Terraform Update: Tax Authorities Slap Firm With $78 Million Fine

May 21, 2022, 10:45 AM AEST - 1 month ago

The woes continue to pile on for Terraform Labs following LUNA’s unceremonious collapse and UST completely depegging from the US dollar. Now, a local report suggests that South Korean tax authorities are slapping the firm with a US$78 million fine for tax evasion.

Bad to Worse

Amid the LUNA debacle, the South Korean government is turning up the heat on Terraform Labs as an estimated 200,000 South Koreans lost much of their net wealth, not to mention at least eight people who reportedly committed suicide as a result.

As a class action lawsuit looms in the background, local tax authorities have claimed that Terraform Labs sent LUNA from its Singapore-based entity to the Luna Financial Guard (LFG) in order to avoid taxes. Furthermore, it is alleged that additional taxes are owed in relation to the bitcoin that was acquired and later sold by LFG.

The firm’s controversial co-founder, Do Kwon, is said to hold around 92 percent in Terra Singapore, with the balance belonging to another South Korean national. Authorities relied on South Korean corporate tax laws, which provide that foreign-registered companies are treated as domestic if decision-making and operations are carried out locally:

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Do Kwon regularly called critics poor. Source: Twitter

Terraform Labs Used Complex Legal Structures

Terraform Labs reportedly first piqued tax authorities’ interest in June last year on suspicions of income and corporate tax evasion. The investigation into the firm and its subsidiaries revealed that the company was registered in the Virgin Islands, as well as Singapore. Since decisions were being made from South Korea, the firm was fined US$3.6 million in income tax and US$34 million in corporate tax.

Kwon was therefore reportedly unhappy with local crypto taxation laws and since December had been trying to close down Terra’s domestic operations. Sadly for him, as LFG sought to recover losses on the Anchor protocol and defend the UST peg, tax authorities were once again alerted.

Limited Remedies Available

With a congressional hearing on the cards, a lawsuit and a massive tax bill, the future is looking dim for Terraform Labs. For all the talk of decentralisation and building communities, it’s difficult to avoid the conclusion that Terraform was a company centrally controlled by its founder.

While government has the tools at its disposal to collect what is owed, users caught up in the fiasco are left with few remedies, if any:

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