South Korea’s largest cryptocurrency exchange Bithumb has officially filed a complaint with the country’s tax authorities (NTS) over a near-$70m (80 billion won) tax bill the company received last November.
According to the Korea Times, Bithumb is arguing that the tax bill should be waived based on the fact that cryptocurrencies are not legally recognised as currencies in the country. This, the exchange claims, makes the bill “groundless”.
The tribunal has 90 days to decide whether to dismiss or grant the exchange’s motion.
The $69.1m retention tax has already been paid
Due to the nature of the tax bill, Bithumb has already paid the amount in full. As a retention tax, it’s basically an income tax that companies pay to the government on behalf of their employees. The Korea Times explains:
“A withholding tax, also known as a retention tax, is an income tax paid to the government by the payer of the income rather than by its recipient. Mostly applied to employment income, the tax is withheld or deducted from the income in most jurisdictions.”
Therefore, Bithumb had to settle the bill before it could pay out the remaining income to its customers. A Bithumb official stated:
“We paid the full amount and have since been preparing for arguments. We believe we will be given a chance to clarify our stance in court.”
Adviser to the Financial Supervisory Service Choi Hwoa-in spoke out in Bithumb’s defence. She reiterated that, as current taxation laws stand, they are not applicable to cryptocurrencies:
“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 opinion on the same matter it sought again.”
Bithumb case likely to set precedent for new taxation law
The NTS has apparently claimed that gains from foreign accounts are taxable income and this gives it the right to impose the tax.
However, according to Hwoa-in, the high-profile case with Bithumb could be a play by the tax authorities to review taxation laws in South Korea pertaining to cryptocurrencies.
In fact, South Korean authorities have been looking to pose new taxes on capital gains earned through cryptocurrencies for some time now.
As crypto trading has become more common, regulators have become increasingly aware of the subsequent gains being made. This, Hwoa-in believes, may well lead them to declare crypto as a new source of taxable income. She stated:
“Bithumb filing a suit after paying the full amount in that sense is a calculated move expecting partial to full return of the amount paid.”
Cryptocurrency traders will be holding their breath to see whether the Bithumb filing leads to a change in taxation policy here. If it does, South Koreans making gains trading crypto will soon have to set some aside for the taxman.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.