Cryptocurrencies are gaining a foothold in the globaleconomy, and the government wants its cut. However, fewpeople are reporting cryptocurrency transactions on their taxreturns. How will the IRS solve its cryptocurrencynoncompliance problem? Its response so far bears manysimilarities to the government’s campaign to increase Reportsof Foreign Bank and Financial Accounts (FBARs). FBARnoncompliance penalties are notoriously harsh, and thegovernment has pursued them vigorously. This Note exploresthe connections and differences between cryptocurrencyreporting and foreign bank account reporting in an effort topredict the future regime of cryptocurrency tax compliance.
We study the short-term effect of the first global multilateral standard for automatic exchange of information (AEIO), the so-called Common Reporting Standard (CRS), on the volume of exchanges of money to cryptocurrencies. We hypothesize that following the introduction of information exchange between source countries and tax havens, the amount of money in the tax havens' cur- rencies exchanged to cryptocurrencies increases. Our results complement prior findings of the literature that deposits in tax havens decrease following AEIO. Through our model, we find that CRS induced a 40% increase, on average, in the volume exchanged to/from Bitcoin. Around the time of the introduction of CRS, volume exchanged to/from Bitcoin increased the most for currencies GBP, CHF, and USD. Keywords common reporting standard, cryptocurrencies, cross-border deposits, automatic exchange of in- formation Title Cryptocurrencies and Financial Secrecy Author's e-mail 48669601@fsv.cuni.cz Supervisor's e-mail miroslav.palansky@fsv.cuni.cz
This paper sheds light on the scarce empirical evidence on cryptocurrency users and use types. Based on the only available empirical estimate (shared by Chainalysis), this paper simulates the revenue potential from taxing Bitcoin capital gains in the EU. Total estimated Bitcoin capital gains in the EU amount to 12.7 billion EUR in 2020, including 3.6 billion EUR of realized gains. Applying national tax rules on capital gains from shares to those from Bitcoin yields a simulated tax revenue of about 850 million EUR in 2020. This paper is the first to empirically assess the tax revenue potential of capital gains from Bitcoin in the EU. While most of the empirical cryptocurrency literature is based on time-series data, this paper relies on dis-aggregated country-level data. The findings show that revenue from taxing cryptocurrencies is non-negligible and will be if the market of cryptocurrencies continues to grow.
While the founders of cryptocurrencies may not conceptualize their efforts as such, the infrastructural choices they make in designing their systems mimic those routinely made by lawmakers in the design of fiscal policy. The totality of their decision-making in this regard constitutes essential elements of “taxation” written into the governance structure of the cryptocurrency system — its tax cryptographia . This article examines how cryptocurrency founders determine what common goods are necessary to make their systems viable and then design a way to fund them. The object of comparing certain cryptographic design elements to taxation is to examine how investors, speculators, enthusiasts, and skeptics should assess the decisions that founders make, and why it might matter if the participants in cryptocurrency systems recognize the fiscal infrastructure as a reproduction of state-like functions that serve to allocate the cost and benefits of participating in the collective activity despite the core motivation of cryptocurrency to bypass centralized and hierarchical political institutions.
Orientation: This article examines the normal tax treatment of cryptocurrency transactions performed by natural persons in South Africa. Research purpose: The aim of this article was to document the normal tax treatment of cryptocurrency transactions subsequent to the inclusion of cryptocurrency in the definition of ‘financial instrument’ in section 1(1) of the Income Tax Act No. 58 of 1962, and to determine whether this inclusion gives rise to unanticipated issues. Motivation for the study: This investigation was necessitated by the distinguishing features of cryptocurrency that differentiate it from other financial instruments. Research approach/design and method: This article falls within the reform-orientated genre of doctrinal research. A desktop literature review was conducted to determine the normal tax treatment of cryptocurrency transactions, based on an interpretation of relevant legislation and a review of secondary commentary. Key issues identified in the normal tax treatment of cryptocurrency transactions were documented, and recommendations were made for addressing the issues identified. Main findings: A misalignment may occur between taxable incomes and economic gains of taxpayers engaged in cryptocurrency mining. Practical/managerial implications: The South African Revenue Service (SARS) should allow for a deduction equivalent to the market value of cryptocurrency acquired through cryptocurrency mining in terms of section 22(2)(a). Contribution/value-add: A risk of misalignment between taxable incomes and economic gains of taxpayers performing cryptocurrency mining has been identified and documented, which may inform legislative amendment, or the practice of the SARS.
