"Virtual Asset Taxation Faces Issues of Consistency and Fairness...New System Needed"

Review Forum on Virtual Asset Taxation System

Issue of Fairness with Stocks Also Raised

"New Approaches Needed Including Reclassification of Income by Transaction Function"

Concerns have been raised about the consistency and tax fairness of the virtual asset taxation set to take effect next year, with calls to introduce a taxation method tailored to the unique characteristics of virtual assets.

At the "2027 Virtual Asset Taxation System Review Forum" held at the National Assembly at 10 a.m. on September 3, Park Jongsu, President of the Korea Tax Law Association and professor at Korea University School of Law, expressed these concerns. Beginning January 1 of next year, the Income Tax Act will impose taxes on gains from the transfer and lending of virtual assets. The main framework involves combining annual gains and losses from virtual asset transactions, deducting 2.5 million won, and applying a 22% tax rate to the remaining amount.

Park argued that virtual assets should not be viewed solely as an asset, but rather should be classified according to their "transaction functions". He stated, "In the actual market, there are transaction functions that cannot be explained by simply dividing them into transfer and lending categories." For example, the virtual asset market encompasses various transaction functions such as trading, mining, staking, lending, and liquidity provision. However, whether lending, deposits, or liquidity provision are truly equivalent to lending is ambiguous. This stands in contrast to countries such as the United States, United Kingdom, Germany, and Japan, which clearly distinguish between disposal gains and reward income based on the transaction's economic substance.

He further pointed out the issue of not allowing the carryforward deduction of losses. For virtual assets, only profits and losses within the same tax period can be offset, and carryforward deductions for excess losses are not permitted. Most major countries, including the United States and United Kingdom, allow for the adjustment of capital losses across periods. Park noted, "Given the high price volatility of virtual assets, this could distort the tax burden for each taxable period."

On the morning of the 3rd at 10 a.m., participants are taking a commemorative photo at the "2027 Virtual Asset Taxation System Review Forum" held at the National Assembly, hosted by Representative Moon Jin-seok of the Democratic Party of Korea. Photo by Oh Gyu-min

He also noted problems with consistency in the tax law itself. The Income Tax Act classifies income into interest, dividends, business, transfer, and other income, with each category subject to different taxation methods, rates, netting of profits and losses, and rules on carryforwards. However, virtual asset investors may deposit or lend their virtual assets (lending) in return for rewards, and the structure of these rewards does not fit the logic of taxation as interest income. As a result, even if the price of the rewarded virtual assets plunges after receipt, the taxable amount is fixed at the time of receipt, thereby creating a gap between realization ability (actual capacity to pay taxes) and taxable income. The infrastructure for tax collection is also inadequate. Taxpayers who use multiple domestic and international exchanges must integrate and organize all their transaction details themselves in order to file, resulting in substantial tax compliance costs.

Park proposed the design of a taxation method that reflects the characteristics of virtual assets, suggesting a “Virtual Asset Investment Income Tax." His proposals include reclustering income according to the economic substance of each transaction type, withholding at the source for payments made by identifiable domestic virtual asset service providers, and requiring annual definitive tax filings for transactions via overseas exchanges or decentralized trading, as well as benchmarking the reporting system used for overseas stock investments.

Meanwhile, the issue of fairness with stocks was also raised during the forum. Kim Kyung-ah, Professor of Finance, Accounting, and Taxation at Hanyang Cyber University, noted that since most investors acquire and hold virtual assets for investment returns due to price appreciation, the realized gains from sales are economically similar to gains from stock sales. In Korea, capital gains from the transfer of listed stocks are excluded from capital gains taxation, while virtual asset gains will be subject to taxation. She stated, "Although there are differences in the legal nature of virtual assets and stocks, and the investor protection frameworks, it is not always necessary to treat them identically." However, she added, "If the rise in value of assets acquired, held, and disposed of for investment purposes is taxed differently, there must be a rational basis to justify that differential treatment."

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