When a new tax law is good news
Welcome to this week’s edition of RHIZOME Wire!
Embracing the tax-man
This week, news emerged from South Korea stating that “the Korean government has tentatively decided to apply capital gains tax to cryptocurrency trading.”
RHIZOME team member Brian Li tweeted the following in reaction to this news:
From the perspective of many, hearing that taxes were imminent might seem like bad news. In this case, however, the opposite is true.
Ultimately, if this decision becomes a firm one rather than a tentative one, it will finally end speculation and deliberation that has brewed in Korea since essentially the inception of cryptocurrency investing and trading:
There has been a long-running disagreement between government entities and industry players over whether income from transactions would be viewed as transferable income, such as with stocks and real estate, or as ‘other income’ in the case of interest, dividends, and lottery winnings. The final decision came down to capital gains which is the taxation scheme adopted by the United States.
Obviously, paying taxes isn't fun and, generally speaking, new tax laws can often be bad news. In this case, however, there are two reasons to be encouraged:
Creating consensus and implementing a clear tax structure is a clear sign that the Korean government recognizes cryptocurrency as as “legitimate” investment that it believes is significant enough to warrant clear tax guidance. Ever since the 2018 news stories about a possible “cryptocurrency ban” in Korea (a narrative that some believe helped pop the bubble at the time), many in the cryptocurrency sphere have looked at Korea’s laws with skepticism. Creating a tax law specifically for cryptocurrency trading and investment is a clear sign that the practice is “acceptable” in the eyes of the Korean government.
Establishing clarity in the tax realm gives prospective investors and institutions greater confidence in not only that the investment is “legitimate” but also provides clear guidance on how to balance out risk. For instance, if taxes are too high, the “reward” is reduced, thus creating a more risky investment.
Ultimately, the question remains, whether or not applying capital gains to cryptocurrency investments is the best strategy — this has been the debate that has made it difficult for the government to reach consensus. Here’s a snippet showing just how complicated this debate can become:
Since 2018, the government has been considering a taxation plan for cryptocurrencies by forming a Joint Task Force (TF). TF was essentially formed in the immediate wake of the 2017 crypto boom. In September of last year, the International Accounting Standards Board (IFRS) concluded that cryptocurrencies could be classified as an asset rather than as a currency which gave those on the side of asset classification a much sharper edge in the then-ongoing discussion. In light of the recent announcement, some still argue that it would be more appropriate to introduce a lower transaction tax rather than a capital gains tax – the same way securities are taxed in Korea.
Earlier this year the Ministry of Information Technology shifted their authority from property tax to the domestic income tax department which suggested that the government would apply the other income classification to cryptocurrencies. Additional reasoning behind that speculation lied in the fact that it was advantageous to simply add them onto income taxes due to the difficulty involved in accurately calculating profits and losses between the time of purchase and the time of liquidation in cryptocurrency trading.
If I’m a financial institution, this back-and-forth would certainly cause great hesitation when it came to whether to view cryptocurrency as a viable investment.
Ultimately, the end of this article does a good job of summarizing why this news is ultimately bullish for cryptocurrency in Korea:
With greater regulation comes more expectation that the government will be able to protect traders meaningfully in an industry that has up to now been rife with scams. Additionally, institutions will find South Korea a more reasonable place to make heavy investments in crypto projects since there are rules to abide by.
And for ICON — Korea’s #1 coin based on market cap — it’s especially bullish.
News from ICON World
Magic has added password-less authentication support for ICON
You can now buy medical supplies in Greece with ICX
ICX gets listed on a Norway exchange
DEMOS is working on “ICX Pay”
Delio joins the MyID Alliance as a growth partner
Blockchain Industry News
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Quadriga Was a Ponzi Scheme, Ontario Securities Regulator Says - CoinDesk
OSC, one of Canada’s provincial securities regulators, said the now-defunct cryptocurrency exchange, which went into bankruptcy a few months after founder and CEO Gerald Cotten was reported to have died in India, “was an old-fashioned fraud wrapped in modern technology.”
European bank uses stablecoin instead of SWIFT for cross-border transfers - Decrypt
Since its founding in 1998, Bank Frick has revamped into one of Europe's preeminent blockchain banks, offering crypto trading and custody for institutional clients miners and mining firms. Now, the bank has decided to fully capitalize on blockchain and crypto, by swapping out SWIFT for USDC.
Karpeles Says Mt Gox Verdict May Set ‘Dangerous’ Precedent - Cointelegraph
On June 11, Tokyo District Court Judge Mariko Goto struck down Karpeles' appeal to a previous charge of tampering with financial data. Karpeles was first convicted in March 2019 and received a two-and-a-half year jail sentence. He began the appeals process that same month. The former CEO will have to serve time should he commit another offense within four years.