Authorities in Poland have clarified the taxation of revenues received from cryptocurrency exchange transactions. The Ministry of Finance has recently published a 2019 tax form that has a dedicated section where taxpayers are expected to declare separately proceeds from crypto trading.
Ministerstwo Finansów unveiled this month the new PIT-38 (personal income tax) form which will simplify the reporting and settlement of taxes related to cryptocurrencies. The form will be used by private individuals residing in Poland. The country’s finance ministry claims it will make crypto taxation easier and more transparent.
The updated form allows Polish taxpayers to enter proceeds from the sale of virtual currencies and provide data about the costs of acquiring digital coins and tokens. Investment costs from consecutive years can be added until they are fully deducted. However, no deduction should be claimed from other sources of income such as the sale of shares.
To properly report their profit from cryptocurrency trading, Poles need to obtain and provide financial statements from the digital asset exchanges they have used to purchase and sell the coins, Polish news outlet Kryptowaluty detailed.
Efforts to Regulate Crypto Taxation in Poland
The executive power in Warsaw has been taking steps to regulate the taxation of proceeds received from cryptocurrency trading since last year. The framework that has been developed and implemented since the beginning of 2019 covers personal as well as corporate income tax.
In the first case, profits from digital asset trading should be taxed as income from cash capital. If the trading is private, the revenue is classified as income from property rights and taxed according to the regular progressive scale with rates between 18% and 32%. If the profit comes from a business activity, the income may be subject to a 19% flat rate.
Revenues from trading conducted by corporate entities are regarded as capital gains. The base rate paid by larger companies is again 19%. Smaller corporate taxpayers enjoy a preferential rate which was 15% in 2018.
Since January 2019, however, entities reporting revenues of up to €1.2 million within a tax year and startups established this year will pay only 9% income tax if they meet certain conditions. The “small taxpayer” threshold will be increased to €2 million in January 2020.
The new tax regime for crypto trading does not concern entities registered and operating as providers of cryptocurrency exchange services. That includes crypto-to-crypto trading platforms as well as those exchanging decentralized digital money such as bitcoin cash (BCH) with traditional fiat currency like the Polish zloty.
What’s your opinion about the tax rates for crypto trading income in Poland? Tell us in the comments section below.
The U.S. has many regulators responsible for overseeing different aspects of crypto assets, each with its own stance on how they should be regulated. Major regulators in the U.S. with strong opinions on cryptocurrency include the SEC, the CFTC, the Federal Reserve, Fincen, and the IRS.
The Securities and Exchange Commission (SEC) has statutory authority over crypto assets that are deemed “security,” with its oversight extending to the offer, sale and trading in those assets. A number of companies have tried to obtain the agency’s approval for bitcoin exchange-traded funds (ETFs), but all proposals have been rejected so far.
SEC Chairman Jay Clayton said in an interview last month that the commission is closer to approving a bitcoin ETF than it was before. However, he added that “there’s work left to be done,” raising a number of questions he needed answered. “How do we know that we can custody and have a hold of these crypto assets? That’s a key question,” the chairman opined. “And an even harder question, given that they trade on largely unregulated exchanges, is how can we be sure that those prices aren’t subject to significant manipulation.” Clayton elaborated:
Progress is being made but people needed to answer those hard questions for us to be comfortable that this was the appropriate type of product.
The chairman and other SEC commissioners also appeared before the House Financial Services Committee last month for which they answered some crypto-related questions. Regarding Facebook’s planned Libra coin, Clayton told the committee that he had not discussed the matter with the company, concerning whether Libra will be a security, emphasizing that he was “not prepared to make a decision like that here.” He further remarked:
Cryptoassets, while they have benefits … can present a great deal of risk, particularly in cases where, in form, they are the same as securities or the same as currencies, or the same as payment systems, but they’re not regulated in the same way.
Meanwhile, SEC Commissioner Hester Peirce, aka Crypto Mom, said “I would like to see us be a little more forward-thinking” on the use of utility tokens, adding that “I am hoping we can work to create some sort of safe harbor.” The crypto-friendly commissioner has repeatedly spoken favorably on the subject. “As technology changes, we’ll see them becoming much more the money of the internet,” the commissioner recently said.
Peirce also believes the time is right for a bitcoin ETF. Meanwhile, the commission has green-lighted two token offerings under Regulation A+.
The Commodity Futures Trading Commission
The Commodity Futures Trading Commission (CFTC) has broad authority over derivatives and commodities, and crypto-asset derivatives and commodities are regulated in the U.S. in the same manner as any other derivative or commodity.
