Offering tax-free trading of U.S. stock derivatives… Blatant structure for capital gains tax evasion
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Gate.io Takes Effective Operation of ADEN After Acquisition
Gate Ventures, an investment affiliate of Gate.io, officially announced this month that it had strategically acquired ADEN. Although ADEN positions itself as a decentralized exchange (DEX), it has been revealed that it actually shares the same servers, customer management systems, and API interfaces as Gate.io.
Gate.io is a Chinese exchange headed by CEO Lin Han, and it has built credibility by linking with domestic virtual asset exchanges and the Travel Rule. However, it has been confirmed that while it offers leveraged derivative trading on 14 U.S. stocks, including Tesla and the Nasdaq index, through ADEN, it has not established any procedures or structures for tax payment.
'Tax-free' trading of U.S. stock derivatives... Structure clearly fostering tax evasion
The crux of the problem is that although U.S. stock derivatives trading provided by ADEN is subject to taxation under South Korean tax law, there is no tax payment system in place at all.
According to the current Income Tax Act, domestic residents must pay capital gains tax on income generated from trading overseas stocks and derivatives. A tax rate of 22% (including local income tax) applies to capital gains exceeding 2.5 million won per year.
However, while ADEN offered leveraged derivatives trading on 14 U.S. stocks, it did not establish any procedures, such as notifying the IRS of transaction details or withholding taxes. From the investor's perspective, the structure is such that there is no way to pay taxes even if profits are generated.
Kim Kyung-hwan, a tax accountant at EL Tax & Accounting, pointed out, "Normal overseas securities firms or derivatives trading platforms provide transaction records to investors and support them in filing their comprehensive income tax returns based on this information," adding, "A structure like ADEN that completely excludes the taxation system itself clearly encourages tax evasion."
Inbeom Attracts Investors with Korean Content
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Inbeom, who launched ADEN, revealed through broadcasts that he has maintained a close relationship with Gate.io, and indications were also found that he obtained financial benefits through a contract with Gate Ventures. Although he currently resides in Singapore after renouncing his South Korean citizenship to operate the exchange, he continues to conduct business activities targeting Korean investors through domestic channels.
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According to financial authorities and the Digital Asset Exchange Association (DAXA), "For overseas exchanges to broker derivatives for domestic investors, they must obtain authorization under the Capital Markets Act and also have a taxation system in place under tax laws," and pointed out that "if a specific individual actively solicited investors in Korean, this could constitute unauthorized business and aiding and abetting tax evasion."
Investor losses continue to mount even at Gate.io headquarters
It has been confirmed that a large number of domestic and international investors suffered damages, such as account freezes and withdrawal restrictions, at Gate.io's headquarters exchange. One overseas investor revealed that a liquidation occurred at Gate.io, even though they would never have been subject to it on other exchanges.
According to the victims' testimonies, no substantial compensation for damages has been provided. One victim lamented, "I invested in Gate.io thinking it was a trustworthy exchange that complies with the Travel Rule, but withdrawals were restricted without any clear explanation."
Structure that encourages regulatory circumvention and tax evasion… Clear indications of collusion
There is a strong possibility that the relationship between Gate.io and Inbeom is interpreted as a conspiracy that goes beyond mere public relations. Inbeom continued its promotional activities even immediately after Gate Ventures announced the acquisition of ADEN, leading to analysis that this can be viewed as a form of prior collusion or participation in management.
Gate.io has established a structure where it continues to promote itself in the domestic market through Inbeom, effectively functioning as a channel for Korean investors despite being legally an overseas exchange. Although ADEN formally claims to be a decentralized exchange, it actually operates as a sales channel for Gate.io's derivatives, thereby circumventing domestic regulations and tax laws.
According to South Korean laws, such acts entail complex legal issues, including aiding and abetting tax evasion under the Act on the Punishment of Tax Crimes, fraud under the Criminal Act (Article 347), violations of the Capital Markets Act, violations of the Electronic Financial Transactions Act, and violations of the Specific Financial Information Act (Anti-Money Laundering Act).
Financial and tax authorities need to investigate and take blocking measures
In relation to this matter, the following measures are required of the financial authorities and the National Tax Service.
First, urgent measures are required to block domestic access and operations of Gate.io and ADEN. This is because the two platforms are managed by virtually the same entity and are engaging in unauthorized business operations and facilitating tax evasion targeting domestic investors.
Second, it is necessary to initiate a criminal investigation into In-beom and Gate.io officials. Although In-beom renounced his Korean citizenship, he actively solicited investors through domestic channels, and there are sufficient circumstances to view this as aiding and abetting tax evasion and conspiracy to operate without authorization.
Third, a list of investors who traded through ADEN must be secured to conduct a tax investigation and initiate collection procedures for unpaid taxes. Currently, many investors are trading without being aware of their tax obligations, raising concerns about significant future tax revenue losses.
Fourth, there are also calls to review the removal of the Travel Rule linkage between Gate.io and domestic exchanges and to notify the Financial Supervisory Service.
Previously, the Financial Services Commission stated that it was "closely monitoring cases of overseas virtual asset exchanges operating without authorization in Korea" and would "review necessary measures to protect investors."
An official from the National Tax Service stated, "Even if derivative transactions are conducted through overseas platforms, there is an obligation to tax the income of domestic residents," adding, "We will consider strong measures against platforms that intentionally exclude the tax system."
As cases of overseas exchanges encouraging tax evasion targeting domestic investors by posing as decentralized exchanges are on the rise, strong cooperation between financial authorities and the National Tax Service is necessary at this time.
Gate.io has not yet released an official statement.
Choi Joo-hoon joohoon@blockstreet.co.kr
