SEOUL -- It is still controversial whether digital money or cryptocurrency is subject to taxation, but Bithumb, a leading cryptocurrency exchange in South Korea, has completed the payment of some 80.3 billion won ($69 million) worth of taxes on behalf of foreign customers with no clear legal basis for taxation.
"We paid all 80.3 billion won in taxes at the end of last month as imposed by tax authorities," a Bithumb official said. The National Tax Service has levied withholding taxes on foreign customers, considering their virtual currency as an asset.
The tax law stipulates that companies are obliged to deduct withholding taxes from foreign income earners and pay them instead. Bithumb was required to pay taxes and retrieve the money later, but the exchange insisted it had limited information on foreign subscribers, so there is virtually no way to receive income taxes from foreigners. It also remains unclear how many foreigners were involved in transactions.
The Ministry of Strategy and Finance has yet to come up with a basis for taxation on virtual assets. if virtual currencies are included in the scope of capital gains like stocks and real estate, the benchmark price should also be determined in addition to receiving all virtual asset transactions from each exchange to secure tax evidence.
In case of Bithumb, the difference in the transfer of virtual money was regarded as other income instead of business income because it is difficult to determine whether they have conducted transactions repeatedly.
In an authoritative interpretation, the Korea Accounting Standards Board (KASB), which set accounting rules, said that if an entity holds cryptocurrency for sales purposes, it should be regarded as inventory and otherwise classified as intangible assets. The board said that cryptocurrency is not used as a general means of exchange and the risk of changes in value does not constitute a contractual right to receive cash or other financial assets from the other party.
There has been controversy over whether cryptocurrency transactions are true income subject to tax payment. Digital currency is a decentralized digital asset that is exchangeable between users through peer-to-peer transactions. The digital money market operates on a decentralized blockchain which means no central authority holds transaction records stored on the computer of every owner of a cryptocurrency.
Cryptocurrency exchanges and lenders often gain benefits from interest or fees by providing loans or lending coins to traders. As the chance to earn more increases, so does the risk to lose more because trading sometimes has extreme fluctuations and exchanges are frequent targets for hacking.
South Korea's virtual currency market which has been dogged by fraud, cyberattacks and other illegal activities. Cryptocurrency exchange operators earned huge profits in 2017, helped by a frenzy over digital money.
However, the virtual currency market suffered a setback a year later due to a crackdown by regulators who have called for strong steps to prevent irrational and excessive speculative investments. A customer identification system was introduced to allow only real-name accounts used for deposits and withdrawals in cryptocurrency trading.
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