The start date for taxing capital gains on virtual assets is 128 days away, but the basis for calculating the tax bill remains undecided. Authorities have yet to determine how to set the acquisition price, when to tax staking (staking: depositing virtual assets to contribute to network operations and receive rewards), and how to treat losses. Industry voices criticize this as "making virtual asset investors go through confusion first."
The National Tax Service Digital Asset General Division convened a 12-member advisory panel on the 24th for the first meeting to establish a notice for virtual asset taxation. The goal is to align the notice with the taxation start date, and it plans to set acquisition price calculation standards and taxation methods by transaction type, including staking, airdrops (Air Drop: distributing virtual assets for free), and hard forks (Hard Fork: a phenomenon where the rules are changed in a way incompatible with the existing Blockchain protocol, causing the chain to split permanently).
What the industry worries about is proving the acquisition price. For transactions conducted on overseas exchanges or personal wallets, it is not easy to prove when and at what price assets were purchased, and under current rules, if the acquisition price cannot be proven, up to 50% of the transfer amount is recognized as necessary expenses.
For example, even if someone sells a coin bought for 100 million won for 100 million won, without documentation, 50 million won is deemed revenue and 10.45 million won (22% of the amount exceeding 2.5 million won) in taxes must be paid. Conversely, for investors whose acquisition cost is less than half of the transfer amount, not submitting documentation becomes more advantageous. Under the current Income Tax Act, 22% (including local income tax) of the amount earned from virtual assets in a year after deducting 2.5 million won must be paid in taxes.
It has not been decided whether to treat the receipt of staking and airdrops as the time of income recognition or to use the time of actual sale as the basis. The National Tax Service has not fixed its position for two years. In the first half of 2024, the National Tax Service said it was "considering taxing based on the time the virtual assets are transferred into won, rather than when the consideration for staking services is received." By contrast, a National Tax Service commissioned report released in May proposed treating staking as "lending" and fixing income at the market price at the time of receipt, leaving the stance still unclear.
According to a Budget Office report, while the current Income Tax Act defines income arising from the "transfer" and "lending" of virtual assets as taxable, it does not define what "lending" actually is. Coins obtained for free through hard forks or airdrops are neither transfers nor lending, making the legal basis for taxation ambiguous under the current framework.
How to handle losses is also a sticking point. While gains and losses incurred in the same tax period can be netted, carrying losses forward to offset future gains, or a net operating loss carryforward, is not allowed. For instance, an investor who posts a 10 million won loss in the first year and a 30 million won gain in the following year actually earns 20 million won over two years but must pay taxes on 30 million won.
The United States, the United Kingdom, Germany and Australia allow loss carryforwards without time limits. Japan promulgated a revised Income Tax Act in Mar. converting crypto asset income to a separate 20.315% tax and introduced a three-year carryforward. Among major countries, only France and Korea do not allow carryforwards.
The taxation infrastructure is also unfinished. The National Tax Service commissioned a project this year worth about 3 billion won to build an integrated virtual asset analysis system. The system is scheduled for completion at year's end. At last year's parliamentary audit, lawmakers pointed out that funds flowing out to overseas exchanges totaled 124 trillion won, yet the National Tax Service lacked a system to collect this directly. The Organisation for Economic Co-operation and Development (OECD) international information exchange (CARF) for virtual assets will not launch until next year.
The government's position is to implement first and supplement later. Koo Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, said at the Strategy and Finance Committee on the 29th of last month, "For now, we are pushing ahead to impose taxes starting next year as scheduled. We will make improvements as needed during the system's operation." On loss carryforwards, he said, "Stock investments also do not allow carryforwards. We will review the necessity after taxation begins."