Category Archives: Cryptocurrency Tax

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US Members of Congress Call for Clear Crypto Tax Rules

Lawmakers in the United States have reached out to the Internal Revenue Service (IRS), the nation’s tax collection agency, calling for clearer taxation rules concerning cryptocurrency.

Failure to inform

The letter has been signed by Representatives David Schweikert, Darin LaHood, Lynn Jenkins, Brad Wenstrup, and Kevin Brady, who is the chairman of the committee on Ways and Means.

The open letter, dated 19 September, recalls a letter sent to the IRS over a year ago with regards to enforcement actions taken by the IRS against cryptocurrency holders. With some tone of complaint, the letter says that after this time, the IRS has expanded enforcement “without issuing any further guidance for taxpayers”.

It said, “We therefore write again today to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies.”

“Adequate time”

The letter also makes note of the March 2018 notice that the IRS released as a reminder to taxpayers who have not declared their cryptocurrency transactions can be held liable for penalties and interest.

It adds, “The IRS has had four years to work through these issues since its preliminary guidance was issued, providing more than adequate time for the IRS to thoughtfully consider what additional information is needed.”

Earlier this year in April, the IRS released a notice on the treatment of cryptocurrencies for taxation purposes although, at this time, Arizona was the state which was attempting to pass crypto tax bills.

The letter argues that the IRS has failed to provide adequate guidance to taxpayers, significantly hindering their capacity to comply with crypto tax obligations.

This motion has received backing from the community, cryptocurrency advocacy group Coin Center published a blog post saying that they were “glad to see Congress take action”. It wrote, “Currently, a user needs to calculate capital gains on every stick of gum they buy with cryptocurrency. That doesn’t make sense. The Cryptocurrency Tax Fairness Act, introduced last year, would address this issue.”

Strong words

The lawmakers’ letter closes by “strongly urging” the IRS to introduce robust clarifications on crypto tax obligations. It also asks for a written response from the IRS which provides an outline on efforts to be made by the IRS, a timeline for release and what the IRS “intends to cover in this guidance”.

Furthermore, it states, “To assist the Committee in better understanding this issue, we will be asking the Government Accountability Office to undertake an audit on this matter.”

In the United Kingdom, similar efforts to create clearer cryptocurrency regulations have been made by the Treasury Committee, calling for the “Wild West” market to be regulated.

 

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South Korean Crypto Circles Criticize Tax Perks Exclusion

The recent decision to exclude South Korean cryptocurrency exchanges from the proposed tax benefits for “New-Growth Technologies” has been met with significant backlash from three leading blockchain associations.

Controversial proposal

The South Korean Ministry of Small and Medium-sized Enterprises (SMEs) has ruled that cryptocurrency trading platforms are to be treated in the same ilk as entertainment or gambling businesses and others. Therefore, they will not be subject to the special tax relief that had been proposed earlier in July.

In total, 157 technologies across 11 areas were included in the “new-growth technologies”. Quantum computing, commercialization facilities and blockchain technologies were part of this list.

The announcement came from the “Revitalization Support System for Investment Promotion” that took place on 18 July. A point of contention, however, was that government wasn’t sure where blockchain technologies were concerned, due to initial coin offerings (ICOs) and digital currencies still being treated as gambling.

SMEs or venture businesses included in the Restriction of Special Taxation Act found themselves relishing in tax cuts of anywhere between 50-100% in their first five years of operation.

Later on, in July, the government concluded that cryptocurrency exchanges did not fit within this new taxation law for SMEs and proposed for the amendment exclude exchanges from the special tax rate. The government justified this saying, “The virtual currency transaction brokerage was not effective in generating added value.”

Backlash

This proposal is now subject to much scrutiny among blockchain groups in South Korea. On 10 August, the Ministry of SMEs formally announced that it would be amending the tax laws and confirmed the aforementioned rationale to exclude cryptocurrency exchanges from them.

The Korea Blockchain Association, Korea Blockchain Industry Promotion Association and the Korea Blockchain Startup Association have banded together to combat the decision in strong opposition.

In a letter to the ministry, the associations have accused the government of stifling innovation within the blockchain industry, arguing that the change is “against the regulatory innovation trend of President Moon Jae-in”.

They wrote, “If this legislation is implemented, domestic companies with the second largest number of blockchain technology patents after IBM will be excluded from classification as venture businesses just because they operate a cryptocurrency exchange.”

Adding, “The investment in research and development by blockchain technology-based companies will be hindered. As such, companies that are not able to receive policy benefits and tax incentives will either fail or move overseas.”

