Forum Addresses Flaws in South Korea’s Digital Asset Taxation Framework
Prof. Oh Moon-sung from Kyung Hee University’s Business School argued on the 7th that South Korea’s current digital asset taxation system fails to reflect tax equity principles and technical realities, calling for a comprehensive redesign. Speaking at the ‘Digital Asset Taxation, Emergency Review Forum’ held at the National Assembly Members’ Hall in Seoul’s Yeouido district, Prof. Oh presented findings that the government’s approach lacks taxpayer credibility and policy effectiveness without first addressing broader financial investment income tax reforms.
Classification and Taxation Approach Diverges from International Standards
Prof. Oh identified a fundamental misalignment between South Korea’s approach and international practice. He explained that “major countries including the United States, European Union, and Japan recognize digital assets as investment assets or financial products and apply capital gains tax frameworks,” whereas “South Korea classifies digital assets as intangible assets under International Financial Reporting Standards (IFRS) interpretation and seeks to tax them as miscellaneous income.”
The professor highlighted that miscellaneous income taxation in South Korea lacks a critical mechanism: loss carryforward provisions. “When income occurs, it is taxed, but when losses occur, they are not reflected in the current structure,” Prof. Oh stated. “From a taxpayer’s perspective, this lacks persuasiveness.”
Tax Equity Concerns Between Stock and Digital Asset Investors
Prof. Oh drew parallels between stock and digital asset investors, noting their similar transaction structures and investment objectives. “Stock investors essentially face no taxation on capital gains unless they are major shareholders holding over 5 billion won per company, while digital asset investors face a 22% tax rate on gains exceeding 2.5 million won,” he argued. “This raises fairness issues.”
The domestic market scale supports this comparison. Prof. Oh cited that digital asset investors in South Korea number approximately 11.13 million, compared to approximately 14 million stock investors. “The transaction structures are similarly exchange-based, and profit objectives—buying low and selling high—are comparable,” he explained.
Taxation Infrastructure Gaps and Enforcement Challenges
Prof. Oh raised concerns about the government’s capacity to enforce digital asset taxation uniformly. He noted that “only domestic exchange users are captured in the current taxation structure, while overseas exchanges, peer-to-peer (P2P) transactions, and cold wallet transfers are difficult to track.” This creates potential tax equity breakdown.
He warned that “as taxation intensifies, investors will likely migrate to harder-to-trace overseas markets or engage in private transactions.” The inherent cryptographic nature of digital assets compounds this challenge, as assets are “technically designed to make tracking difficult.”
Undefined Taxation Standards for Emerging Digital Asset Income Types
Prof. Oh identified gaps in tax law regarding staking rewards, airdrops, and decentralized finance (DeFi) income. “Current markets feature diverse revenue structures including staking and airdrops, but taxation standards remain unclear,” he stated. He emphasized that “both legislative and tax authorities must increase their understanding of relevant technologies and market structures.”
International Taxation Models Offer Alternative Approaches
Prof. Oh reviewed taxation frameworks in major economies. The United States applies differential taxation based on holding periods (long-term versus short-term), Germany provides tax exemption for holdings over one year, the United Kingdom uses a capital gains tax system, and Singapore maintains a tax-free regime for individual investors. Critically, “most countries permit loss carryforward provisions,” he noted, contrasting sharply with South Korea’s structure.
Broader Financial Investment Income Tax Reform as Prerequisite
Prof. Oh positioned digital asset taxation within the larger context of financial investment income taxation reform. “There is a larger issue ahead of digital asset taxation: financial investment income taxation,” he stated. “If we cannot resolve existing financial investment taxation problems—loss carryforward provisions and transaction tax structures—digital asset taxation will also struggle to achieve social acceptance.”
He concluded that “while no one opposes the principle that income should be taxed wherever it arises, a system that reflects losses when they occur must be established simultaneously. In the current state, institutional and technical preparations are still insufficient to enforce digital asset taxation.”
Full Remarks from Prof. Oh Moon-sung
Introduction and Terminology
Prof. Oh began by noting that South Korea’s digital asset regulatory framework lags international developments. “Terminology differs as well,” he observed. “Internationally, ‘crypto’ is the standard term, but South Korea continues to use ‘virtual assets.’” He framed his core argument: determining how to tax profits from buying digital assets like Bitcoin at low prices and selling at high prices.
