Gov't to seize, sell cryptocurrencies held by tax dodgers

The Korea Times

The Korea Times

Finance

Fri, December 1, 2023 | 15:33

Economy

Gov't to seize, sell cryptocurrencies held by tax dodgers

Posted : 2021-07-26 16:52

Updated : 2021-07-27 09:04

Deputy Prime Minister and Finance Minister Hong Nam-ki, center, speaks during a press briefing at the Sejong Government Complex, July 23. Courtesy of Ministry of Economy and Finance

Revisions unveiled to crack down on overseas tax evasion

By Lee Kyung-min

Tax authorities will be able to seize and sell cryptocurrencies held by tax dodgers starting Jan. 1, 2022, the finance ministry said Monday.

Crypto exchanges will be required to transfer their virtual assets to the government immediately upon request. Failure to comply will lead to search and seizure of sites as deemed necessary by authorities. The amount raised from crypto trading will go into the state coffer.

The clampdown is part of broader tax code revisions announced by the Ministry of Economy and Finance. It seeks to bolster efficient use and allocation of state resources to identify sustainable growth engines, spur private investment and strengthen inclusiveness of the social safety net. Revisions made to 16 tax codes will be submitted to the National Assembly Sept. 3.

The latest announcement could chill investors' sentiment for crypto-assets in South Korea.

Monday's crypto-related revision reflects concerns that the current law that allows seizure of assets only through a court-granted change in the ownership records cannot be applied to digital coins that lack a physical presence.

"Property seizure procedures cannot be applied when the assets to be claimed by the government are kept in electronic wallets," a ministry official said. "The revision will allow direct seizing without court-approved change in ownership records. Assets held by tax dodgers in the form of digital coins will no longer evade seizure and forfeiture."

Scrutiny will be strengthened against overseas tax evasion mediated by a controlled foreign corporation (CFC), a corporate entity that is registered and conducts business in a jurisdiction different from where its controlling owners reside.

Many local firms set up CFCs in low-tax countries to maintain its interest, dividend and commission incomes ― which the government considers passive incomes ― and prevent them from being transferred back to the parent companies.

Currently, CFCs are subject to taxation, if the amount owed from passive income is less than 15 percent of total income. But the revision will raise the ceiling to up to 70 percent of the maximum corporate tax rate of 25 percent ― 27.5 percent if taxes owed to municipal governments are included.

The tighter rules are justified, the ministry said, in part by Korea's flat 15 percent ceiling that has stayed far lower since 1996 compared to advanced countries. For context, the U.S. caps the ceiling at up to 90 percent of the maximum corporate tax rate of 25.8 percent. Spain has its ceiling at up to 75 percent of its maximum corporate tax rate of 25 percent, whereas the U.K. defines the ceiling as 75 percent of the tax owed to the government.

Also prompting the need for higher tax is a steady increase of an "effective tax rate" for listed firms with assets worth over 10 trillion won ($8.6 billion).

The rate paid by firms on their pre-tax profits rose to 23.2 percent in 2019, up from 19.9 percent in 2017. This is further up from 19.2 percent in 2015 and 17.6 percent in 2010.

The ministry dismissed concerns that raising the ceiling would significantly increase tax burdens for firms, since the rule will be limited to only those that make passive overseas incomes.

"Firms engaging in normal business activities will not have to bear an additional cost of tax. The revision will incentivize firms to send their dividends back to their parent companies and not withhold them overseas," the ministry official said.

Owners of overseas real estate worth 200 million won or more will be required to submit purchase, sales and rental records, or face a fine of up to 100 million won.

Meanwhile, the revision will lead to a 1.5 trillion won drop in tax revenue, due to greater tax incentives for businesses and low-income earners provided in the form of earned income tax credits.

lkm@koreatimes.co.kr