Until 4 September, the ministry’s proposal will be under review; it can be expected that South Korean cryptocurrency exchange operators and blockchain associations will be challenging this proposal until then.

 

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South Korean Exchanges Could Lose SME Tax Relief

In South Korea, special taxation laws for small and medium-sized enterprises (SMEs) may no longer apply to cryptocurrency exchanges.

Previously, the Restriction of Special Taxation Act included tax reductions or exemptions for SMEs or venture businesses in the range of 50% to 100% of either income tax or corporate tax in the first five years. Afterwards, this range would be reduced to a range between 5% and 30%.

Tax law revisions

A new draft bill will be submitted to the National Assembly by the end of August 2018, after which it will be opened up to debate within the parliament prior to when or if the bill will be enacted into law. If it is approved, cryptocurrency exchanges will not be eligible to request tax reduction or exemption.

A recent report explains that the government is proposing a revision to the present tax law with the intention of excluding crypto exchanges from this special tax rate. The government explained its reasoning behind the move saying, “The virtual currency transaction brokerage was not effective in generating added value.”

Should the bill pass and be legislated into law, cryptocurrency exchanges will also be obligated to operate under a code of ethics that commercial banks in the country are required to follow, which includes practices such as transaction monitoring.

Cogs in motion

Under the revised laws, cryptocurrency exchanges would officially become financial institutions, which would cause them to fall under South Korea’s Financial Services Commission (FSC). In recent weeks, the FSC has been developing a new tax credit scheme designed specifically with “new-growth technologies” in mind, which includes blockchain technologies.

It comes shortly after the Korean National Assembly saw a whirlwind of political parties submit draft bills in a bid to create the necessary regulatory frameworks for initial coin offerings (ICOs), cryptocurrency and blockchain technology.

South Korea’s financial watchdog has also established a new governing body in preparation for the Fourth Industrial Revolution. As part of the FSC, a new entity named the Financial Innovation Bureau (FIB) will be working to provide “policy initiatives for financial innovation e.g. innovative financial services using fintech or big data and responses to new developments and challenges such as cryptocurrencies”.

Hong Seong-ki, head of the virtual currency response team for the Korean FSC has been pushing to have these bills prepared and passed with haste, urging lawmakers to do so in order to better protect consumer and investors.

South Korea is at a complete turning point, and could very soon be joining the likes of Malta with world-leading and clear laws and regulations.

 

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Australia Tackles Crypto Taxation with New Crypto Classification

Australia’s tax authority has declared intentions to track citizens who hide their cryptocurrency gains offshore using data-matching services that also target “unexplained assets and wealth”.

Taxation

Earlier in 2018, the Australian Tax Office (ATO) published guidelines on the taxation of virtual currencies. It highlighted Bitcoin and other cryptocurrencies that behave similarly to Bitcoin as neither being money, or foreign currency, but a property deemed similar to assets, making them liable for capital gains tax.

Despite the bullish comments from Tony Richards, head of the Reserve Bank of Australia (RBA) in June, it was evident in his eyes that the mainstream adoption of virtual currencies wasn’t to happen in the foreseeable future, which may have contributed to the “asset” classification.

“100-point” check

Also in June, ATO announced its enforcement of crypto tax requirements through a 100-point check, which is a system that will be utilizing sophisticated data-matching techniques and is a system already favored by the Australian government as well as other sectors.

Through existing data-sharing agreements with over 40 other nations, the ATO can now target crypto-investors trading on offshore exchanges. It is estimated by the country’s accounting body CPA Australia that this will be the first time ever that “hundreds of thousands” of Australian taxpayers will make cryptocurrency tax declarations.

However, ATO acting deputy commissioner Martin Jacobs believes it is impossible to tell just how many will be including gains and losses on cryptocurrencies in their tax returning this year.

End of double taxation

Up until now, there had been a “double tax” on cryptocurrencies which lifted on 1 July 2018. The 2017-2018 Budget Summary writes: “The Government will make it easier for new innovative digital currency businesses to operate in Australia… purchases of digital currency will no longer be subject to the GST.”

It later added: “Currently, consumers who use digital currencies can effectively bear GST twice: once on the purchase of the digital currency and once again on its use in exchange for other goods and services subject to the GST.”

Speaking with local media outlet the Australian Financial Review (AFR) Jacobs said, “Our feeling is that the vast majority of investors who joined the bubble in 2017 are likely to be in the loss position as opposed to a gain… The other assumption is they probably haven’t disposed of their cryptocurrency. They might just be holding it.”

