South Korean cryptocurrency exchange Bithumb is facing pressure from the government with regard to tax liabilities totaling KRW 83.3 billion ($74 million) for over 17,000 Bithumb users. In response, Bithumb not only opposes the tax demands but also promises to fully pay the taxes on behalf of the users.
Background:
South Korea’s “Donation Law” prohibits the acceptance of cryptocurrency donations, excluding government-issued stablecoins.
Additional Information:
Crazy! South Korean cryptocurrency trading volume “surpasses stock market,” with Bitcoin kimchi premium exceeding KRW 100 million.
Bithumb is currently facing pressure from the National Tax Service regarding tax penalties for its users. The National Tax Service has issued tax bills totaling KRW 83.3 billion ($74 million) for over 17,000 Bithumb users, covering activity rewards from 2018 to 2021. Of this amount, tax notices totaling KRW 20.2 billion ($18 million) have already been issued, and it is expected that an additional KRW 19 billion ($17 million) will be added.
Bithumb Challenges the Legal Basis of the National Tax Service
In response to the tax penalties imposed by the National Tax Service, Bithumb not only opposes them but also promises to fully pay the taxes involved. Bithumb estimates that the tax amount could reach KRW 40 billion ($35 million). To ensure that users do not face undue financial pressure, Bithumb will also assign a team of professional tax experts to provide users with comprehensive income tax assessments, tax consulting services, and appeal support.
Bithumb is currently filing an objection to the National Tax Service’s penalties through tax litigation. Bithumb believes that cryptocurrencies and transaction fee rebates paid through activities should be considered sales discounts related to transaction performance, rather than other income. According to the Income Tax Law, they should not be included as taxable income. In similar cases in the past, the courts have supported the position of exchanges, including judgments on Bithumb and other exchanges, recognizing the lack of legal basis for the National Tax Service to consider cryptocurrency profits as income.
Taiwan References South Korea, Will Future Commission Rebates of Exchanges be Taxable?
In recent years, there have been frequent disputes between South Korean cryptocurrency exchanges and the National Tax Service regarding tax penalties. Especially in the absence of clear legal basis, the tax treatment of cryptocurrencies has become more complex. Between 2015 and 2017, some Bithumb users were subject to taxes amounting to KRW 80.3 billion ($71 million) on asset transfer profits, based on profits of KRW 332.5 billion ($295 million). However, in February of this year, the court ruled that the National Tax Service’s tax penalties on these profits lacked legal support, thus canceling the original tax penalties.
Not only Bithumb but also other exchanges in South Korea face similar issues. In April of this year, the court made a ruling on another exchange, involving withholding tax penalties on other income totaling around KRW 130 million ($116,000), supporting the position of the exchange. These judgments indicate that when tax penalties do not align with actual legal provisions, the courts tend to support the appeals of the exchanges.
Withholding Tax: When individuals receive income such as wages or interest, a portion of the tax is deducted and paid directly to the tax authorities, so what you receive is the net amount after tax. This method helps ensure timely payment of taxes and reduces the possibility of tax evasion.
As Taiwan has not established specific laws for cryptocurrency platforms and VASP (Virtual Asset Service Provider) businesses and has referred to the experiences of various countries, including South Korea, the future tax policies for cryptocurrency users and exchanges in Taiwan will be an important focus. On the other hand, for the Taiwanese government, designing a tax system that can prevent tax evasion while supporting the development of the cryptocurrency industry will be a major challenge.
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