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South Korea's digital asset tax is set to take effect in five months, yet the rules for calculating the cost basis of complex transactions — including mining, staking and decentralized finance, or DeFi — remain unclear. The tax authority plans to release a draft guideline as early as October, and the National Tax Service has begun training civil servants to strengthen their readiness in the field.

According to industry sources Wednesday, the National Tax Service recently ran a three-week digital asset training program for tax officials at the National Tax Officials Training Institute in Jeju. The first week was conducted online, followed by two weeks of in-person sessions that included hands-on exercises. Participants included specialists in digital asset custody and security, tax accounting and blockchain analysis, as well as academic experts and officials from the National Tax Service's investigation bureau.

Questions about how to calculate the cost basis of digital assets dominated the sessions, sources said. Key issues included how to value and time the acquisition of assets obtained through mining, staking rewards, airdrops and DeFi transactions — for example, when a miner holds bitcoin without selling it and then swaps it for a stablecoin.

Under the tax framework taking effect next year, taxable income covers gains from transferring or lending digital assets. Swaps between digital assets are also expected to be treated as transfers. Even if mined bitcoin is exchanged for a stablecoin rather than converted to won, the swap itself may constitute a taxable event at the time of the exchange.

The broad calculation framework is already in place. Tax is assessed by subtracting the actual cost basis and concessions such as transaction fees from the proceeds of a transfer or loan, applying an annual deduction of 2.5 million won ($1,750), and then taxing the remainder at 20 percent. For digital assets held before Jan. 1 next year, the cost basis will be the higher of the actual acquisition price or the market value as of Dec. 31, 2026. For income from swaps between digital assets, the basic principle calls for using the price of the base asset as a reference and applying the exchange ratio between the two coins.

The harder cases arise outside centralized exchange trading. Digital assets received through direct mining, staking or airdrops have no purchase price to begin with. When coins not listed on any exchange change hands in peer-to-peer deals, or are swapped multiple times on a decentralized exchange, pinning down an objective market price and a precise acquisition date becomes difficult.

"If you bought a digital asset directly on an exchange, you can calculate the cost basis from the purchase price and fees," one industry expert said. "But for assets received through mining or staking, the standard gets complicated. Specific guidelines are needed on how far back the acquisition date and market value at that time will be recognized."

How broadly tax authorities will be able to identify and value digital assets is another open question. Coins that are unlisted or thinly traded can swing sharply in price on just a handful of transactions, making it hard to establish an objective market value. Experts say detailed guidelines are needed on how to set the cost basis for digital assets that lack a reliable market price.

Under the Income Tax Act enforcement decree, up to 50 percent of the transfer price may be recognized as necessary expenses when the actual cost basis cannot be verified. However, what qualifies as a case where "the cost basis is difficult to confirm," and how much within that 50 percent ceiling will be allowed, still need to be spelled out.

"The starting point of taxation is confirming when and at what price the taxpayer acquired the asset," another industry expert said. "The draft guideline must also address whether staking rewards can be treated as lending income."

Accurately capturing transaction records that pass through overseas exchanges and private wallets is another challenge. When a digital asset is moved from a domestic exchange to an overseas exchange, traded there and then brought back, the domestic exchange may only be able to confirm the timing and quantity of the inflows and outflows.

For instance, without overseas transaction records it is difficult to determine whether an increase in digital assets held at a foreign exchange came from trading profits, staking rewards or a gift from another person. If data sharing between exchanges and tax authorities is insufficient, taxpayers will likely end up having to prove the source of funds and the cost basis themselves.

Determining the nature of transfers between private wallets is equally tricky. A simple move between wallets owned by the same person is hard to classify as a transfer, but blockchain records show only wallet addresses, making it difficult for tax authorities to confirm whether two wallets belong to the same individual. As a result, the burden of proof for distinguishing a wallet transfer from an asset disposal could fall on the taxpayer.

Some observers note that because the National Tax Service is an enforcement body, the Ministry of Economy and Finance should first clarify the scope of taxation and the valuation principles. Authorities are currently preparing a guideline-style draft ahead of next year's rollout, with the expectation that relevant standards will be released as early as October or at the latest by year-end. Industry experts agree that rules on coin swaps and the range of taxable coin types still need to be established.

The digital asset tax takes effect Jan. 1 next year, but the first filing will not occur until May 2028. While authorities have time to refine the framework, voices in the industry argue that detailed standards must be issued before the law takes effect, since taxpayers will need to keep records of every transaction starting in January.

"Transaction data will start accumulating from January, so there is time to refine the tax framework before the first filing," one industry official said. "But there are many issues to resolve, including cost-basis calculation, and there is concern that it will ultimately come down to taxpayers having to justify everything themselves."


kyoung@heraldcorp.com