South Korean cryptocurrency enthusiasts who received airdrop tokens and prizes from Bithumb between 2018 and 2021 are facing unexpected tax bills, potentially totaling around $30 million. Bithumb, one of South Korea's largest crypto exchanges, announced on May 10 that it would cover the tax expenses for affected customers but intends to challenge the National Tax Service (NTS)'s decision to retrospectively tax its users.

The tax bills stem from a range of giveaways and promotions, including airdrop prizes and cashback-type promotions, which the NTS views as "other income" subject to taxation. While South Korea currently does not tax crypto-related profits, it does require winners of such events to declare and pay taxes on their winnings, with a tax rate of 22% for prizes exceeding approximately $37.

According to reports, the NTS believes that Bithumb distributed nearly $61 million worth of assets to South Korean residents during the specified period. This sudden tax demand has come as a shock to many users, particularly as it marks the first time South Korean airdrop recipients have been taxed by the NTS.

In response, Bithumb has pledged to compensate its customers for any taxes they have been asked to pay to the NTS due to receiving airdrops. However, the exchange is also filing a tax appeal against the national tax body, arguing that the distributed virtual assets and commission cashback should be considered exempt from taxation as free gifts or sales benefits.

The success of Bithumb's appeal hinges on the nature of the event giveaways, according to South Korean tax experts. While the NTS views the tokens as prizes, Bithumb insists they are free gifts. This dispute could lead to a protracted legal process, with appeals to the NTS often being time-consuming and potentially taking several years to resolve.

Despite the tax controversy, Bithumb is pressing forward with its plans to become the first South Korean crypto exchange to go public on the nation's stock exchange. As the legal battle unfolds, affected users and the broader crypto community will be closely watching the outcome, which could have significant implications for the taxation of crypto-related activities in South Korea.