Under that condition, there would be no tax implications; Jacobs did reveal that the ATO isn’t “alarmed” by the crypto-specific tax compliance risks.

He said, “Where people attempt to deliberately avoid these obligations we will attempt to take action. We have a range of existing powers that are designed to address unexplained wealth and conspicuous consumption that may arise through profits derived through cryptocurrency investment.”

 

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Crypto Skeptic India May Apply Tax Laws on Crypto in Possible Turning Point

Anonymous sources in India are suggesting that the crypto-sceptical nation may be at a turning point with the possibility of a goods and service tax (GST) on cryptocurrency trading.

Bloomberg reported that the government might be applying an 18% GST as there is a chance that the Indian government could classify cryptocurrencies as a supply of “intangible goods” and, therefore, making them subject to the tax levy with separate laws to be introduced that address the use of cryptocurrencies for illicit activities.

The proposal is reportedly being considered by Central Board of Indirect Taxes and Customs which, according to the anonymous source, will be presented before the GST council one it is finalized.

The source makes the case that the income tax department had realized critical nature of taxing digital currencies sooner than later. This is due to the digital asset markets growth which can build up significant liabilities, making recovery difficult in the future.

Early turbulence

The news is oddly contrasting with previous reports that have emerged from India, with April a particularly turbulent period. Earlier in the month, Bitcoin News reported that the Reserve Bank of India (RBI) was prohibiting all banks and financial entities from “facilitating transactions involving cryptocurrencies”, a move that sparked a petition that received 17,000 signatures, backed mostly by younger users who were employed in the blockchain industry.

Bitcoin bull Tim Draper chimed in during the April maelstrom, suggesting that the Indian government’s prohibitions against cryptocurrency would be “stifling innovation”. With that said, in May, Bitcoin News reported that despite the clampdowns, India has a wealth of crypto-savvy software developers that are more than capable of pushing innovation in the country. A study made by Indian HR company, Belong, brought to light the 5,000-strong developers who could drive the industry forward for India.

Efforts to create the taxation and regulatory frameworks were underway in late March when the largest tax filing platform began making inroads toward building appropriate regulations; the attempt to clarify cryptocurrency laws came shortly after exchanges and cryptocurrency traders came under significant pressures from the RBI and other banks.

Tackling cynicism

The decision to apply the taxation laws on cryptocurrencies hinges largely on the outcomes of the ongoing regulatory efforts being made by the department of economic affairs. Indian crypto exchanges believe a complete ban would be “futile” as the RBI not allowing for banks to transact with them would force buyers and sellers to other means of settling trades. This could contribute to illegal activities and, therefore, cause the ban to come down even harder on the industry.

Treating cryptocurrencies as goods and services may allow for the undeniably lucrative market to stay in force in India. Classifying them as currencies, however, would require changes in the law.

Should a positive consensus be reached through the appropriate classification, taxation and consequently, regulation standards, then India could soon follow in the footsteps of other countries embracing the technology.

 

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Thailand, Latest Addition to Asian Cryptocurrency Tax and Regulation Movement

Thailand is the latest country in the Asia region to start levying taxes on cryptocurrencies, despite receiving some opposition from the Thai Blockchain associations. The news arrives as other countries in the region and around the world ramp up legal and regulatory efforts.

Value-Added Tax and Capital Gains

In early April 2018, Thailand’s Ministry of Finance released plans to tax cryptocurrency trading and investments. After a cabinet meeting in late March, Thai Finance Minister Apisak Tantivorawong responded to a letter sent by digital asset associations calling for the Deputy Prime Minister and government to “rethink the enforcement of a royal decree to regulate digital asset transactions — particularly the withholding tax, as it could be an obstacle to startup fund-raising,“ reports the Nikkei Asian Review.

The proposed 15% capital gains tax is considered by digital asset operators in Thailand to be a stifling figure for the industry. It puts financial pressure on startups seeking to break into the blockchain and cryptocurrency industry, which could hinder overall innovation in the country.

There is also a 7 percent VAT charged on all cryptocurrency trades in the country, which for would-be blockchain entrepreneurs and companies seeking to have digital money as part of their business model is very off-putting.

Subject to Change

With that said, it’s somewhat important to note that the Thai legislation is still in its infantile stages. Since 2014, France had laws in place that classified cryptocurrency profits as either industrial and commercial profits or non-commercial profits, which made them subject to an eye-watering 45% capital gains tax at the top end for residents in the highest tax bracket.

