Controversy over Cryptocurrency Acquisition Cost
Cryptocurrency capital gains income = Sales proceeds – acquisition cost
Starting from January 2022, capital gains exceeding KRW 2.5 mil from cryptocurrency is subject to 22% personal income tax. As definition of “acquisition cost” is not clear, several draft tax revision bill has been submitted by congressmen for delay of cryptocurrency taxation.
Acquisition cost is relatively clear when you purchased cryptocurrency in Korean exchanges who has an obligation to submit transaction record of its users to Korean tax authorities. However, when it comes to cryptocurrency transferred from overseas exchanges or wallets outside of exchanges, and cryptocurrency mined by the seller, it is practically impossible for tax authorities to access to acquisition cost information.
To prove acquisition cost, taxpayer might have to acquire official documents from overseas exchanges on the purchase transaction, or submit bank account statement on remittance of purchase consideration. Experts are of the opinion that it is too much burden for taxpayers to prepare such documents on their own.
If taxpayer fails to prepare such documents, acquisition cost is deemed as 0. Also, Korean tax authorities is on the view that acquisition cost of mined cryptocurrency is 0 without any consideration of costs incurred for cryptocurrency mining, which results in huge amount of tax burden on cryptocurrency miners.
While government intends to initiate taxation as scheduled, the delays of taxation receives bipartisan support in Korean congress.
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