Bithumb, a cryptocurrency exchange based out of South Korea, has been hit with a massive tax bill, which it plans to contend. On December 29, local news source Pulse reported the occurrence, citing documents shared by Vidente Co., a communications equipment manufacturer and the largest shareholder in the company.
Withholding Tax Applies
According to the report, Vidente explained that the National Tax Service forced Bithumb to pay withholding taxes on trading activities conducted by foreign customers. The tax authority reportedly considers the exchange’s crypto trading of foreigners as miscellaneous income, while all capital gains gotten from trading activities are recognized as assets.
The South Korean communications giant allegedly found out about 80 billion won (about $68.9 million) tax obligation earlier this week, after it acquired a 34.24 percent stake in Bithumb’s parent company.
According to a separate report from Korea Herald, any foreign corporation that doesn’t have a permanent establishment in South Korea will need to pay the withholding tax. However, these rules haven’t been enforced as far as the crypto industry is concerned.
The news medium added that while Bithumb will adhere to the rule, it will be looking to put a fight to avoid paying the bill. The company reportedly sees this requirement as unfair, as it already remits both income and corporate taxes every year. It also reported that several other crypto exchanges in the country are now on high alert, as an unexpected tax bill could be sent their way too.
Details concerning the litigation are still unknown, but it could shape up to be one of the most critical battles of the crypto space in 2020. Taxation is an important part of exchanges and asset custodians’ operations, and defining whether withholding tax will be levied on these companies is something that many will be on the lookout for.
Slow Progress Continues in Crypto-Related Tax Enforcement
Murkiness, as regards taxation laws, is just one of the problems that the cryptocurrency industry currently faces. In the United States, disputes are ongoing concerning the acceptable scope of the Internal Revenue Service (IRS) and its search for crypto traders and investors’ transactions.
William Zietzke, a crypto investor from Washington, recently accused the tax watchdog of overreaching its powers, after it requested his transaction records from several crypto exchanges. The case is still in litigation, although the courts have sided notably in his favor.
Also, while the IRS provided guidance on crypto-related taxable events back in October, it was found to be inaccurate in some regards, including its definitions of hard forks and airdrops.
Congress already wrote the tax authority to clear this confusion up, so there’s optimism regarding the tax standing of cryptocurrencies going forward.