South Korean residents who received airdrop tokens and prizes from the Bithumb crypto exchange between 2018 and 2021 are facing unexpected tax bills. Bithumb has stated that it will cover the tax bills for customers who have been ordered to pay taxes on the giveaways but plans to challenge the decision made by the National Tax Service to retrospectively tax its customers. This comes as the NTS believes that Bithumb gave away nearly $61 million worth of assets to South Korean residents during the specified period, resulting in tax bills totaling around $30 million for customers.
The tax bills have come as a surprise to many individuals as South Korea does not currently tax crypto-related profits. However, the NTS requires winners of lotteries and similar events to declare and pay taxes on their winnings, classifying them as “other income.” For prizes exceeding a certain amount, residents are required to pay 22% of their winnings. Last year, 10,700 Bithumb users were told to pay a total of $15 million in taxes, marking the first time the NTS has taxed South Korean airdrop recipients.
Bithumb has announced that it will immediately compensate its customers for any taxes they had to pay the NTS as a result of receiving airdrops. The exchange is also filing a tax appeal against the national tax body, arguing that virtual assets and commission cashback distributed via events should be considered free gifts or sales benefits and thus exempt from taxation. This legal process is expected to take a significant amount of time to resolve, potentially lasting several years.
The NTS sees the tokens distributed by Bithumb as prizes, while Bithumb considers them free gifts. The exchange may argue that it is following the example set by securities providers who often give out stocks to new account holders without tax implications. Additionally, shopping outlets that give high-spending customers gift certificates also do not face legal issues related to taxes. Appeals to the NTS are known to be time-consuming, and a ruling on this issue may take several years to emerge. Bithumb, meanwhile, is working towards becoming the first South Korean crypto exchange to be listed on the nation’s stock exchange.
The media outlet covering the story has quoted South Korean tax experts who believe that the success of Bithumb’s appeal will depend on the nature of the event giveaways. The exchange’s argument that the distributed tokens should be considered free gifts or sales benefits instead of prizes subject to taxation will be a key point in the legal dispute. Overall, the situation highlights the complexities surrounding the taxation of crypto-related assets in South Korea and the challenges faced by both individuals and businesses operating in the crypto space.