As of late April 2018, the French Council of State reclassified cryptocurrencies as “movable property.” This makes them akin to transportable assets such as vehicles, precious metals or intellectual property and brings the tax rate down to a flat 19%, which may be high but is still a definite advancement for blockchain industries and investors in France.

Asian Advancements

Other countries in Asia are also beginning to relieve crypto-tax pressures with nations such as the Philippines announcing a special economic zone for ten blockchain and virtual currency companies.

In Abu Dhabi, the Global Market’s Financial Services Authority released proposals for a “fit-for-purpose” regulatory and taxation framework. In a statement, Richard Teng Chief Executive of the Financial Services Regulatory Authority (FRSA), regulator of the Abu Dhabi Global Market (ADGM) said:

“The FSRA is seeking to instill proper governance, oversight, and transparency over crypto asset activities,” Adding further, he said, “Our proposed regulatory regime is only possible with our deep understanding and knowledge of the solutions available to address the respective risks and represents the most comprehensive regime proposed by global regulators so far.”

South Korea, Japan, and China are also making similar headlines with regulatory and tax reforms that can only serve positively towards the future of cryptocurrencies and blockchain technology.

In Thailand, it is still early days and should the new tax laws prove too high for the country; there is a chance that the state will follow up on the original policies with further amendments, just like many other crypto-adopting societies in the world.

 

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US Cryptocurrency Holders Could Owe $25 Billion in Taxes

Tom Lee, former chief equity strategist for JP Morgan Chase, has often provided insights on the cryptocurrency market and Bitcoin; in a recent CNBC interview, he estimated that cryptocurrency holders in the United States owed around USD 25 billion in capital gains taxes.

US tax date impacting market

Lee believes that the present cryptocurrency sell-off is in anticipation of the looming US tax day on 17 April; he also believes that sometime after this date, “market misery” and selling pressure will begin to alleviate, pushing the market back up.

On 23 March, the Internal Revenue Service (IRS) released a notice describing its treatment of cryptocurrency as virtual currency and, therefore, general property taxation principles and laws were applicable. The small reminder from IRS may be partly responsible for the present sell-off which is profoundly impacting the market.

“This is a massive outflow from crypto to USD, and historical estimates are each $1 of USD outflow is $20-$25 impact on crypto market value,” Lee added in the CNBC report.

Wheels spinning in the USA

The US is undergoing a shift of attitude toward Bitcoin and cryptocurrency practices overall. Since February, the state of Arizona has been passing realistic and promising bills through the Arizona House of Representatives which would reshape how the state interacts, regulates and utilizes cryptocurrencies as well as initial coin offerings (ICOs).

The HB2603, HB2602, and HB2601 bill package, if finally voted law, would mean that Arizona would be the first state to accept cryptocurrency as payment for taxes. Providing a legal definition for tokens and amending old legislation would protect individuals who run blockchain nodes, which is primarily an issue of energy costs caused by computing power.

There is an oddly positive tone emanating from the US; BitcoinNews recently reported that Jay Clayton, chairman of the US Securities and Exchange Commission (SEC) had begun to change his tone on ICOs. He aptly identified the need for lawmakers and regulators to tackle fraudulent blockchain activities to prevent the legal frameworks from restricting “the capacity of this new security”.

In another turn of events, cryptocurrency firm Coinbase is reportedly “in talks” with SEC in regards to the trading platform becoming a licensed and regulated virtual money entity.

If Tom Lee is correct, capital gains tax made from cryptocurrency this tax period will account for about 20% of the US total. If these estimations are anywhere near accurate, it could be an indication to the government to seriously consider blockchain technologies and their accompanying cryptocurrencies as a vital fabric in the weave of technological and financial advancements of the future.

 

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SEC Chairman Doesn’t Believe Every ICO is a Scam; Japan and South Korea Charge Ahead Toward Regulation

Jay Clayton, the Chairman of the US Securities and Exchange Commission (SEC), gave a speech at a Princeton University event that provided fascinating insight into his evolving views on how to approach initial coin offerings (ICOs) as well as how to classify and regulate cryptocurrencies.

Not every ICO is a scam

Essential discussions that delve deeper into blockchain technologies, ICOs and cryptocurrencies are taking place all over the world. Perhaps now that the markets are cooling off, the topic of how to legitimize the lucrative technology is finally on the table.

During the event, the SEC chairman disregarded that all ICOs were fraudulent scams, bearing contrast to his position in February. At a Senate hearing, Clayton declared he was “unhappy” with how ICOs were conducted, based on the fact that they did not follow private placement rules, and that there were some fraudulent ICO operators.

