South Koreans who received airdrop tokens and prizes from the Bithumb crypto exchange from 2018 to 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 the exchange wants to challenge the National Tax Service’s decision to retrospectively tax its customers. The National Tax Service believes that Bithumb gave away almost $61 million worth of assets to South Korean residents during this period, resulting in tax bills for customers totaling around $30 million.
The tax bills have come as a surprise to many customers, 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 must pay 22% of their winnings in taxes. Last year, 10,700 of Bithumb’s 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 compensate its customers for the taxes they have to pay to the NTS as a result of receiving airdrops, but the exchange is also filing a tax appeal against the national tax body. Bithumb argues that the virtual assets and commission cashback distributed through events should be considered free gifts or sales benefits and therefore exempt from taxation. Legal experts suggest that the success of the appeal will depend on the nature of the event giveaways, as the NTS views them as prizes while Bithumb sees them as free gifts.
Experts caution that the legal process of challenging the NTS decision could take years to resolve, as appeals to the tax body are often time-consuming. Bithumb may argue that they are following the example of securities providers who give stocks to new account holders or shopping outlets that give gift certificates to high-spending customers, neither of which are taxed. The media outlet warns that it may take several years for a ruling to be reached on this matter. Despite the tax challenges, Bithumb is still working towards becoming the first South Korean crypto exchange to be listed on the nation’s stock exchange.
