Price Fluctuations Increase... Cryptocurrency Gift Tax Becomes Ineffective

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] It has recently been revealed that the current tax system related to the gifting of cryptocurrencies, which have been experiencing increased price volatility, is virtually ineffective. Legally, it is still subject to taxation, but the related law requiring mandatory submission of asset transaction records to exchanges is scheduled to be implemented starting next year. Due to the nature of cryptocurrencies, which repeatedly experience rapid surges and drops in short periods, administrative confusion in the process of paying gift taxes is expected to be unavoidable in the future.

According to the Ministry of Economy and Finance and the tax industry on the 10th, cryptocurrency gifting is subject to taxation even this year, before the taxation on cryptocurrency transaction income begins. Gift tax is comprehensively imposed on all items or economic benefits that have economic value convertible into money, or all legal and factual rights with property value.

However, currently, the government has no way to track cryptocurrency transaction details, including gifts. Although the Enforcement Decree of the Income Tax Act, which requires exchanges to regularly submit users' transaction records to the government, was amended last year, its enforcement date is from January next year. Until enforcement, unless the government conducts separate tax investigations, there is no basis to receive transaction records.

In fact, tax authorities have not officially identified the status of cryptocurrency operators to date. Only an estimated list 'collected' by the National Tax Service through the Korea Federation of Banks exists. According to Go Yongjin, a member of the National Assembly’s Planning and Finance Committee from the Democratic Party of Korea, there are as many as 227 operators nationwide that appear to handle cryptocurrencies. Besides these estimable exchanges, gifting through overseas exchanges and peer-to-peer (P2P) transactions is also possible, making it currently impossible to identify and collect related details.

Both the transaction records and the valuation methods lack clear grounds and procedures. According to the Enforcement Decree of the Inheritance and Gift Tax Act, the taxable cryptocurrency price is calculated as the average of the daily average prices for one month before and after the inheritance or gift date, but the enforcement date of this decree is also January next year. Considering that cryptocurrencies have much higher volatility even on minute or second intervals compared to other financial assets, concerns about inevitable confusion in tax administration have been raised.

Regarding this, Professor Hong Kiyong of Incheon National University (Chairman of the Korea Taxpayers Association) explained, "Legally, it is subject to taxation, but if it is impossible to identify who the actual taxpayer is, it is practically difficult to tax," adding, "Since the system will be organized starting next year, it will be possible to track this year's records and collect taxes retrospectively."

This content was produced with the assistance of AI translation services.