A court has ruled that imposing tax on cryptocurrency received in exchange for agreeing to resign following a dispute with an employer is lawful.
According to the legal community on the 27th, the Seoul Administrative Court's Administrative Division 2 (presiding judge Kong Hyun-jin) ruled against the plaintiffs in May in a lawsuit filed by five people, including a person identified as A, against the heads of the Dongjak, Seongdong, and Banpo tax offices seeking to cancel the rejection of their comprehensive income tax correction request.
A and the others worked at Company B, a blockchain platform developer, and were in a dispute with the company over personnel actions and dismissal notices. They prepared to file a relief application with the Labor Relations Commission, pursue civil and criminal lawsuits, and give media interviews, but in September 2020 they agreed to a recommended resignation with the company, ending the related dispute.
They received cryptocurrency issued by the company from the company, along with retirement consolation payments, severance pay, and remaining annual leave allowances. They subsequently reported the cryptocurrency as an "honorarium" under the former Income Tax Act and filed and paid comprehensive income tax for the 2021-2023 tax years.
The case began in 2024 when A and the others filed a correction request with the tax office seeking a refund of approximately 11.1 billion won in comprehensive income tax. They argued that the cryptocurrency was a dispute settlement payment made in connection with the company's unfair labor practices and therefore not subject to taxation. However, the tax office rejected the correction request, and after their appeal was also dismissed, A and the others filed an administrative lawsuit.
The court sided with the tax office. The court ruled that the cryptocurrency constitutes an "honorarium," classified as other income under the former Income Tax Act. "The employment relationship between A and the others and the company was terminated in the form of a recommended resignation, and it is reasonable to conclude that subsequent legal disputes were also concluded according to the intentions of the parties," the court said. It added, "The plaintiffs received cryptocurrency in addition to the amounts typically paid upon retirement, in exchange for concluding legal actions and halting media and National Assembly activities."
The court further ruled, "If the cryptocurrency were considered to have the character of consolation money for unfair dismissal, which is tax-exempt, there would have been no need to include a provision in the agreement stating that it would be paid after deducting taxes." It added, "It is reasonable to view the cryptocurrency as an honorarium paid in exchange for the early conclusion of the dispute and the maintenance of confidentiality."
