Bithumb, a major crypto exchange in South Korea, has taken the country’s tax authority to court over a “groundless” tax imposed on the exchange. Experts explain that currently there are no grounds to tax crypto transactions in South Korea and existing tax laws do not apply to crypto transactions.
Do or Die Affair on Crypto Tax Bill
While South Korea currently has no law to tax crypto profits, the country’s National Tax Service (NTS) has imposed a tax of 80.3 billion won ($69 million) on Bithumb, one of the largest crypto exchanges in the country. Bithumb subsequently filed a complaint with the country’s Tax Tribunal against the NTS alleging that the agency’s tax imposition on it was “groundless,” the Korea Times reported the news, elaborating that “The firm claims that cryptocurrency is not a legally recognized currency and therefore the authorities lack the grounds to impose a tax of any kind.”
The Tax Tribunal has 90 days to determine whether to grant or dismiss Bithumb’s motion which seeks to nullify the 80.3 billion won in withholding tax imposed by the NTS, the news outlet added. “We cannot comment on the ongoing matter. We will await the judgment from the Tax Tribunal,” an NTS official was quoted as saying.
NTS Holding on to Crypto Money
Experts have speculated about why the NTS has slapped Bithumb with a tax bill when the current Korean tax law does not apply to crypto transactions. The Ministry of Economy and Finance, which oversees the country’s economic policy, recently explained that individual investors’ crypto profits are not taxable in South Korea. However, work is underway to amend the tax code to allow the taxation of cryptocurrency.
Choi Hwoa-in, an adviser to the Financial Supervisory Service, explained to the Korea Times that with a growing number of traders profiting handsomely from cryptocurrencies over the past few years, the tax authority has viewed this sector as a new source of taxable income.
Choi suspects that “the NTS is putting the issue front and center for public discourse in a clever move seeking to establish grounds to impose tax on what essentially remains tax-free gains,” the publication conveyed.
Bithumb Taking a Hit from the NTS
To tax Bithumb, the NTS has categorized foreign traders’ crypto gains as miscellaneous income. However, earnings from real estate or stock trading are categorized as capital gains in South Korea. Choi further explained that
“Bitcoin under the current law is not an asset. It is clear and simple. The Ministry of Economy and Finance already made that clear.”
Adding that “the NTS pushing ahead with the tax imposition is baseless and groundless, especially since it is still awaiting the ministry’s opinion on the same matter.”
In South Korea, capital gains tax is collected for every transaction made. Ahn Chang-nam, a tax professor at Kangnam University, believes that it is “realistically difficult” for the government to know about every crypto transaction. “It seems like the NTS took a practical approach in categorizing gains from crypto asset trading as miscellaneous assets,” Ahn opined. Choi added, “Bithumb filing a suit after paying the full amount in that sense is a calculated move expecting partial to [a] full return of the amount paid.”