An Exploration on Cryptocurrency Corporations’ Fiscal Opportunities

Abstract

As the decentralized finance industry gains traction, governments worldwide are creating or modifying legislations to regulate such financial activities. To avoid these new legislations, decentralized finance enterprises may shop for fiscally advantageous jurisdictions. This study explores global tax evasion opportunities for decentralized finance enterprises. Opportunities are identified by considering various jurisdictions’ tax laws on cryptocurrencies along with their corporate income tax rates, corporate capital gains tax rates, level of financial development and level of cryptocurrency adoption. They are visualized with the manifold approximation and projection for dimension reduction (UMAP) technique. The study results show that there exist a substantial number of tax evasion opportunities for decentralized finance enterprises through both traditional offshore jurisdictions and crypto-advantageous jurisdictions. The latter jurisdictions are usually considered high-tax fiscal regimes; but, given that they do not apply tax laws, tax evasion opportunities arise, especially in jurisdictions that have high financial development and high cryptocurrency adoption. Further research should investigate these new opportunities and how they are evolving. Understanding the global landscape surrounding tax evasion opportunities in decentralized finance represents a first step at preventing corporate capital flight of cryptocurrencies.