The article deals with the content of the tax on cryptocurrency, which is an innovative IT instrument of economic development. It has been established that there was no common understanding of the official status of cryptocurrency given that each state establishes it in the framework of its national legislation independently, and the introduction of taxes is one of the instruments of state influence on the cryptocurrency circulation. It has been found out that the EU member states had only one restriction on the taxation of cryptocurrency, namely cryptocurrency transactions were not liable for VAT. Foreign experience in taxing cryptocurrency transactions is considered in the article. It has been established that Ukraine offered the most optimal tax rate on income from cryptocurrency transactions for individuals and legal entities. At the same time, the significance of the economic effect of the cryptocurrency tax in the form of revenues to the state budget due to the unstable cryptocurrency exchange rate is disproved, which raises the issue of the feasibility of search for new areas of state influence on cryptocurrency.
The main purpose of this paper is to set a model in which there exist multiple firms producing data in a situation where each firm produces data and shares it voluntarily for new additional revenue. The model is used for theoretical examination of the revenue distribution rule and behaviors to maximize the social welfare. Consequently, the following three main results can be obtained. First, if the number of firms is sufficiently large and some conditions are assumed, the revenue distribution rule to maximize social welfare in a decentralized economy coincides with the elasticity of additional revenue with respect to the provided data. Second, if each firm maximizes profit in the decentralized economy, the firm can achieve allocations to maximize social welfare in a command optimum for any revenue distribution rule as long as the government provides the policy of lump-sum tax and subsidy appropriately. Third, if the subsidy for data sharing is financed by a flat rate tax for additional profit, each firm has an incentive to participate in the platform irrespective of the subsidy rate and revenue distribution rule.
This article presents an example of how globalization and digitization force states to rely on international organization. Examining tax policy with respect to cryptocurrency—an innovative, global technology—the implication is that a state levying taxes on cryptocurrency must turn to international monitoring and enforcement regimes to support effective taxation. Based on Margaret Levi’s theory of predatory rule, I submit a theory of “co-predation” to explain international cooperation with respect to taxation of novel, cross-border technologies such as cryptocurrency. The Automatic Exchange of Information (AEOI), an anti-tax evasion framework promulgated by the OECD, serves as an example of international cooperation. A comparison of cryptocurrency taxation in Russia and Belarus finds that, where effective tax policy is at stake, states are enjoined to commit to international cooperation through AEOI. The article concludes by considering implications for legitimacy, quasi-voluntary compliance, and strategic tax policy.
In 2014, the Internal Revenue Service (IRS) issued Notice 2014-21 in an attempt to address issues with cryptocurrency taxation, essentially reaching the conclusion that cryptocurrency must be treated like property for purposes of taxation. In the time since the IRS pronouncement, several academics have called for an alternative treatment known as “currency treatment.” Each treatment inadequately addresses the comprehensive issues surrounding cryptocurrency because they offer wholesale treatment to nuanced issues with valid concerns from each side. To truly allow this emerging industry to flourish and gain societal acceptance, artful policymaking is required. This note provides an example of such policymaking. The tax plan proposed in this note will address a litany of issues, ranging from investment intent, price volatility, treatment of income for “miners,” the criminal element of cryptocurrency, enforcement mechanisms, and cross-regulatory agency efforts, eventually suggesting a three-tiered approach that combines elements of the property and currency treatment approaches for a more comprehensive analysis. Being proactive in addressing these issues will allow the market to embrace a new medium of commercial change that revolutionize the world.
