- The Seoul Administrative Court upheld income tax requirements for cryptocurrency received as part of a severance package.
- Five former Ground1 employees were denied eight million dollars in refunds regarding their virtual asset distributions.
- Judges classified the tokens as taxable other income because they were tied to confidentiality and dispute resolution.
The Seoul Administrative Court ruled that five former employees must pay comprehensive income tax on virtual assets they received under an early separation package, finding the coins functioned as compensation for ending a workplace dispute and maintaining confidentiality.
The Second Administrative Division issued the decision on May 21, 2026. Presiding Judge Gong Hyun-jin led the panel, which rejected the retirees’ argument that the tokens were simply non-taxable settlement payments.
Free toolSubstantial Presence Test Calculator
The case involved former employees of Ground1, a blockchain affiliate of Kakao that is now known as Ground X. The lead plaintiff was identified by the surname Choi. Another plaintiff appeared as “A.”
The former employees had sought refunds of approximately 11.1 billion won, or about $8 million, in comprehensive income tax paid for the 2021–2023 tax years. The coins were distributed alongside retirement severance, compensation for unused leave and other payments.
The court treated the virtual assets as “other income.”
It said the payments were designed to secure an orderly departure and prevent further conflict, rather than compensate the employees for measurable injury. The ruling was reported on July 27, 2026.
The court linked the coins to confidentiality obligations
The settlement followed a dispute that began in November 2019. Employees presented what the research describes as “leadership proposals” to Ground1’s chief executive. Management responded with demotions, a 0% annual salary increase and exclusion from long-term incentives.
The employees protested what they called “gapjil,” a Korean term for an abuse of power. Ground1 argued that the measures reflected legitimate personnel authority during a downturn in the blockchain industry.
The parties reached a recommended-resignation agreement in September 2020. They sought to avoid a public legal fight and possible labor commission filings.
The agreement covered more than ordinary severance. It included retirement consolation money, unused leave compensation and restrictions on public conduct. Employees agreed not to give media interviews or engage in conduct that could damage the company’s reputation.
The court described the tokens as “a gratuity provided in return for early dispute resolution and strict confidentiality.” It also noted that a supplemental agreement required taxes to be withheld before the payment was made.
“The payment was made as a gratuity for ending the dispute early and maintaining confidentiality, making it taxable as 'other income' under the Income Tax Act.”
The panel said the virtual assets were paid in addition to ordinary severance. That additional payment, it found, was tied to the employees’ agreement to stop conduct that could harm the company’s reputation.
The retirees argued the coins compensated them for harm
The plaintiffs characterized the tokens differently. They argued that the assets represented compensation for damages arising from dispute settlement, including non-property damages connected to alleged unfair labor practices.
That classification would have supported their claim that the payment should not be treated as taxable income. The court disagreed.
The panel focused on the purpose of the payment and the obligations attached to it. In its view, the agreement exchanged the virtual assets for a quiet exit and confidentiality, not solely for losses caused by the workplace dispute.
The decision therefore turned on the legal character of the payment, not merely on the fact that the company transferred cryptocurrency. The court’s reasoning treated the coins as a form of remuneration connected to the resignation agreement.
The assets were paid over a period running from March 2021 to September 2023. Their treatment created a tax dispute after the former employees included the value in their previous tax filings and later sought refunds.
| Case detail | Ruling record |
|---|---|
| Plaintiffs | Five former employees, including Choi and “A” |
| Company | Ground1, now Ground X |
| Asset | Klay, later rebranded as KAIA |
| Tax at issue | Approximately 11.1 billion won |
| Tax years | 2021–2023 |
| Payment period | March 2021 to September 2023 |
| Decision date | May 21, 2026 |
Klay’s later rebranding could complicate valuation disputes
The company-issued coins were Klay, a virtual asset associated with Ground1. Klay later became KAIA after the merger of Klaytn and Finschia.
That change could create additional valuation questions if similar disputes reach tax authorities or courts. The ruling itself concerned the character of the original payment, while later disputes could also require determining the value of assets at different points in the distribution period.
The case is among the early disputes specifically addressing coins issued by an employer as part of a severance or settlement arrangement. It differs from a typical purchase or sale of cryptocurrency on an open exchange because the employees received the assets directly through an employment-related agreement.
The court’s reasoning may be relevant to other arrangements that combine retirement payments with confidentiality clauses. It does not, however, amount to a Supreme Court national precedent. The ruling came from a first-instance administrative court.
The case arrives amid a wider crypto-tax debate
South Korea is also debating a 22% blanket tax on cryptocurrency gains. The measure is currently scheduled to take effect on January 1, 2027.
The retirement dispute involves a different question. It concerns whether the initial receipt of employer-issued virtual assets constituted taxable income, rather than how later trading gains should be taxed.
The distinction could matter in future settlements. A company might transfer coins as part of severance, a dispute resolution agreement or a confidentiality arrangement. Under the reasoning in this case, labeling the transfer a settlement would not by itself determine its tax treatment.
The research also places the former employees’ potential liability within South Korea’s higher income-tax brackets, which can reach 42%–45% for high earners. Those rates provide the backdrop to the retirees’ effort to recover the taxes they had already paid.
Their refund claim covered the entire crypto-related amount included in the disputed filings. The court’s decision left that tax treatment intact.
The former employees received the final portions of the virtual-asset payments by September 2023. The court’s May 21 ruling now supplies the legal basis for treating the arrangement as taxable “other income” rather than exempt damages.
