South Korea is escalating its efforts to crack down on cryptocurrency-related tax evasion, with a particular focus on seizing assets held in cold wallets. The National Tax Service (NTS) has announced it is prepared to conduct home visits to identify and confiscate cryptocurrency stored offline from citizens who are not fulfilling their tax obligations. This marks a significant expansion of the agency's crackdown on tax delinquents, moving beyond targeting crypto assets held on domestic trading platforms.
An NTS spokesperson stated that the agency can monitor a non-compliant taxpayer's crypto transaction history using blockchain tracking programs. If they suspect individuals are concealing their coins offline, searches can be conducted at their homes, with the potential confiscation of hard drives or PCs. This signifies that the traditional boundaries between physical and digital assets are dissolving in the eyes of the law in South Korea.
Under the National Tax Collection Act, the NTS can issue 'right to question and inspect' orders, which allows them to force exchanges to suspend a user's wallet and transfer the assets to government-controlled wallets. The tax authorities then issue ultimatums, and if the bill remains unpaid, the agency liquidates the crypto at market rates.
The scale of these enforcement actions is already considerable. Over the past four years, the NTS has seized digital assets from 14,140 delinquent taxpayers, liquidating 146.1 billion won (approximately $103 million) worth of cryptocurrency.
However, the tax agency faces obstacles in its pursuit of comprehensive enforcement, particularly concerning overseas platforms. Domestic law does not extend to foreign crypto exchanges, creating a blind spot for citizens using them. The NTS must rely on international cooperation pacts, such as the Multilateral Tax Administration Cooperation Agreement, which does not include key jurisdictions like the United States, China, or Russia. Data indicates a substantial outflow of 78.9 trillion won from domestic exchanges, suggesting that traders are moving assets to overseas platforms.
South Korea has been developing its cryptocurrency regulations, solidifying its stance with laws like the Act on the Protection of Virtual Asset Users. This act aims to establish market order and protect investors. Regulatory bodies like the Financial Services Commission (FSC) enforce strict compliance measures on service providers, including anti-money laundering protocols.
The legal landscape in South Korea dictates that cryptocurrencies like Bitcoin are regulated under Anti-Money Laundering (AML) and securities regulations enforced by the FSC. Virtual Asset Service Providers (VASPs) must comply with crypto regulations, including those related to selling, buying, and exchanging virtual assets.
The Digital Asset Basic Act (DABA) is expected to provide regulatory guidelines for the South Korean cryptocurrency sector. This act will create an environment for digital assets and may define digital assets as securities and non-securities.
The government banned domestic Initial Coin Offerings (ICOs) in 2017 due to concerns over investor protection and financial stability, but is exploring a new framework that may allow for regulated token issuance in the future.
