the growing risk of AI-related false and exaggerated advertising. First, the KFTC amended its “Review Guidelines on Labelling and Advertising for Endorsements and Testimonials” (Review Guidelines) to capture AI-generated “virtual persons” within the existing endorsement framework so that there is clear disclosure whenever such virtual persons are used to promote a product. The amendments to the Review Guidelines took effect on June 1, 2026. Second, on June 23, 2026, the KFTC proposed amendments to its “Notice on the Operation of Substantiation of Labelling and Advertising” (Substantiation Notice) which would require businesses to substantiate advertising claims involving AI and new technology prior to publication and to produce supporting evidence on request or become subject to an order to suspend the advertisement. Following the conclusion of the public comment period on July 13, the proposed amendments to the Substantiation Notice are expected to be implemented. Together, these measures reflect the KFTC’s broader effort to combat “AI-washing” (the practice of overstating or fabricating AI involvement in products and services to influence consumer purchasing decisions) and suggest that legal risk associated with unsubstantiated or improperly disclosed AI-related advertising claims will continue to rise. The key details and implications of the Review Guidelines and Substantiation Notice are as follows: I. Review Guidelines for Endorsements and Testimonials     The key contents of the amendments to the Review Guidelines are as follows:     A. Express inclusion of “virtual persons”         The previous Review Guidelines defined the subjects of endorsements and testimonials as consumers, celebrities, experts, and organizations or institutions. The amendments add “virtual persons” created using AI or similar technology to this list. This addition now establishes a clear basis for AI-based advertising to be regulated within the existing framework.     B. Mandatory disclosure obligation for advertisements featuring virtual persons         When an AI-generated virtual person is used in an endorsement or testimonial, the advertiser is now required to disclose clearly that the person is a virtual character. The disclosure must be made in a manner that consumers can clearly and easily recognize.         ■ Text-based media (e.g., blogs, etc.): The title of the post or the beginning text of the body must include a statement such as “This post contains a virtual person generated by artificial intelligence (AI)” or “Includes virtual person.”         ■ Photo or video media: During the appearance of a virtual person, text such as “Virtual Person” must be displayed in close proximity to the virtual person.     C. Regulation of “experience-based claims” by virtual persons         The amended Review Guidelines also expressly provide that where a virtual person’s endorsement or testimonial is presented based on an actual experience, such as user review, any content that does not reflect a real experience may constitute an unlawful advertisement (if false, exaggerated, or deceptive) under the Fair Labeling and Advertising Act (FLAA).         ■ For example, a before and after testimonial featuring an AI-generated virtual consumer, with content that does not reflect reality used to exaggerate the efficacy or effects of a product, would be a representative example of unlawful advertising. II. Substantiation Notice     The labelling and advertising substantiation system under the FLAA requires businesses to bear the burden of proving factual claims made in labelling and advertising. The Substantiation Notice sets out the specific operating standards for this system, including the request, review and processing of substantiating materials.     The current Substantiation Notice has not been substantively updated since 2015 and does not expressly address claims relating to AI or other recently developed technologies, nor does it reflect the KFTC’s enforcement practices developed thereafter. Thus, the proposed amendments are intended to bring AI- and new-technology-related claims expressly within the scope of the Substantiation Notice and, in order to prevent the spread of consumer harm, allows the KFTC to issue a cease-and-desist order against an advertisement where a business fails to submit the required substantiating materials.     The key contents of the proposed amendments to the Substantiation Notice are as follows:     A. Clarification on object of request for substantiating materials         The current Substantiation Notice allows the KFTC to request substantiating materials relating to         (i) direct effects on the human body,         (ii) safety or the environment,         (iii) performance, efficacy or quality, and         (iv) other matters that materially affect consumers’ purchasing decisions or trade order.         As claims regarding AI functionality in products and services have become more common, the proposed amendments expressly clarify that advertising claims relating to AI functionality and other new technologies also fall within this scope, such as the following examples:         ■ Claims of having adopted new technology, such as describing a product as “safer through artificial intelligence (AI) technology”;         ■ Claims involving safety, environmental or new-technology-related marks or certifications; and         ■ Environmental claims relating to eco-friendliness, recyclability or reduced carbon emissions.     B. Specification of procedures for requesting and submitting substantiating materials         Under the current Substantiation Notice, substantiating materials must currently be submitted, in principle, within 15 days of the KFTC’s request, with a possible extension of up to 30 days (from the date the relevant cause ceases) where submission is impossible due to force majeure or other unavoidable causes. The proposed amendments to the Substantiation Notice set out the qualifying grounds for extension in greater detail, namely: (i) force majeure; (ii) a merger or acquisition, or the commencement of rehabilitation, bankruptcy or similar proceedings; (iii) seizure or temporary custody of the books and records or evidentiary documents of the business by an authorized agency; or (iv) a fire or other disaster causing serious disruption to the company’s operations. Also, in order to reinforce the principle that businesses should substantiate their claims before advertising, the amendments to the Substantiation Notice shorten the maximum extension period from 30 days to 15 days.         In addition, where a business continues to run an advertisement without submitting the requested substantiating materials within the applicable (including any extended) period, the proposed amendments to the Substantiation Notice would allow the KFTC to issue a cease-and-desist order against that advertisement until the proper materials are submitted.     C. Introduction of self-assessment checklist         The proposed amendments to the Substantiation Notice also introduce a checklist to help businesses assess, both before and after publishing an advertisement, whether they have complied with their substantiation obligations, including in relation to substantiation methodology, evidence-gathering and the submission of materials. III. Implications of Amendments     The amendment of the Review Guidelines and the proposed amendments to Substantiation Notice show that the KFTC is bolstering its enforcement of the FLAA. This includes the KFTC’s goal to strengthen economic sanctions for unlawful advertising. Amendments to the Enforcement Decree under the FLAA, which significantly raise administrative fines for repeat violators and reduce financial incentives for mitigating factors, took effect in July 2026.     Additionally, the KFTC established a dedicated “Labelling and Advertising Monitoring Team” on March 23, 2026. Together with amendment on the Review Guidelines and the proposed amendments to the Substantiation Notice, these measures suggest that the legal risk associated with unsubstantiated claims relating to AI, new technology or the environment will continue to rise.     With the KFTC’s increasing enforcement interest in AI-related advertising activities, companies should consider establishing proactive internal and external review processes for the creation and execution of advertising, supported by the KFTC’s new self-assessment checklist, to mitigate the associated risk.