Author – Same Reeds, UK
When Bitcoin and other cryptocurrencies ruled the dark web, authorities were less interested in their financial impact and their relevance in the mainstream sector. However, policymakers can be seen to have changed their earlier views on the crypto market. Most mainstream views of the crypto world changed when the Bitcoin price skyrocketed with over 1000%, hitting an all-time high of over 20,000.
The Blockchain technology
Cryptocurrency runs on a decentralized network based on the blockchain technology, an open source, digitized, public ledger and secure base for all cryptocurrencies. The technology is deemed secure and uncrackable and referred by many as the internet 3.0.
The technology has been off the grid, but its financial viability has grown exponentially, leading to the tax man knock. In terms of financial impact; the government can try to claim a stake, but the ways to achieve this are limited. Unlike mainstream financial institutions, getting crypto financial records of individuals is very limited as they are not obliged to disclose finances to the taxation authorities. Legally, the USA’s Internal Revenue Service (IRS) failed to be granted access to crypto data by the courts: a big win for the cryptocurrencies.
How is the Tax system adapting to the crypto world?
With the cryptocurrency market so volatile and hard to peg, different countries are taking different approaches in trying to claim tax for profits earned from digital currency transactions. Regulators approaches vary from the United States to Australia with each trying to get people declare their crypto taxes.
The United States
With no definite tax regulation in place, the IRS tried to ask people kindly, to declare their crypto task and a low turnout of 802 declared. A bill is in the reconciliation stage after approval of both houses. The final bill is expected to scarp crypto-friendly maneuver such as “like-kind” with a Senate proposed a system based on the “first-in, first-out” (FIFO) accounting framework. The FIFO accounting framework is expected to further complicate the crypto tax-reporting system for people and organizations. The expected bill will maintain the current capital gains rates, according to the IRS’ 2014 guidance.
The Australian Taxation Office is expected to treat cryptocurrencies as a form of property and all financial gains made are subject to capital gains and declared. The view has not been legally approved, the Australian Taxation Office advised people to keep proper records and beneficiaries to be on the safe side. The ATO later issued a statement that:
“The Australian Tax Office is here to help those that are genuinely trying to meet their tax obligations. However, where people attempt to deliberately avoid these obligations, we will take strong action.”
The United Kingdom and the European Union
Cryptocurrencies in the UK and EU have not faced much pressure from the Tax man for a while now. However, a recent statement by a European Central Bank (ECB) governing council member that cryptocurrencies and the Bitcoin should be regulated and taxed might bring the era to an end. This could end crypto-havens in the EU such as Germany.
South Korea the second largest market of cryptocurrency in Asia is by market volume is set to introduce its own crypto tax regulation. The government can be seen trying to find ways to tax crypto transactions as they are non-taxable under the existing current Income Tax Act.
Income or capital?
As governments and regulators are trying to gain a piece of the crypto market, a balance on investment or regulation rises. This further raises the question; should cryptocurrencies be taxed as income or as capital? The crypto market is complex, fast-moving, speculative and long-term, but will eventually have to accept the Taxman’s whip