Hungarian abstract: : A kriptovaluták népszerűsége világszerte növekszik. Használják őket fizetésre, befektetésre, kincsképzésre, annak ellenére, hogy nem minősülnek fizetőeszköznek, értékpapírnak, vagy vagyontárgynak, bár kétségkívül minden kategóriának a tulajdonságaiból rendelkeznek néhánnyal. Egy magyar állásfoglalás szerint a krioptovalutákat egyéb követelésnek kell tekinteni, míg a nemzetközi számviteli sztenderdek ajánlása szerint a kriptovalutákat vagy az immateriális javak, vagy a készletek között kell bemutatni. A cikk elemzi a kriptovaluták tulajdonságait, és bemutatja, hogy milyen társasági adózási következményei vannak annak, ha a vállalkozás a magyar állásfoglalás ajánlását követi, és hogyan vezet a helytelen besorolás fals adózási eredményekhez. A szerző az állásfoglalás visszavonását, és új számviteli szabályok és értelmezés megalkotását javasolja – akár egy új eszközkategória megalkotásával a kriptovaluták számára. English abstract: Cryptocurrencies are gaining in popularity worldwide. They are used as if they were currencies, securities, debt or equity instruments, or property. They are neither of those things although they certainly show characteristics of each categories. A Hungarian non-binding ruling classifies them as claims or accounts receivable, while the international accounting standards recommend to present cryptocurrencies either as intangible assets or as inventories. The article analyses the characteristics of cryptocurrencies, and the corporate income tax consequences of following the recommendations of the Hungarian non-binding ruling. It shows why the wrong classification of cryptocurrencies leads to false tax results. The author recommends the withdrawal of the tax ruling and the establishment of new accounting rules and interpretations - possibly also the introduction of a new accounting category for cryptocurrencies.
Dilution is the loss experienced by incumbent owners upon the creation of new ownership units (such as shares or tokens). Although a number of ad hoc patches to the U.S. tax code typically provide incumbents with some form of tax allowance for their loss, there appears to be no unified theory of accounting for dilution – for tax or any other purposes. When additions to one’s balance from newly created units are viewed as an income realization event, whereas dilution is not, net income is systematically overstated. The resulting over-taxation could be a serious hurdle to the adoption of proof-of-stake cryptocurrencies, which rely on token creation by incumbent owners as an integral part of network maintenance. In this short article we quantify the potential for over-taxation — defined herein as the excess of taxable income under a strict realization approach over true economic income — for a real-world taxpayer holding cryptocurrency tokens.
Our example taxpayer is a Tezos staker — a token holder who acquires new Tezos cryptocurrency tokens by participating in the maintenance of the Tezos network. We present the pros and cons of different methods of accounting for dilution when the cryptocurrency’s aggregate network value, the taxpayer’s ownership balance, and the rate at which dilution happens are all time-varying. We conclude that the acquisition of those tokens should not be an income realization event, although any of the methods we propose would be preferable to an approach of strict realization that ignores dilution entirely. Tax policy aside, the methods we develop to quantify the economic value lost to dilution are independently interesting to investors and other finance and accounting practitioners.
This report argues that including proof-of-stake cryptocurrency block rewards in gross income when the reward tokens are first created results in inequitable taxation and would discourage U.S. taxpayers from participating in this new technology. The better approach is to tax reward tokens when they are sold or exchanged.
In this two-part report, Sutherland proposes a single taxation policy for all public cryptocurrencies. Focusing on the mechanics of proof-of-stake networks and the economic incentives underlying their maintenance, Sutherland, in the first installment, begins to make the case that reward tokens should be taxed when they are sold or exchanged, not when they’re created.
In the second installment, Sutherland explores options for the equitable taxation of cryptocurrency reward tokens based on existing policies and principles. He concludes that for both proof-of-work and proof-of-stake cryptocurrencies, the best approach is to tax reward tokens only when they are sold or exchanged.
Although cryptocurrency would benefit from legislative and regulatory clarity and certainty, the report also argues that in the meantime no act of Congress or new Treasury regulation is required to ensure the proper taxation of block rewards.
