Cryptocurrency for Tax Authorities: Currently there are wide discrepancies between countries’ cryptocurrency tax regimes. This raises concern that tax authorities worldwide are not prepared for the boom of cryptocurrency as it is estimated that, by 2024, 200 million people will use cryptocurrency. Thus, the current inconsistent and underdeveloped frameworks are not sustainable and leave countries vulnerable to tax evasion.
Cryptocurrency for Tax Authorities: Issues
Cryptocurrency has created a range of issues for tax authorities regarding trading, investing, mining, and dealing. Cryptocurrency has ignited new complexities such as: initial coin offerings; air drops; token swaps; and giveaways. Thus, tax authorities need to swiftly determine effective ways to monitor and regulate cryptocurrency taxation to avoid tax evasion and money-laundering.
No treaties have arisen to resolve differences in cryptocurrency tax policies between jurisdictions. Thus, individuals subject to taxation in multiple jurisdictions may face double taxation.
Cryptocurrency for Tax Authorities: Discrepancies between countries
Cryptocurrency has been classified as many things across different counties, such as:
- Intangible assets (Spain)
- Private money (Germany)
- Foreign currency (Switzerland)
Countries are divided in their approaches to cryptocurrency taxation polices, for instance:
- Banning cryptocurrency (UAE)
- Researching cryptocurrency tax policy options (Spain, US and UK)
- Implement anti-laundering laws (Switzerland)
There is a diverse range of pathways for taxing cryptocurrency, for example:
- Individual income tax (Spain)
- Capital gains tax (UK and US)
- Progressive income tax (Germany)
Cryptocurrency for Tax Authorities: Possible international solutions
One possible solution to regulating cryptocurrency taxation and addressing international inconsistencies is to have the European Union agree to uniform cryptocurrency tax regimes. Another way to create more consistency is to have countries agree to classify cryptocurrency as fiat money.
Cryptocurrency for Tax Authorities: Spain’s position
Currently in Spain, profits from cryptocurrency are taxable as individual income tax. In late-October 2018, the Spanish government passed anti-fraud laws which require investors to declare all cryptocurrency assets which they hold domestically or abroad. The new laws also impose high fines for tax evasion using “dual-use software”.
Further, the Spanish Tax Agency (AEAT) is monitoring 15,000 cryptocurrency investors to monitor and prevent tax evasion and money laundering. The monitoring aims to detect illicit financial flows masquerading as cryptocurrencies. A main issue that Spain faces regarding cryptocurrencies is that they lack transparency, thus, the monitoring seeks to address this concern. It has been assured by AEAT that cryptocurrency investors will pay taxes on capital gains from digital currency transaction and be required to declare any benefits accrued from cryptocurrency.
Spain, amongst other nations, has a long way to go before cryptocurrency is effectively monitored and regulated for taxation purposes. Until then, individuals and companies should carefully research jurisdictions to ensure they understand their cryptocurrency taxation obligations. Our office would be happy to provide you with assistance or further information regarding the theme of cryptocurrency for Tax Authorities.