South Korean cryptocurrency exchange Bithumb is in talks with several potential buyers, even while it continues a long-running dispute with tax authorities.
The firm took final offers from shortlisted bidders for the sale of a 100% stake last month, as it pursued a complaint over a 2018 demand by the National Tax Service (NTS) for withholding tax. This came after investigations into cryptocurrency exchanges as part of South Korea’s clampdown on virtual currencies.
Bithumb had to pay tax of 80.3 billion won ($73 million) in December 2019, but filed a complaint in January last year with the Tax Tribunal against the NTS, alleging that the tax demand was “groundless”. The tribunal had 90 days to come to a decision, but has still not made any ruling, with the matter currently under review by a joint session of tax judges because there have been no similar issues raised before.
South Korea does not have any clear regulations on taxation for cryptocurrencies, although regulators are trying to catch up as the new asset class continues to grow. The Ministry of Economy and Finance announced last week that it would amend an enforcement decree, after taxation rules were revised in 2020 to levy a tax on capital gains made by cryptocurrency users from 2022.
However, regulatory uncertainty remains. In 2018, the NTS claimed that gains withdrawn in Korean won from accounts held by Bithumb’s foreign customers were taxable income, citing the provision pertaining to non-resident investors in the local income tax law. But this can be controversial, because cryptocurrencies were not included in the list of items subject to taxation at the time.
Bithumb did not include the 80.3 billion won tax paid to the NTS in its 2019 income statement, but recognized it as a long-term prepaid asset, saying in notes attached to the financial statements that it had reasonable confidence that the amount would be refunded in the future through the appeal process.
The tax dispute may affect the valuation of Bithumb, but is unlikely to dampen interest from potential buyers because of its strong market position and profitability, industry watchers said.
Bithumb’s average daily trading value was about 285 billion won in April last year, with the exchange accounting for about half of the trading volume in the country’s cryptocurrency market. The firm generated an operating profit margin of 63% and net profit margin of 51% in the first quarter of last year. (Reporting by Choong-hee Won)