Purpose This paper aims to examine the applicability of real options methodology with respect to developing internal transfer pricing mechanisms. A pervasive theme in existing models is their inability to handle the dynamic and volatile nature of today’s business environment, as well as their lack of objective managerial flexibility. The authors address these and other issues and develop a transfer pricing mechanism based on Black–Scholes and the binomial options pricing methodology, which is better suited in today’s dynamic business environment. Design/methodology/approach The authors use a conceptual approach in developing theoretical justifications and show, practically, how a transfer price can be developed using two different real options pricing models. Findings The authors find that real options transfer price mechanism (real options framework [ROF]) can effectively deal with many of the issues that permeate a modern organization with complex multi-dimensional operations. The authors argue that uncertainty and behavioral issues commonly associated with setting transfer prices are better handled using a transfer pricing mechanism that preserves flexibility at the business unit level, the managerial level and the firm level. The approach allows for different managerial styles in both centralized and decentralized sub-units within the same organization. The authors argue that an open multi-dimensional framework using real options is suitable under conditions of uncertainty and managerial opportunism. Practical implications ROF-based transfer pricing may be significant in that firms can use it as a tool to manage an organization by setting the prices centrally and at the same time allowing managers to select the transfer price that best suits their specific situation and operating conditions. This may result in a more efficient and more profitable organization. Originality/value The contribution of the paper is the melding of the ROF from the finance literature with the accounting problem of setting a transfer price for items lacking a competitive market price. The authors also contribute to existing research by explicitly developing a framework that values managerial flexibility, takes into account uncertainty and considers the behavioral aspects of the transfer pricing process. The authors establish the conditions under which a generic real options model is a feasible alternative in determining a transfer price.
This Article argues that, contrary to the common belief that Bitcoin enables tax evasion, the Internal Revenue Service (“IRS”) can increasingly police transactions in Bitcoin. First, commercial and technical intermediaries have emerged as part of Bitcoin’s ecosystem. This diverse set of intermediaries can facilitate tax enforcement, as the litigation over the IRS’s summons on Coinbase—the largest domestic digital asset exchange—and subsequent IRS efforts show. These intermediaries could report transactions to the IRS or even, one day, withhold and remit tax payments. Second, the publicly visible, trustworthy nature of Bitcoin’s blockchain—its unique role as a shared truth—allows tax authorities to observe transaction flows. This renders Bitcoin unusually regulable for tax purposes, as recent efforts by the IRS to rely on Bitcoin’s blockchain to police tax evasion demonstrate. The Article offers a proposal by which the IRS might make better use of Bitcoin’s blockchain: the IRS can tailor an existing program to reward technically savvy whistleblowers who scour Bitcoin’s blockchain and determine identities that correspond to public Bitcoin addresses at issue.
Since their creation in 2009, crypto-assets have evolved from niche products into assets held and used much more widely. These assets pose challenges for policymakers and tax administrations, because, as pointed out by the OECD, they can be transferred and held without the participation of traditional financial intermediaries and without central administrators being aware of the transactions carried out or the location of crypto-assets holdings.
 On the indirect taxation side, the VAT Committee discussed the issues relating to the VAT treatment of crypto-assets and, in particular, of cryptocurrencies, on several occasions. The discussion on the most recent of the working papers on this subject, No. 1037 on the VAT treatment of crypto-assets, resulted in the adoption of the Guidelines which aim at harmonising tax administrations’ practice regarding the VAT implications of the different transactions linked to crypto-assets.
 The article highlights the main challenges posed by cryptocurrencies in terms of VAT while focusing on the main supplies with the use of cryptocurrencies and their qualification for the VAT purposes. Those transactions range from the creation, verification, validation, and supply of cryptocurrencies through their modification, storage, transfer, to exchange. The article explains in this context the position of the VAT Committee reflected in the Guidelines.
In a recent piece in Public Money & Management, I drew attention to the tacit balance between redistribution and incentives that continues to characterize local government finance in England (Sandf...
The tax treatment of cryptocurrency forks presents four unique challenges: parent/child designation, taxpayer access to the new token, assessment of fair market value, and assessment of comparable contemporaneous fair market values. We provide empirical evidence that each of these issues is a hurdle in determining whether income has been realized, or in apportioning the basis. We consider three existing approaches for assets acquired without a purchase. We conclude that the least problematic approach (adopted by Japan) is giving zero tax basis to the new coin and taxing the proceeds upon a sale, while treating the new coin as realized income (as recently ruled in the US) is the most problematic.