"Stablecoins Should Be Tax-Exempt for Individuals Like Foreign Currency"

Kim Sang-moon, the representative tax accountant of KNP Tax Corporation, stated on the 14th at the Korean Tax Law Society's autumn academic conference held at Samil Accounting Corporation in Yongsan, Seoul, that certain stablecoins held and used by individuals should be considered tax-exempt like foreign currency, given the expanding use of stablecoins as actual payment and settlement methods. He pointed out that applying the current taxation system for virtual assets (digital assets) would require calculating gains or losses every time stablecoins are exchanged for remittances, payments, or trading other digital assets, which could lead to an excessive tax burden.

Kim emphasized, "The core question is why individuals should pay taxes on gains from stablecoins tied to the dollar when there are no taxes on gains from holding dollars as the exchange rate rises." He further stated, "If stablecoins are similar to foreign currency, it makes sense for individuals to be tax-exempt while corporations are taxed, similar to the treatment of foreign currency."

He suggested that even if stablecoins are taxed, a simpler method using a standard exchange rate would be more practical than calculating the exchange rate fluctuations and the price fluctuations of the coins separately for each transaction. He said, "The suggestion to calculate using a standard exchange rate does not mean we want to impose taxes, but rather addresses how to calculate if taxes are to be imposed, reducing the cost of tax compliance and enabling automatic tax calculations in popular payment and remittance services."

Below is the full discussion by Representative Tax Accountant Kim.

Hello, I am Kim Sang-moon, the representative tax accountant of KNP Tax Corporation. First, I would like to thank Accountant Park Soo-jin for the excellent presentation.

I believe the essence of the presentation revolves around this question: Why should we pay taxes on gains from stablecoins tied to the dollar when there are no taxes on gains from holding dollars as the exchange rate rises?

I read this question from the perspective of a practitioner who will be filing tax returns for the first time starting next year.

I agree with the overall framework of the presentation. In particular, the idea of separating the gains from stablecoins into those arising from exchange rate increases and those from the price movements of the coins themselves was a refreshing concept.

This separation makes it clear where the comparison with the dollar can be made. It allows for a calculation-based comparison between foreign currency and stablecoins rather than an intuitive one.

I would like to add three additional points.

The first is that stablecoins as payment methods are now a reality, not just a hypothesis.

Recent reports indicate that global stablecoin payments exceeded $400 billion from January to August this year, and companies have emerged that pay salaries in Tether.

Among our clients, foreign workers are practically demanding to be paid in Tether, and such payments are actually taking place.

Additionally, Samsung Electronics has recently decided to offer a feature that allows USDC to be sent using Samsung Wallet in the U.S., with plans to expand to other countries after monitoring the situation.

This means that the burden of fees will be reduced when sending funds to overseas wallets, and recipients will be able to receive USDC through Samsung Wallet instead of a separate coin wallet. This could also include online and offline payment functions and could continue to expand to other countries.

What this means is that stablecoins are no longer just items for coin investors but are becoming a means that can be used by the general public who use mobile phones.

If such functionality were to come to Korea, assuming remittances are made using Galaxy phones, each remittance could be treated as a transfer of virtual assets under income tax law.

This would require comparing the exchange rate on the date of acquisition with the exchange rate on the date of remittance to calculate gains or losses. Asking countless mobile phone users to do this is practically impossible.

Currently, when individual investors in Korea use stablecoins like Tether or USDC, they often use them as a means to buy and sell other digital assets on exchanges rather than for payments.

For example, they might buy Tether with Korean won, use Tether to buy Bitcoin, then convert back to Tether and exchange it for Korean won.

Even this single round of transactions could involve multiple purchases and sales of Tether. For those who trade frequently, this could amount to hundreds of transactions a year, raising the question of how to calculate taxes for each one.

The presentation also mentioned the possibility of exempting small payments. However, exchanging Tether for other digital assets is not a payment but an exchange, so even if there is a small payment exemption, it may not significantly help those who engage in many transactions.

Therefore, I believe that the method of multiplying the standard exchange rate by the dollar, as discussed in the presentation, may be more practical.

Separating the price fluctuations of the coin itself has academic significance, but in practice, the amounts are often negligible, and corporations are subject to taxation anyway.

Thus, rather than requiring all price fluctuations to be calculated separately, applying a single standard exchange rate could reduce tax compliance costs and allow for automatic tax calculations in popular services like Samsung Wallet.

However, I want to clarify that suggesting calculations based on a standard exchange rate does not mean we want to impose taxes.

The issue of how to calculate is separate from whether to tax individuals on exchange rate fluctuations. If taxes are to be imposed, using a simple calculation method would be more efficient.

My fundamental position aligns with the presenter in that we should compare foreign currency used for small payments with stablecoins. I will reiterate this point at the end.

The second point I want to make is about the obstacles in tax reporting practices.

Let me give you an example. Suppose a developer in our country provides services overseas and receives payment in Tether. They would need to pay taxes based on the Korean won value on the date of receipt.

However, if they hold Tether for a few days before disposing of it, the exchange rate may change, resulting in additional income from digital assets.

