[Column] Bithumb's airdrop and the National Tax Service's lightning strike, will airdrop coins be taxed?

On May 10, 2024, Bithumb posted an exciting announcement. The idea is to provide tax support to users.

Bithumb held a virtual asset 'Air-Drop' event for users from 2018 to 2021, and recently the National Tax Service notified users who received virtual assets through the above event of a comprehensive income tax tax notice.

Since taxes have not yet been levied on profits earned from cryptocurrency transactions, users may be dismayed by the sudden imposition of taxes.

So, Bithumb decided to support the taxes generated by airdrops to users. And we are currently in the process of filing a tax appeal against the tax disposition.

The imposition of capital gains tax on cryptocurrency transactions, that is, sales, exchange, and rental income, is scheduled to take effect from January 1, 2025. However, this only postponed the taxation of capital gains tax due to sales, exchange, and rental from a policy perspective, and inheritance or gifts of cryptocurrency were in fact still subject to taxation.

So what about airdrops? Airdrop refers to the act of providing coins for free by a coin issuer. Transfer, such as sale, exchange, or rental, is when one party provides something and the other party pays money in return, while a gift is an act where one party provides something to the other party for free without compensation.

Therefore, since an airdrop is a gift rather than a transfer, in principle, income generated from the airdrop is currently subject to taxation. The problem is that it has not been specifically established what the legal nature of airdrops is and what taxes should be levied, so taxation of airdrop coins may be a hasty disposition.

Whether or not something is subject to taxation may vary depending on each individual case. Even if it is an act of free provision, if a free gift is provided according to the purchase quantity or purchase amount for a certain period of time based on an agreement between the parties, it is not considered a business gift and is not taxed.

On the other hand, in the case of prizes, taxes and dues are imposed on the recipient by considering it as other income of the recipient. Unlike free gifts that are uniformly given based on purchase performance, prizes are viewed as items given to a limited number of customers through a drawing or other means. The department store gift certificate given when you purchase a certain amount at the department store is a free gift, and the first-come-first-served basis is a prize.

In the case of the airdrop conducted by Bithumb, it was an event airdrop. In other words, this is a case where a coin issuer holds an event through Bithumb and receives coins through airdrop when the conditions presented in the event are met.

Bithumb views the nature of event airdrop coins as free gifts as event rewards, but the National Tax Service seems to view them as giveaways and tax them. For reference, the United States and Japan impose income tax on coins acquired by individuals through airdrops, but Singapore and Australia do not.

We looked at the Bithumb airdrop event that took place throughout 2018. Of the approximately 36 airdrop events, 30 were events in which cryptocurrency was paid differentially according to the contribution rate during a specific period or at a specific point in time. This appears to be exactly the same event as a department store gift certificate giveaway event. Therefore, since airdrops are uniformly based on purchase performance, it seems appropriate that airdrop coins received through these events are considered free gifts and are not taxed.

In the remaining 6 cases, there were slightly different payment conditions, such as paying the coins to the lowest price buyer of the event coin, the highest price buyer, or the nth buyer. Since this is a case where the winner is selected through a lottery or certain conditions must be met separately from the purchase, the coins received in this way are likely to be taxable as prize coins.

Specifically, there was no confirmation as to which event participants were subject to taxation. However, most event airdrops are considered to be in the nature of free gifts in that they are airdropped to those who purchase this coin according to their share ratio.

If the National Tax Service imposes taxes on all recipients of Bithumb's event airdrop coins, Bithumb will likely have a lot to say about it.

There are countless legal issues that have not been established in the blockchain and cryptocurrency markets. This 'Bithumb incident' is attracting attention as it is expected to become a leading case among legal interpretations of cryptocurrency. We hope that our laws and courts can become a catalyst for the growth of a healthy blockchain market.

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