Market participants and industry watchers are paying attention to whether the Tax Tribunal will find for Bithumb in a suit it filed to nullify 80.3 billion won ($67.1 million) what it called a groundless tax imposed by the National Tax Service (NTS).
This has heightened interest following the government’s recently announced plan to impose a capital gains tax on profits made by foreign nationals from cryptocurrency transactions, set to take effect in October 2021.
The Ministry of Economy and Finance said July 22 that gains made by non-residents and foreigners after Oct. 1, 2021, will be subject to a tax rate of either up to 20 percent of the difference between the sell price and purchase price or a 10 percent transfer price. Either amount ― whichever is lower ― must be paid on the 10th of every month for gains withdrawn from the account in the form of cash or cryptocurrency.
The capital gains will be subject to a withholding tax to be collected from the payer of the gains, notably crypto business operators including exchanges. Exemptions will be granted to those eligible under certain related international treaties.
At issue is whether the tribunal under the direct supervision of the Prime Minister’s Secretariat will recognize Bithumb as the entity duty-bound to pay the withholding tax, the basis for the NTS’ imposition of what is also known as a retention tax, an income tax paid to the government by the payer of the income rather than by its recipient.
The NTS said November 2019 that Bithumb should be subject to the withholding tax for gains made by foreigners via the exchange, a claim refuted by the Korean firm which at the time maintained that cryptocurrencies were not recognized as anything tangible, much less an asset.
Yet the 2019 decision is not subject to the revised law and will not be applied retroactively, a reason the issue is open to tribunal discretion.
Blockchain expert Choi Hwoa-in expects not to see a full nullification of the tax, given the government is desperate to identify gains from crypto transactions as a new taxable income, an effort driven further by a greater-than-feared tax shortfall following the third extra budgets drafted to fight the economic effects of the COVID-19 pandemic.
“To the government, this is not so much about whether taxing cryptocurrencies is a legitimate course of action, as it is about making it clear that gains from crypto transactions will no longer be tax-free,” she said.
The adviser to Financial Supervisory Service said a full nullification is not likely, citing a possible tax rate adjustment to partly reduce the total amount collected.
“The tribunal has no precedents to look to, adding to the pressure that this will entirely stand as a decision of its own. Whatever the outcome, one thing is for certain. The ruling for the NTS taxing digital currencies will serve as a much-needed precedent for similar moves justifying taxation on digital financial assets.”
The ministry said it is aware of the sensitive nature of the dispute, saying the gist of the matter comes down to whether the tax agency had legal grounds to compel the exchange for what is finalized to be paid by crypto business operators.
“We understand the dispute will have far-reaching implications. The NTS must have had grounds for its decision and it is now under review of the tribunal. It is not our place to make predictions,” a ministry official said.
“We are awaiting the tribunal’s decision,” a Bithumb official said. The NTS said it could not comment on the ongoing matter. “We are awaiting the ruling,” an NTS official said.
Lee Kyung-min(2020.07.28) All eyes on W80bln Bithumb tax dispute
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