The analysis on the topic is on a preliminary phase, but the early September 2018 OECD sessions on the topic initiated a more focused conversation. US IRS also participated in some of the broader sessions, issuing statements on the topic. Here are some of the interesting points raised, with our add-ons.
• In the US, failure to declare capital gains on sale of virtual currencies has been an issue, as it is the businesses using Crypto currency as a sort of foreign bank account not tied to any country.
• How do you value transactions in different digital currencies if you don’t have the reference to a particular FIAT? To make it harder, different exchanges can be trading the same crypto-asset at different prices.
• In Tax you need ALL info, and get all your transactions reachable and documented, especially in a Decentralized structure. Total data records will always be needed, even to build solutions that can pool a number of them from tax glance.
• If a token holder is not able to exercise Governance on all its tokens, that will not only create him/her an issue from a tax perspective.
The individual “distributed problem” of missed token data records will be extended to the economy with potential systemic effect if crypto transactions reach mainstream level competing with other payment methods. Can the overall system afford it?
• Tax Administrations are discovering that there is sufficient electronic/digital track from your bitcoin operations that could enable them to pre-conclude and understand when you are acting for yourself or actively trading for others…
• When you do not have a centralized system entity with other legal entities below, how do you apply Transfer Pricing?
• Functionality of tokens logically relevant to define taxation consequences, but different interpretations on the same token could happen on several sides of the distributed ledger. Double taxation + Double interpretation of same block….
• There is a need to educate Crypto community on how to find balance in the tax approach.
• A number of solutions were discussed on isolated points. It is clear this needs a comprehensive approach.
On top of the tough challenge of addressing the structural issue of defining a consensus-based framework for the digitalized economy taxation, the OECD March 2018 interim report indicated 3 areas of immediate attention:
– Cooperation on sharing economy users between Tax Administrations
– Reviewing the changing nature of work
– Crypto & Block-Chain DL Technologies
DL Technologies are likely going to be the “connector” of the first 2 topics above with the other 2 key Action 1 BEPS prevailing issues: Value of Users and Cross Border Data flows;
And likely, part of the solution in the mid-term.
