Korean digital asset investors are among the world’s first to feel the sting of tax crackdowns on their gains. The Seoul metropolitan government said this week it had found and even seized such assets from over 600 “tax delinquents”—individuals and heads of companies living in the city.
The announcement will come as a shock to some digital asset investors, who for years may have assumed governments didn’t understand the technology enough to enforce tax laws.
The Seoul government said it had seized assets from accounts at three exchanges worth KRW25 billion (US$22 million) from 676 people, and located assets belonging to a total of 1,566 people—with authorities promising to follow up with further seizures soon.
The 676 owed the government a total KRW28.4 billion (US$25.4 million) in taxes, and 118 have already paid back KRW1.26 billion (US$1.12 million). Several were large traders, including a hospital manager who owed KRW12.5 billion alone. The assets seized were mostly BTC (19%), DragonVein and Ripple XRP (16% each), Ethereum ETH (10%) and Stellar Lumens (9%).
Even after having their assets seized, apparently some investors are continuing to speculate on price movements. According to the city government’s press release:
“We are continually being asked by delinquent taxpayers to refrain from selling their cryptocurrencies as they will pay their taxes. We believe the taxpayers expect the value of their cryptocurrencies to increase further due to the recent spike in the price of cryptocurrencies and have determined they will gain more from paying their delinquent taxes and having the seizure released.”
Some have asked the government if it’s possible to hold the assets for up to two years from now before selling. While the expectation is that prices will increase markedly over that time, a years-long bear market instead could see the traders owing even more. Given the history of digital asset prices over the past decade, compared to the speculative euphoria traders feel during the good times, this is a very real possibility.
The government did not say whether it had agreed to those requests, or if it was considering it.
Despite nearly all exchanges around the world implementing KYC procedures that identify users, many presumably still feel immune from tax regulation. Seoul’s action, which is the first to occur on such a widespread scale, will probably inspire other governments to do the same.
Using and speculating on digital assets has gained a “wild west” reputation over the years. While it can be hard for authorities to keep track of all transactions and assets listed, these traders all used them with the intent to sell at higher prices and earn fiat riches—making their actions no different to any other online investors. No new or special laws are required; the same old ones apply just as easily to these newly-created assets. Moreover, exchange and even blockchain records leave a clear digital trail of where taxable value has moved, by whom, and when.
Exactly as Craig has long predicted…possession of keys is not ownership and the Government will regulate…this will only speed up now and BSV was designed for this world. Always retreat to utility and legality:
— Calvin Ayre (@CalvinAyre) April 23, 2021
Since the early days of Bitcoin, tax departments around the world have issued warnings that they intended to enforce tax laws on digital asset trading. Several countries, including the U.S. and Australia, have formal questions on their tax returns asking for information on digital asset holdings.
Exchanges have regularly been accused of going easy on KYC procedures, implementing minimal requirements and doing little to confirm if the identities are real. Binance in particular was called “shockingly lax” in its KYC implementation by Japanese company Fisco, who accused the exchange of allowing over US$9 million in money stolen from its Zaif platform to be laundered there.
The false sense of immunity from tax laws some digital asset traders have felt over the years is fast coming to an end. The Seoul government’s actions this week demonstrate that authorities are not only willing to threaten enforcement, but actually do it—to the point of seizing the assets themselves. It should serve as a warning to holders and traders everywhere.
See also: CoinGeek Live panel, Digital Currency & Global Compliance: Tools & Tips for Exchanges, Wallets & Other Service Providers
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