Toss Securities mistakenly concluded that there was no tax to withhold related to overseas bonds and decided to pay it on behalf of its customers.
According to the financial investment industry on Nov. 11, Toss Securities has been providing some customers who invested in overseas bonds with a "important notice regarding overseas bond taxes" since that day. Toss Securities noted in the notice that "in the process of reviewing the Income Tax Act, we confirmed that some bonds for which we had stated 'no taxes' actually generate income taxes from interest," adding, "Toss Securities plans to fully cover the income tax incurred and pay it in full."
The issue is with the "U.S. Government Bonds" with a stated interest rate of 0%. They are commonly referred to as zero-coupon bonds. Instead of having a coupon rate (the agreed-upon interest), they are issued at a discount to par value. At maturity, the par value is returned. In simple terms, if you buy a zero-coupon bond with a par value of 10,000 won for 9,000 won, you can generate a revenue of 1,000 won at maturity.
Initially, Toss Securities determined that the discounted portion of zero-coupon bonds did not qualify as interest income under the Income Tax Act and did not withhold taxes separately. However, following a review, it was concluded that the discount also qualifies as bond interest income, necessitating a withholding tax of 15.4% (including local income tax) that should have been paid to customers.
Toss Securities decided to take responsibility for incorrectly informing customers about tax-related matters and will fully reimburse the tax that should have been withheld. The total reimbursement amount has yet to be determined.
A representative of Toss Securities said, "We will pay the full amount of the tax on behalf of our customers to avoid any inconvenience related to this matter and will take other necessary actions," adding, "We sincerely apologize for the confusion and are committed to fulfilling our responsibilities to become a trustworthy company."
Toss Securities launched its overseas bond service in July last year, highlighting that transactions can be conducted as easily as stock trading through its mobile trading system (MTS).
Transactions can start with a minimum of $1,000 based on the par value for U.S. Government Bonds and corporate bonds. Real-time orders are possible during the regular trading hours for U.S. bond transactions (from 10:30 p.m. to 5 a.m. the next day during daylight saving time), and reservations can also be made during other hours.