Popular cryptocurrency exchange Bithumb is taking this battle over the payment of an 80 billion won ($69 million) to court.
As the Korea Times reported yesterday, the South Korean exchange has filed a complaint with the National Tax Service (NTS), arguing that there were no grounds for the tax payment to be levied against the firm. The exchange’s argument rests on the fact that cryptocurrencies aren’t recognized as currency in the country, and the exchange is claiming that being forced to pay a tax on an unrecognized asset is baseless.
Unfair Tax Requirements
Late last year, local news source Pulse reported that the company was planning to dispute the tax obligation, citing documents shared by Vidente Co.- a local communications equipment manufacturer that is also the largest shareholder in the exchange. As the report noted, Vidente explained that the NTS forced Bithumb to pay withholding taxes on all trading activities conducted on its platform by foreign customers.
The report pointed out that the NTS considers all trading activities by foreigners on the exchange as miscellaneous income, while all of the exchange’s capital gains from trading are considered as assets. Vidente reportedly found out about the tax obligation after it successfully acquired 34.25 of the exchange’s parent company.
The National Tax Service has announced it will withhold tax from foreign customers of Bithumb, in the first confirmed instance of the Korean government taxing cryptocurrency transactions.https://t.co/xiG7vybjbA
— Korea JoongAng Daily (@JoongAngDaily) December 29, 2019
A separate report from the Korea Herald also pointed out that all foreign companies that don’t have permanent establishments in South Korea will be obligated to pay withholding taxes. However, the rules haven’t been enforced on companies in the crypto space, hence Bithumb’s bone of contention. While the exchange was reportedly planning to comply with the rule, the Korea Herald confirmed that it was working on fighting the tax bill as well. The company reportedly saw the obligation as unfair, especially since it already pays both corporate and income taxes yearly to the NTS.
Obvious Calls for Regulatory Clearance
Highlighting the company’s argument, Choi Hwoa-in, an adviser to the Financial Supervisory Service, reportedly pointed out that the lack of clarification for cryptocurrencies means that tax laws don’t apply to them- or the asset custodians that operate in the sector.
“Bitcoin under the current law is not an asset. It is clear and simple. […] The Ministry of Economy and Finance already made that clear. 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 it sought again.”
Choi also reportedly added that the case with Bithumb could be a harbinger of what’s to come for other exchanges in the country, as the government will now be looking to impose taxes on gains that were previously immune. As she put it, regulators have noticed the booming crypto trading space in the country, and they believe that they could take their portion of the subsequent gains.
It’s a rather convenient case- regulators have shunned the crypto space for long, but are now attracted to the prospect of higher revenues. Perhaps financial incentives could be the key to drafting crypto laws in the country.