A report appearing in a South Korean news outlet claims that the nation’s tax service plans to impose a withholding tax on foreign customers using the Bithumb exchange. The exchange later confirmed the news and said that the taxman would impose a $69.3 million withholding tax on its foreign customers.
Bithumb with Fight it In Court
Bithumb has decided that it will take the fight to court so that the final payment can be adjusted in the future. This is the first time that the South Korean tax service has taxed crypto transactions. There is currently no law in South Korea that governs crypto taxation.
However, the nation’s minister of finance announced that the nation’s tax laws would be revised in 2020 to include taxation for crypto assets. Many experts believe that the move by the tax service is an indication of what will take place in 2020.
Foreign Crypto Traders Targeted
The South Korean tax service has set its sights on foreign customers using Bithumb. In this case, Bithumb will pay the withholding tax to the government. According to one tax expert in South Korea, taxing cryptocurrency follows the principle of “where there is income, there is tax.”The tax expert said that Bihumb could pay the huge tax bill and later try to collect it from its users. However, that was practically impossible, according to Kim Woo-Cheol, a professor of taxation at the University of Seoul.
It is worth noting that the tax service has classified earnings from crypto trading as “miscellaneous income.” This is different from the US where the IRS taxes crypto earnings as capital gains. Capital gains tax is collected for each deal while the miscellaneous income is only collected once a year in South Korea. If the tax service had placed crypto earnings under the capital gains category, they would have been forced to collect data from every trade that takes place on South Korean exchanges. Besides that, they would have had to calculate the profit and principal from each trade, which is almost impossible according to Ahn Chang-Nam, a professor of taxation at Kangnam University.
How $69.3 Million Was Applied To The Crypto Exchange
The tax service hit the Bithumb exchange with an 80.3 billion Won ($69.3 million) tax bill. This amount was based on the amount that its foreign clients had withdrawn from the exchange. In South Korea, the withholding tax rate is 22 percent for miscellaneous income. As a result, it means that the tax service estimated that foreign clients withdrew 401.5 billion Won from the exchange.
With the withholding tax bill having been delivered to Bithumb without any law to back it, the exchange will most likely have a very strong case in court. For foreigners trading at Bithumb, the government can impose any tax on them if there is no tax treaty in place with their nation. It is the likely reason why the government is going after them first. However, domestic law in South Korea also states that everything has to be defined by law for it to be taxed, which is not the case for crypto.
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