While this may not be contradictory, it creates a dual burden for the taxpayer.

If they had received the same amount in a dollar account, there would be no taxation on any gains from subsequent exchange rate increases, but depending on the payment method, they could face one or two tax liabilities.

As mentioned in the presentation, this is a difference that is difficult to explain solely through legal formalities.

Finally, I want to address the relationship between regulatory law and tax law.

There are movements to include the cross-border movement of stablecoins within the management system of foreign exchange authorities through amendments to the Foreign Exchange Transactions Act. This means that stablecoins are beginning to be viewed as having similarities to foreign currency in terms of foreign exchange regulations.

However, under income tax law, they are still treated as other income arising from the transfer or lending of digital assets.

Another issue arises here. If the proportion of transactions where the parties or transaction details can be sufficiently verified is limited, taxation may ultimately focus on those who can be verified.

In such a situation, applying a 22% tax rate only to verified taxpayers could lead to inequitable outcomes.

Therefore, my suggestion is simple: individuals should be tax-exempt while corporations are taxed as they are now. This is similar to the treatment of foreign currency. Ultimately, if qualified stablecoins have similar characteristics to foreign currency, it makes sense to move in that direction.

The methods for either exempting small payments from taxation or separating certain stablecoins from the category of virtual assets, as seen in Japan, can vary. However, I believe that moving in such a direction is correct in the long term.

On the other hand, if taxation must be implemented for the time being, I think a practical approach would be to use a standard exchange rate for simple calculations rather than complicating the distinction between exchange rate fluctuations and the price fluctuations of the coins themselves.

Thus, my conclusion is twofold.

First, there is a need to consider treating certain stablecoin transactions by individuals as tax-exempt, similar to foreign currency.

Second, if taxation is to be imposed immediately, it is necessary to simplify calculations as much as possible by utilizing the standard exchange rate.

Finally, I would like to ask the presenter two questions.

The first is, among the various alternatives related to tax exemption, what do you think is the most realistic measure to implement first at this imminent point of taxation?

The second is whether you believe it is reasonable to separately calculate exchange rate fluctuations and the price fluctuations of the coins themselves in actual taxation, or if it would be preferable to calculate simply using the standard exchange rate.

As mentioned in the last part of the presentation, I believe there is a need for a tax adjustment mechanism that can be commonly applied to small foreign currency transactions and payment transactions involving stablecoins. It is necessary to consider what specific form this might take.

I hope this part becomes the message that today’s academic conference conveys to the relevant authorities. Thank you.

Considering the situation where stablecoins are spreading as actual payment and settlement methods, it has been suggested that certain stablecoins held and used by individuals should be considered tax-exempt, similar to foreign currency.

If the current taxation system for virtual assets (digital assets) is applied as it is, the realistic tax burden could become excessively high, as it would require calculating capital gains every time there is a remittance, payment, or exchange of other digital assets.

Kim Sang-moon, the representative tax accountant of KNP Tax Corporation, stated at the Korean Tax Law Society’s autumn academic conference held on the 14th at Samil Accounting Corporation in Yongsan, Seoul, "The core question is why there should be taxes on stablecoins tied to the dollar when there are no taxes on profits from holding dollars when the exchange rate rises. Ultimately, I believe it is correct to treat stablecoins, which are similar to foreign currency, as tax-exempt for individuals and taxable for corporations."

Kim suggested that even if stablecoins are to be taxed immediately, a simple method using the standard exchange rate would be more practical than calculating exchange rate fluctuations and coin price fluctuations separately for each transaction. He stated, "Proposing to calculate using the standard exchange rate does not mean we want to impose taxes; it is a question of how to calculate if we do tax. We need a method that reduces tax compliance costs and can automatically calculate taxes in popular payment and remittance services."

Below is the full discussion by Representative Tax Accountant Kim.

Hello, I am Kim Sang-moon, the representative tax accountant of KNP Tax Corporation. First, I would like to thank Accountant Park Soo-jin for the excellent presentation.

I believe the presentation ultimately poses this question: Why should there be taxes on profits from stablecoins tied to the dollar when there are no taxes on profits from holding dollars when the exchange rate rises?

I read this question from the perspective of a practitioner who will have to file tax returns for the first time next year.

First, I agree with the overall framework of the presentation. In particular, the idea of separating the profits from stablecoins into those arising from exchange rate increases and those arising from the coin's price movements is a truly fresh idea.

This separation makes it clear where the points of comparison with the dollar lie. You have enabled a calculation-based comparison between foreign currency and stablecoins rather than a mere intuitive one.

I would like to add three additional points.

First, the fact that stablecoins are now a means of payment is no longer a hypothesis but a reality.

Recent reports indicate that global stablecoin payments exceeded $400 billion from January to August this year, and there are even companies that pay salaries in Tether.

Among our clients, foreign workers are actually requesting to be paid in Tether, and this situation is being implemented.

Additionally, Samsung Electronics has recently decided to offer a feature that allows USDC to be sent using Samsung Wallet in the U.S., with plans to expand to other countries after observing the situation.

