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Taxation of virtual assets with a one-year deferral… Need guidelines after enactment of the Industry Preferential Rights Act

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The industry generally welcomes the postponement of taxation on virtual assets by one year from next year to 2023. However, they agreed that detailed guidelines for taxation during the deferred year should be prepared to improve equity with financial investment income tax, risk of tax evasion, and efficiency of tax payment methods.

According to the National Assembly and the financial sector on the 5th, an amendment to the Income Tax Act, which includes delaying the taxation of virtual assets by one year until next year, passed the plenary session of the National Assembly. With the passage of the bill, the effective date of taxation has been delayed by one year from January 1, 2022 to January 1, 2023. Actual tax payments will begin in May 2024.

The industry welcomed the deferral, but emphasized that the government should set detailed guidelines for virtual asset taxation after the enactment of the Virtual Asset Industry Rights Act in order to have a stable taxation infrastructure. Although the government has fully expressed its position on taxation of virtual assets this year, in fact, even the definition of virtual assets is not clearly defined.

The Financial Services Commission recently gave an ambiguous answer to the NFT (Non-Fungible Token) taxation, saying, “NFTs are generally not easy to define as virtual assets, and there is a possibility that some of them may be applicable in individual cases.” Regarding the same issue, the Ministry of Strategy and Finance said that determining the definition of NFT should be given priority.

In particular, there is a lot of talk in the industry about the fact that virtual assets are classified as other income. As virtual assets are close to financial income, it is argued that equity with financial investment income tax should be considered. Under the current law, if minority shareholders make money from investing in stocks, they will be taxed from 2023. On the other hand, virtual assets are deducted up to 2.5 million won, and loss carry forward deduction is not applicable.

Oh Gap-su, president of the Korea Blockchain Association, said, “It is unfortunate that the income from most assets is classified as other income such as lottery winnings or horse racing proceeds. It seems that the stock will be required, and during the grace period, please come up with a clear taxation guideline to reduce confusion among businesses and investors.”

Kang Seong-hoo, senior vice president of the Korea Digital Asset Business Association, also said, “In the process of enacting the Virtual Asset Industry Act and revising the Income Tax Act in collaboration with related societies such as the Korea Fintech Association and the Korea Tax Policy Association, virtual assets are converted into financial assets and not other income, but financial investment income. We will actively respond to the regulations.”

Some have suggested that clear standards for the acquisition and disposal prices of virtual assets are also necessary. The National Tax Service explained in consulting that the acquisition amount for virtual assets should be calculated as ‘0 won’ and submitted. If the investor cannot prove the actual acquisition price, the entire sale amount is regarded as capital gains. It has been pointed out that the taxpayer, the investor, is imposing excessive responsibility, such as shifting the burden of proving the acquisition price.

In addition, since there are so many different acquisition routes for virtual assets, such as overseas exchanges, DeFi (decentralized finance, DeFi) exchanges, peer-to-peer transactions (P2P), and ICOs, it is often impossible to prove the acquisition cost properly. In addition, the market price is different for each exchange, and the price varies according to the exchange rate. An official from the virtual asset exchange said, “Even if it is proved in the process of personal vocation, there is a possibility of manipulation of the acquisition cost.

Therefore, the demand for the enactment of the Virtual Property Industry Rights Act is expected to intensify in the future. Another exchange official said, “Whether it is taxation or travel rules, the next step can be taken only when the business rights law is established.


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