Crypto Received in Resignation Deal Is Taxable, South Korean Court Rules

Former Kakao Affiliate Employees Lose Tax Suit

Court Says Tokens Were Gratuities, Not Settlement Payments

A South Korean court has ruled that cryptocurrency paid in exchange for ending a dispute with an employer early and keeping it from becoming public was not damages, but a taxable gratuity.

According to the legal community on July 27, the Seoul Administrative Court ruled against five former employees of Ground1, now Ground X, including a plaintiff identified only as A, in their suit against the heads of the Seoul tax offices in Dongjak, Seongdong and Banpo seeking to overturn the denial of their amended comprehensive income tax filings.

The plaintiffs worked at Ground1, Kakao's blockchain affiliate, and accepted recommended resignations in September 2020 after clashing with the company over job reassignments and an organizational overhaul. In addition to severance pay, retirement consolation payments and compensation for unused annual leave, the company gave them cryptocurrency it had issued.

After reporting and paying comprehensive income tax on the tokens, they sought amended assessments and asked for a refund of about 11.1 billion won, or about $8 million, arguing the payments should be treated as dispute-settlement money or damages stemming from an unfair labor practice. They sued after the tax authorities rejected the request.

The court highlighted terms in the separation agreement saying the company would provide the cryptocurrency in exchange for the employees refraining from acts that could harm its reputation, including media interviews.

The panel said the employees received the tokens in addition to ordinary severance in return for stopping conduct that could damage the company's reputation. It concluded that the payment was money given as a gratuity for the early resolution of the dispute and for maintaining confidentiality, making it taxable as other income under the income tax law.

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