This means that the burden of fees will be reduced when sending funds to overseas wallets, and recipients will be able to receive USDC through Samsung Wallet instead of a separate coin wallet. This could also include online and offline payment functions and continue to expand to other countries.

What this means is that stablecoins are no longer just items for coin investors; they have become a means that can be used by the general public who use mobile phones.

If this functionality comes to Korea and we assume that remittances are made using Galaxy phones, each remittance could be treated as a transfer of virtual assets under income tax law.

This would require comparing the exchange rate on the date of acquisition with the exchange rate on the date of remittance to calculate gains and losses. I believe it is practically impossible to require this from the countless people using mobile phones.

Currently, when individual investors in Korea use stablecoins like Tether or USDC, they often use them as a means to buy and sell other digital assets on exchanges rather than for payments.

For example, they might buy Tether with Korean won, use Tether to buy Bitcoin, and then convert it back to Korean won after changing it back to Tether.

Just going through this cycle could involve multiple purchases and sales of Tether. For those who trade frequently, this could amount to hundreds of transactions a year, and it raises the question of how to calculate taxes for each of these transactions.

The presentation also mentioned the possibility of exempting small payments. However, exchanging Tether for other digital assets is not a payment but an exchange, so even if there is an exemption for small payments, it may not significantly help those who engage in many transactions.

Therefore, I believe that the method discussed in the presentation, which involves multiplying the standard exchange rate by the dollar amount, may be more practical.

Separating the price fluctuations of the coin itself has academic significance. However, in practice, the amounts involved are often negligible, and corporations will be taxed regardless.

Thus, rather than requiring all price fluctuations to be calculated separately in practice, applying a single standard exchange rate could reduce tax compliance costs and allow for automatic tax calculations in popular services like Samsung Wallet.

However, I hope there is no misunderstanding that proposing to calculate using the standard exchange rate does not mean we want to impose taxes.

The question of how to calculate is separate from whether to tax individuals on exchange rate fluctuations. If taxation is to occur, I propose that using a simple calculation method would be more efficient.

My fundamental position is that, like the presenter, we should compare stablecoins used for small payments with foreign currency. I will reiterate this point at the end.

The second point I want to make is about the bottlenecks in reporting practices.

Let me give you an example. Suppose a developer in Korea provides services overseas and receives payment in Tether. They would need to pay taxes on their business income based on the value of the Korean won on the day they received it.

However, if they hold Tether for a few days before disposing of it, the exchange rate may change, leading to additional digital asset income.

While this may not be contradictory, it creates a dual burden for the taxpayer.

If they had received the same amount in a dollar account, there might be no taxation on the subsequent exchange rate gains, but depending on what they received as payment, they could face taxation once or twice.

As mentioned in the presentation, this is the kind of difference that is difficult to explain solely in legal terms.

Finally, I would like to mention the relationship between regulatory laws and tax laws.

There is a movement to include the cross-border movement of stablecoins within the management system of foreign exchange authorities through amendments to the Foreign Exchange Transaction Act. This means that stablecoins are now beginning to be viewed in the context of foreign exchange regulations as having similarities to foreign currency.

However, under the Income Tax Act, they are still treated as other income arising from the transfer or lending of digital assets.

Another issue arises here. If the proportion of transactions where the parties or transaction details can be sufficiently verified is limited, there is a possibility that taxation will ultimately focus only on those who can be verified.

In such a situation, applying a 22% tax rate only to verified taxpayers could lead to unfavorable results in terms of equity.

Therefore, the opinion I would like to express is one.

Individuals should be tax-exempt while corporations should be taxed as they are now. This is similar to the case of foreign exchange. Ultimately, if a qualified stablecoin has characteristics similar to foreign currency, I believe it is appropriate to move in the same direction.

Whether to exempt small payments from tax or to separate certain stablecoins from the category of virtual assets like Japan, there can be various specific methods. However, in the long term, I believe it is correct to move in that direction.

On the other hand, if taxation must be implemented for the time being, I think a simple calculation method using the base exchange rate, rather than complicating the distinction between exchange rate fluctuations and the price fluctuations of the coin itself, is the most practically feasible solution.

Thus, my conclusion consists of two points.

First, it is necessary to consider the direction of exempting certain stablecoin transactions of individuals from taxation, similar to foreign currency.

Second, if taxation must be implemented immediately, it is necessary to simplify calculations as much as possible by utilizing the base exchange rate.

Finally, I would like to ask the presenter two questions.

The first is, among the various alternatives related to tax exemption, what do you think is the most realistic measure to introduce first at this imminent point of implementing taxation?

The second is whether you believe it is reasonable to separately distinguish and calculate exchange rate fluctuations and the price fluctuations of the coin itself in actual taxation, or whether it is preferable to calculate simply using the base exchange rate.

I believe that a tax adjustment mechanism that can be commonly applied to small foreign currency transactions and stablecoin payment transactions is necessary, as mentioned in the last part of the presentation. It is essential to consider what specific form this will take.

I hope this part serves as a message from today's academic conference to the relevant authorities. Thank you.

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