The National Tax Service (NTS) is currently implementing income tax measures on participants of various events held by the cryptocurrency exchange Bithumb. According to reports, from 2018 to 2021, approximately 17,000 users participated in these events and received a total of 83.3 billion KRW worth of cryptocurrency rewards. The NTS has classified these rewards as prizes, initially issuing a withholding tax notice for 20.2 billion KRW. An additional tax amounting to approximately 19 billion KRW is expected to be notified soon. In response, Bithumb has already prepaid the 20.2 billion KRW on behalf of its users and plans to support the remaining tax burden as well.
Bithumb has strongly objected to this taxation measure and is currently contesting the NTS’s decision through an administrative appeal. Bithumb argues that the distributed cryptocurrency should not be considered mere prizes but rather discounts on sales similar to rebates provided under certain conditions such as trading performance. In this context, the Supreme Court has previously determined that loyalty points given by department stores and large markets, which effectively discount goods, do not qualify for additional VAT, supporting Bithumb’s argument to some extent.
Tax experts highlight that a crucial aspect of this case hinges on whether the event rewards should be classified as prizes or sales rebates. Under current income tax law, items received through lotteries or prize draws are considered miscellaneous income, with a 22% withholding tax applied to prizes exceeding 50,000 KRW. Conversely, Bithumb maintains that the cryptocurrency and fee cashbacks distributed during the events are tied to trading achievements and thus should not fall under the category of miscellaneous income according to tax laws.
This case exemplifies the complexities and legal challenges of taxing virtual assets, with significant implications for future legal interpretations in this sector. The outcome of the legal disputes between the tax authorities and the exchange will likely lead to significant changes in the legal framework for the domestic cryptocurrency market and the protection mechanisms for its users.
