07 Jan 2020
The year 2019 didn't end on a positive note for the infamous South Korean cryptocurrency exchange Bithumb. The National Tax Service (NTS), the country's chief revenue service, made a surprise New Year's gift to the tech company Vidente, which is Bithumb's largest shareholder, by presenting a tax bill, under which the exchange must pay as much as 80 million Korean won, which equals roughly to $69 million. The agency has decided to levy an income tax derived from the foreign investors in the platform and their trading operations with Bitcoin and other cryptocurrencies.
This sudden demand on the part of NTS gave rise to a potential scandal since the authorities have apparently initiated a practice of imposing taxes on cryptocurrency exchanges even before the corresponding legal framework is being adopted by the government of South Korea. The consideration of the draft bill for crypto regulation is already underway, but the final discussion, voting, and signing into law are expected to occur no sooner than Q1/Q2 of the present year. It should become a part of a large scale taxation reform that should be concluded by the end of 2020.
However, Bithumb, evidently, represents an exceptional case as they had been informed of the outstanding tax debt on December 27, 2019, by means of the Financial Supervisory Service notification system. Interestingly, the issue of back tax payment was brought to the attention of mentioned shareholder Vidente only after the firm had obtained the largest stake of 34.24% from Bithumb Holdings, the parent entity behind the cryptocurrency exchange.
According to the statement from the representative of NTS, the substantial tax amount had been derived from the exchange's reported income from transactions conducted by foreign customers. The revenue agency has placed capital gains acquired from crypto trading on the part of Bithumb's international customers as a miscellaneous, or irregular, income, which is subject to the 22% annual tax under the South Korean laws. Therefore, over the period of the last couple of years - NTS had reportedly warned Bithumb about the outstanding debt of almost $30 million back in January 2018 - the non-Korean traders had withdrawn approximately $347 million from the platform.
Although, foreign traders mustn't worry about being bothered by the Korean financial authorities since the corresponding tax ought to be withheld by the income payer (Bithumb), and not the recipient, before the final transaction to the foreign customer is being carried out.
Understandably, the Bithumb executives, especially the ones that represent Vidente, weren't happy with the situation and considered going into litigation with the National Tax Service. They reckon that NTS was so eager to force Bithumb into paying the withheld tax because, according to the Korean legislation, the taxable period amounts only to five years. Given that Bithumb was established in January 2014, time is of the essence for the authorities.
It is most likely that both parties would settle eventually, and Bithumb would pay a significantly smaller amount in the said tax, though this situation had already created a precedent that might make foreign traders turn their backs on Korean crypto exchanges.
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