South Korea's National Tax Service is accelerating work on a transaction tracking network ahead of the planned taxation of cryptocurrency next year.
The agency plans to equip its Integrated Virtual Asset Analysis System, under construction through the end of this year, with the ability to automatically trace transactions across more than 100 blockchains, according to financial industry sources on the 2nd. A recently published request for proposals for next year's system operation and maintenance project specifies a transaction tracking function that will automatically trace more than 100 million transactions across more than 100 blockchains and visualize the movement of funds. The goal is to follow the flow of money even when cryptocurrency moved to a personal wallet travels through multiple blockchains.
The system will also be able to trace so-called mixing transactions, which blend holdings from multiple users to conceal the path of funds. The tax agency plans to add functions that trace mixed transactions back to their source and automatically detect suspicious activity, such as splitting cryptocurrency across multiple wallets or moving it repeatedly.
The Integrated Virtual Asset Analysis System is tax infrastructure being built with an investment of about 3 billion won ($2.1 million). It combines transaction data from domestic exchanges with blockchain transaction records to analyze each taxpayer's cryptocurrency holdings and transaction flows going back as far as five years. About 500 million won has been allocated for operating the system and licensing transaction tracking software next year.
Industry officials say that even with these capabilities, tracking every transaction accurately will be difficult. "When funds pass through a combination of multiple exchanges, swap services and personal wallets, the difficulty of tracing them rises," said Cho Yoon-sung, head of product at Tiger Research. "The mere fact that funds moved out of a particular wallet makes it hard to determine whether it was a trade or simply a transfer between wallets. Calculating the acquisition cost and the actual gain or loss [for taxation] is a separate problem."
