South Korea’s taxman keeps circling crypto – airdrops look to be the next target

South Korea last week said crypto token airdrops are subject to a gift tax of as much as 50% under existing laws, but what is the likelihood this rule can be applied to digital holdings?

South Korea’s 5 million cryptocurrency investors were up in arms last year when the government considered slapping a 20% tax on crypto profits, until the authorities postponed the plan to 2025. The next target looks to be crypto airdrops.

Airdrops are typically used by cryptocurrency projects as marketing tools to attract users and involve dropping tokens into users wallets, often for free. But South Korea has a tax for that – the Inheritance Tax and Gift Tax Act that covers any goods that can be converted into cash.

The Ministry of Economy and Finance on Monday said airdrops fall under the gift tax rule. But how to implement the law on digital transactions involving private wallets? Cha Dong-joon, professor of tax accounting at Kyungbok University in South Korea, said that is going to be difficult.

The ministry is making a statement of intent, Cha told Forkast in an interview. “At least for the next two, three years, actual taxation is practically difficult,” he said. For one thing, tax authorities are not able to calculate the price of cryptocurrencies that are not listed on exchanges, he added.

Secondly, “according to the Adjustment of International Taxes Act, local tax laws cannot touch virtual assets gifted from an entity overseas.” Cha explained that’s the case if the country of the sender, a non-affiliate of the recipient, does not levy a gift tax.

Oh Mun-sung, professor of tax accounting at Hanyang Women’s University, agreed that taxing airdrops is problematic.

“We need to identify the characteristics of the airdrop first,” Oh said in an interview. “Some airdrops are given to those who are holders of specific tokens, in some other cases they just give out tokens for promotion.”

Oh said Korea lacks a definition of airdrops, unlike stocks where the method of tax calculation is specifically detailed. He agreed that it would be problematic to apply the gift tax on crypto assets moving from one private e-wallet to another, because they are difficult to track.

Danny Park(2022.09.01) South Korea’s taxman keeps circling crypto – airdrops look to be the next target”
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