Prof. Oh explained that digital asset taxation has been postponed three times since legislation in 2020, “not simply to delay taxation, but because institutional and technical preparations for actual enforcement were insufficient.”
Connection to Financial Investment Income Tax Debate
He linked digital asset taxation to the broader financial investment income tax discussion. “The principle that income should be taxed wherever it arises is not disputed by anyone,” Prof. Oh stated. “However, institutional design regarding how losses should be reflected has not been properly implemented.” He noted that the financial investment income tax proposal included five-year loss carryforward provisions, which many criticized as insufficient.
IFRS Classification and Resulting Tax Treatment
Prof. Oh traced the current system’s origins to IFRS interpretation classifying digital assets as intangible assets. “The problem is that under Korean tax law, intangible asset disposal income is taxed as miscellaneous income,” he explained. “As a result, digital assets also fall into the miscellaneous income taxation system.”
He identified the fundamental limitation: “The miscellaneous income tax system has a basic constraint: loss carryforward is virtually impossible. This creates an inevitable fairness problem compared to stocks and other financial investment products.”
International Comparison
Prof. Oh emphasized that “the United States, European Union, Japan, and other major countries recognize digital assets as investment assets, with many applying capital gains tax systems. Additionally, these countries operate or are pursuing loss carryforward provisions. Meanwhile, South Korea remains in the miscellaneous income system.”
Market Scale and Investor Profile
Regarding market conditions, Prof. Oh noted that digital asset users number approximately 11.13 million and stock investors approximately 14 million, “slightly fewer than stocks but operating at nearly equivalent levels. The transaction structure is particularly exchange-based, and the profit motive—buying low and selling high—shows high similarity.”
He emphasized that digital asset investors include many small individual investors. “Investors at the 500,000 won and 1 million won levels are very common,” Prof. Oh stated. “The proportion of younger investors is also relatively higher than stock investors. In this context, whether it is rational to apply entirely different taxation systems to stocks and digital assets requires consideration.”
Prof. Oh referenced South Korea’s Constitution Article 11, which establishes the principle of equality. “Discrimination without rational cause is not permitted,” he stated. “Therefore, we must examine whether there is sufficient rational basis to distinguish between stock investors and digital asset investors and apply different tax systems.”
Tax Infrastructure and Technical Challenges
Prof. Oh stressed that “while domestic exchange users are relatively traceable, overseas exchanges, P2P transactions, and cold wallet transfers are not easy to track. There are actually movements to shift to overseas exchanges due to concerns about tax burden.”
He emphasized that “digital assets are fundamentally cryptography-based assets. Technically, there are aspects designed to make tracking difficult. Therefore, to discuss taxation, we must not only create legal provisions but also build infrastructure and technical understanding at levels that enable actual collection.”
Emerging Income Types Lack Clear Standards
“In particular, staking rewards, airdrops, and DeFi income currently lack clear taxation standards,” Prof. Oh noted. “Research and regulatory refinement on these areas must precede taxation implementation.”
International Examples of Loss Carryforward
Prof. Oh highlighted that major countries employ loss carryforward mechanisms. “What is particularly important is that most countries permit loss carryforward provisions,” he emphasized. “In contrast, Korea remains bound by the miscellaneous income system, making loss carryforward virtually impossible. This is considered a very restrictive structure internationally.”
Multifaceted Nature of Digital Asset Taxation Problem
“Ultimately, the digital asset taxation issue is not simply about collecting taxes,” Prof. Oh concluded. “It is connected to complex issues including the financial investment income tax system, loss carryforward provisions, domestic-foreign transaction fairness, and technical collection feasibility.”
Final Recommendation
Prof. Oh clarified his position: “I am not arguing that digital asset taxation is unnecessary. I agree with the principle that income should be taxed wherever it arises. However, for that principle to be persuasive, losses must also be reflected. A structure that taxes income while not recognizing losses is difficult to justify to taxpayers.”
He stressed that “digital asset taxation cannot be separated from financial investment income tax discussions. It must ultimately be discussed alongside comprehensive reform of the financial investment income tax system, with parallel technical and institutional preparations.”
Prof. Oh concluded: “Digital assets are far more technically intensive than existing financial products. Therefore, they cannot be approached through taxation logic alone; market realities and technological changes must be considered together. I believe the current time is still a period of insufficient preparation.”