Clayton made a potent remark that brought to light a solution for a lesser-mentioned problem: what happens if the technology continues to have fraudulent actors? He said:

“I think if we don’t stop the fraudsters, there is a serious risk that the regulatory pendulum – the regulatory actions will be so severe that they will restrict the capacity of this new security.”

Overseas efforts

The United States isn’t the only country wrestling with the ICO debate; in Japan, a recent government-backed study revealed that it now is looking to bring forth the proper legal and regulatory frameworks to give the go-ahead on the popular capital-raising method.

The report included guidelines that will identify investors, which will prevent money laundering, which acts as a protection for existing shareholders and debt holders, making “unfair” trading practices such as insider trading a thing of the past for cryptocurrencies.

The report also goes on to classify three types of ICOs:

The “venture company type” is the typical fundraising method and is defined as “fund-raising by venture companies through high-risk, high return investments”.

The second is the slightly lesser known “ecosystem type” which is described as “fund-raising for collaborative efforts in which multiple corporations such as companies and local governments are engaged”.

The third and probably least known of them all is the “large company type”, which is for “fund-raising by companies for certain in-house projects with high risk”.

Advancements in the United States and Japan are steering the future of cryptocurrency in the right direction; BitcoinNews recently reported that South Korea is making preparations to tax cryptocurrencies, which may come off as alarming, but can be a vital spoke in the regulatory wheel.

Rallying support

What makes it even less alarming is that the third largest fiat-to-Bitcoin market in the world is also preparing to have a cryptocurrency for its capital city, and in fact, the United States and Japan are above South Korea in the fiat-to-Bitcoin market listing.

It is evident that despite the constant negative press, cryptocurrencies are part of very progressive discussions taking place in the largest markets in the world. It is these serious pioneering efforts that will make blockchain technologies and cryptocurrencies validated as part of the economy.

 

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South Korea Regulators Preparing to Announce Cryptocurrency Taxation Laws

Reports indicate the South Korean ministry of strategy and finance is to begin taxing cryptocurrency in a bid to regulate the crypto sector by 2019.

Since the winter of 2018, South Korea has garnered a great deal of attention as a key crypto-battleground; the rumoured ICO bans, exchange shutdowns and misleading negative press coverage has contributed to making South Korea one of the most misunderstood locations when it comes to cryptocurrencies.

But reports, on the contrary, are emerging at a hastening pace, and now South Korean regulators are reportedly planning to announce placing a capital gains tax and other income taxes on virtual money. In a statement made to Financial News, a ministry official said:

“We do not have a specific time frame, but we are thinking about announcing a virtual money tax in the first half of the year”.

The snowball effect

Negative speculation surrounding cryptocurrency in the country began appearing in January and then very slowly, as the clarity around purported crypto bans came to light, it became apparent that things were, in fact, moving in a positive direction.

As February rolled through, discussions of regulation in South Korea were brewing especially when the chief of South Korea’s Finance Supervisory Service (FSS), Choe Heung-Sik made these comments at a press conference:

“The whole world is now framing the outline (for cryptocurrency) and therefore (the government) should rather work more on normalization than increasing regulation.”.

Remarks such as these have made for a snowball effect in the global discussion of cryptocurrency. Most recently, BitcoinNews reported that Park Won-Soon, Mayor of Seoul is bringing forth new plans to adopt blockchain technologies with remarkable intentions to create Seoul’s very own cryptocurrency.

Government officials in South Korea have conducted direct investigations in several countries around the world, including Japan, the United Kingdom and the United States. Officials made conclusions that each country has its own approaches on how to categorize cryptocurrencies for taxation purposes:

“Currently, the US and the UK are taxed with capital gains tax, Japan with miscellaneous income, and Germany with other income. It is because the characteristics of virtual money were different in each country, such as payment means, monetary ability, financial assets, and so on. However, these countries have found that there are few cases where actual tax is imposed, as opposed to taxation based on the principle that there is a tax on income.”.

Pioneering efforts

These are very telling moments for the future of the cryptocurrency industry. South Korea’s efforts over the course of the next year could contribute to those of Switzerland, which at present is home of the Crypto Valley Association. Switzerland is beginning to receive increasing enquiries concerning blockchain technologies and is formally investigating the economic purposes and functions of the tokens.

South Korea, the third largest fiat-to-Bitcoin market in the world, is approaching the creation of positive conditions for regulatory frameworks, preparing for its capital to have its own cryptocurrency and is in now preparing for various taxation laws that would begin to normalize the existence of cryptocurrencies in the country. These are several huge steps in the right direction.

 

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