South Korean cryptocurrency exchange Bithumb is facing pressure from the government, which has issued tax bills totaling 83.3 billion Korean won to over 17,000 Bithumb users. In response, Bithumb not only opposes the tax bills but also promises to fully pay the taxes involved on behalf of its users.
Background:
South Korean “Donation Law” refuses to accept cryptocurrency donations, except for government-issued stablecoins.
Recently, the National Tax Service has issued tax bills totaling 83.3 billion Korean won to over 17,000 Bithumb users, involving activity rewards from 2018 to 2021. Of this amount, tax notices amounting to 20.2 billion Korean won have already been sent, and an additional 19 billion Korean won in tax notices are expected to be added.
Bithumb challenges the legal basis of the National Tax Service:
In response to the tax penalties from 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 up to 40 billion Korean won. To ensure that users are not subjected to undue financial pressure, Bithumb will also assign a team of professional tax experts to provide users with comprehensive income tax assessments, tax consultation services, and support for appeals.
Bithumb is currently filing an objection to the National Tax Service’s penalties through a tax tribunal application. Bithumb believes that assets paid through activities, such as cryptocurrency and fee rebates, should be considered as sales discounts related to trading performance rather than other income. According to the Income Tax Law, they should not be included as taxable income. Past court rulings have also supported the position of exchanges in similar cases, including judgments against Bithumb and other exchanges, recognizing a lack of legal basis for the National Tax Service to consider cryptocurrency profits as income.
Reference for Taiwan: Will commission rebates from exchanges be taxed in the future?
In recent years, disputes between South Korean cryptocurrency exchanges and the National Tax Service regarding tax penalties have been frequent. Especially in the absence of clear legal basis, the taxation treatment of cryptocurrencies has become more complicated. Between 2015 and 2017, some Bithumb users were taxed up to 80.3 billion Korean won on asset transfer profits, based on a profit of 332.5 billion Korean won. However, in February of this year, the court ruled that the National Tax Service’s taxation treatment lacked legal support, thus canceling the original tax penalties.
It’s not just Bithumb; other Korean exchanges also face similar issues. In April of this year, the court ruled in favor of another exchange regarding a tax penalty of approximately 130 million Korean won related to other income sources. These rulings demonstrate that when tax penalties do not align with actual legal provisions, the court tends to support the exchanges’ appeals.
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. This ensures timely payment of taxes and reduces the possibility of tax evasion.
Since Taiwan has not yet established specific laws for cryptocurrency platforms and VASP (Virtual Asset Service Provider) businesses, it has referred to the experiences of many countries, including South Korea, in establishing the regulatory framework for VASPs. For Taiwanese cryptocurrency users and exchanges, future tax policies may be an important focus. On the other hand, designing a tax system that prevents tax evasion while supporting the development of the cryptocurrency industry will be a major challenge for the Taiwanese government.