Crypto Paid for Quiet Exit From Kakao Affiliate Was Taxable, Court Rules

A South Korean court ruled that virtual assets paid to employees in exchange for ending a dispute with their employer early and keeping it out of public view were taxable gratuities rather than damages.

According to the legal community on July 27, the Seoul Administrative Court's Second Administrative Division, led by Presiding Judge Kong Hyun-jin, ruled against five former employees of Ground1, now Ground X, including a plaintiff identified only as A. The suit sought to overturn tax offices' refusal to revise their comprehensive income tax assessments.

A and the other plaintiffs worked at Ground1, Kakao's blockchain affiliate, before accepting recommended resignations in September 2020 after conflicts with the company over job reassignments and organizational restructuring. In addition to severance pay, retirement consolation payments and compensation for unused annual leave, the company paid them virtual assets it had issued. After reporting and paying comprehensive income tax on the assets, they sought a reassessment and a refund of about $8 million, arguing the payment was a dispute settlement stemming from an unfair labor practice or damages. They filed suit after the tax authorities rejected the request.

The court focused on language in the resignation agreement stating that the company would provide virtual assets if the employees refrained from conduct that could damage the company's reputation, including media interviews.

The panel said the plaintiffs received the virtual assets in addition to ordinary severance pay in return for stopping conduct that could harm the company's reputation. The payment was made as a gratuity for ending the dispute early and maintaining confidentiality, the court said, making it taxable as "other income" under the Income Tax Act.

Lee In-hyuk, Hankyung.com reporter twopeople@hankyung.com