Cryptocurrency Taxation to Be Implemented in 2027?...The Issue is the Acquisition Cost

The government's tax reform plan has been announced. Given that the real estate market was the biggest issue, the most coverage from the political sphere and the media was on real estate-related taxes. However, there was also significant interest in whether the digital asset tax, which has been a topic of ongoing debate due to market difficulties and the feasibility of taxation, has been practically revised this time.

Upon reviewing the tax reform plan, there were no special amendments regarding the income derived from the transfer or lending of digital assets, which are taxed as other income (hereinafter referred to as 'digital asset income'). Today, we will predict and examine what might happen when taxpayers file their taxes if the digital asset taxation is implemented as it stands.

1. Previously Identified Supplementary Issues

Many experts have continuously pointed out that, based on the following grounds, it is difficult to implement taxation in its current state and that improvements are necessary.

2. The Tax Reform Plan is Still Just a 'Government Proposal'

The current tax reform plan does not contain any amendments regarding digital asset income, and investors' concerns are growing. On a positive note, a new department dedicated to digital asset taxation has been established within the National Tax Service, and research on improvements is beginning with external experts.

It is important to note that just because the tax reform plan has been announced does not mean that the tax law has been amended or implemented. For the tax law to be amended, it must ultimately pass through the legislature, meaning it must go through the National Assembly.

In fact, looking at past cases, just before the implementation of digital asset taxation in 2025, the National Assembly decided to grant an additional two-year extension in December 2024.

Of course, waiting until the implementation of taxation is imminent to grant a tax extension or not having a law established in advance undermines the principles of predictability and legal stability, which are the most important principles in tax law. The obligation to pay taxes is fulfilled by individuals as members of the state, accepting the infringement of their property rights, so at the very least, they should know in advance 'when and how much tax they will owe.'

3. If Implemented as Is, How Will Reporting Be Done?

Under current tax law, digital asset income is taxed separately at a different rate without being combined with other income, and taxpayers must file a return in May of the following year (Income Tax Act Article 14, Section 3, Item 8, Article 70). In other words, if taxation is implemented from January 1, 2027, the first report will be made in May 2028.

From my experience meeting many digital asset investors and assisting them with tax audits, I have found that the most important factor in calculating digital asset income is the 'acquisition cost.' According to current tax law, digital asset income is calculated based on the difference between the transfer price and the acquisition cost, as shown in the diagram below.

In simple terms, the transfer price is the amount received for transferring the digital asset held, making it clear for calculation. However, the acquisition cost becomes ambiguous if the asset was acquired before the taxation begins in 2027 or if the actual acquisition amount is unknown. To address such cases, tax law provides different methods for determining acquisition costs as follows.

First, if a digital asset acquired before 2027 is sold after 2027, it is clear that it is subject to taxation. However, the implementation of taxation from 2027 means that only the value increase after 2027 will be taxed, so taxing the value increase before 2027 would violate the principle of non-retroactive taxation (National Tax Basic Act Article 18, Section 2).

Thus, under current tax law, for digital assets acquired before 2027, the greater of the actual acquisition cost and the market price as of December 31, 2026, is recognized as the acquisition cost, which compensates for this disadvantage, referred to as 'deemed acquisition cost' (Income Tax Act Article 37, Section 5).

The market price as of December 31, 2026, for digital assets handled by domestic exchanges (such as Upbit, Bithumb, etc.) subject to market price notification is based on the average price announced at 00:00 on January 1, 2027, at each business's location, while for other digital assets, it is based on the price announced by other digital asset businesses at the same time (Income Tax Act Enforcement Decree Article 88, Section 2).

5. However, Securing Acquisition Costs is Really Difficult in Practice

As such, securing the acquisition cost is the most important task for digital asset income tax, but when looking at transaction histories from overseas exchanges and DEX, it is very challenging to verify that acquisition cost. Each overseas exchange has different locations for downloading transaction histories and different file formats, and unlike DEXs that provide transaction details like Hyperliquid, DEXs and Defi that only traded through on-chain wallets in the past do not provide sufficient transaction details, making it very difficult to secure the acquisition cost itself.

For reference, while it is not physically impossible, verifying each smart contract on-chain to determine what the transaction history is can be practically challenging.

6. The Reason We Cannot Simply Say 'It's Okay Because There is Deemed Acquisition Cost'

One might think that if the acquisition cost is unknown, deemed acquisition cost can be used. However, digital assets are not stable assets that show a consistently upward trend; they are highly volatile assets, so there is no guarantee that the actual acquisition cost will be less than the market price as of December 31, 2026. In fact, in the current market situation, it is entirely possible that the actual acquisition cost is higher.

For example, suppose one acquires 1 A coin for 100 million won in 2025, the market price as of December 31, 2026, is 60 million won, and it is sold for 70 million won in 2027.

In this case, the taxpayer would have actually incurred a loss of 30 million won, yet if they cannot prove the actual acquisition cost, they will be liable for 1.65 million won in taxes. This situation results in taxes being levied on a loss-making transaction.

Therefore, securing the actual acquisition cost is crucial for taxpayers filing their taxes, and both tax accountants and the National Tax Service must possess the technical ability to secure and verify the actual acquisition cost. This is not merely a matter of encouraging honest reporting; it is a question of whether the system can actually function.

7. Conclusion

The principle that 'where there is income, there is tax' is essential for achieving equitable taxation. However, it is also necessary to have reasonable rules that taxpayers and stakeholders in the industry can accept, along with the infrastructure to implement those rules, to achieve equitable taxation.

I hope that during the remaining time before the implementation of taxation, the tax authorities, industry, and experts can come together to ensure that digital asset taxation is stably established. I also recommend that investors start organizing their transaction histories, acquisition cost data, and balance data as of the end of 2026 from now on.