At the Yahoo Finance All Markets Summit in New York City on Oct. 10, CFTC Chairman Heath Tarbert talked about CFTC’s jurisdiction over crypto assets. He said:
We’ve been very clear on bitcoin: bitcoin is a commodity under the Commodity Exchange Act. We haven’t said anything about ether – until now. It’s my conclusion as chairman of the CFTC that ether is a commodity and therefore would fall under our jurisdiction.
“My guess is that you will see, in the near future, ether-related futures contracts and other derivatives potentially traded,” the chairman continued, adding that forked assets should be treated as the original assets. Tarbert succeeded J. Christopher Giancarlo as the chairman of the CFTC in April.
Under Giancarlo, the CFTC oversaw a number of crypto derivatives and approved several companies such as Ledgerx and Erisx. Two major derivatives exchanges, CME and Cboe, both self-certified to list bitcoin futures products. Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, launched Bakkt last month. Giancarlo explained:
CFTC regulatory practice is for exchanges to self-certify that new contracts meet CFTC core principles before listing. This approach has allowed for robust and dynamic risk transfer markets to develop and test new products without a time-consuming application process.
The Federal Reserve
The Federal Reserve System, the U.S. central bank, is responsible for conducting monetary policy, promoting financial system stability, supervising financial institutions, and fostering payment and settlement systems. With increasing regulatory concerns over Facebook’s Libra digital currency project, Federal Reserve Chairman Jerome Powell was asked last month during a discussion with Swiss National Bank Chairman Thomas J. Jordan in Zurich, whether he believes that central banks are missing out on opportunities presented by digital currencies. He replied:
We are following very carefully the whole question of digital currencies … It’s not something that we are actively considering … For us, it raises substantial, significant issues that we want to see carefully resolved.
The chairman proceeded to talk about cyber issues and the lack of demand for cryptocurrency, asserting that “consumers have plenty of payment options.” His statement echoes his testimony before the Senate Committee on Banking, Housing and Urban Affairs in July when he said “We haven’t seen widespread adoption” of cryptocurrency. He believes that no one uses bitcoin for payments, noting:
They use it more as an alternative to gold, really. It’s a store of value. It’s a speculative store of value like gold.
Nonetheless, he admitted the possibility that the need for a reserve currency in the traditional sense would be diminished or even removed should cryptocurrency become prevalent throughout the globe.
The Financial Crimes Enforcement Network
The Financial Crimes Enforcement Network (Fincen) is the lead regulator for the Bank Secrecy Act (BSA), the primary U.S. AML/CFT regulatory regime. Fincen announced back in March 2013 that AML laws apply to “persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies,” subjecting them to money services business (MSB) registration, reporting, and recordkeeping regulations.
In May, the regulator published a 30-page document entitled “Application of Fincen’s Regulations to Certain Business Models Involving Convertible Virtual Currencies,” which clarifies registration requirements for MSBs. On Oct. 11, Fincen issued a joint statement with the SEC and the CFTC to remind anyone engaged in crypto activities of their AML and CFT obligations under the BSA.
The Internal Revenue Service
The Internal Revenue Service (IRS) has been active in taxing crypto owners. The agency has sent several warning letters to remind them to pay taxes. In general, the IRS explained that “The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.”
Last week, the agency issued new guidance for crypto taxation which supplements existing guidance published in 2014. The new guidelines answer many questions but also raise many more, especially regarding the tax treatment of coins received from hard forks and airdrops. Anyone receiving “cryptocurrency from an airdrop following a hard fork” will owe income tax “provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency,” the new guidance details.
The agency also published a draft of the new 1040 tax form used by over 150 million U.S. taxpayers which has a question on cryptocurrency. “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” the first question on Schedule 1 of Form 1040 reads.
What do you think of U.S. regulators’ stance on crypto assets? Let us know in the comments section below.
Images courtesy of Shutterstock and the U.S. government.
Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.
Tax season is months away, which is why you need to start preparing for it now. Leave everything to the last minute and you’ll only end up cursing your procrastination. Organize your cryptocurrency activity in advance and you’ll breeze through tax deadline day without so much as flinching. Despite maddeningly vague or unfair legislation, filing your crypto taxes is surprisingly simple thanks to an array of tools that make tracking and calculating your obligations a cinch.
Whatever your thoughts on paying tax, the fact of the matter is that it’s an unavoidable obligation. Unless you’re fortunate enough to live in a country that doesn’t impose income tax (here’s looking at you Bermuda, Monaco, Bahamas, Andorra and the United Arab Emirates), come April, you’re going to have to pay your dues. There’s no getting around it, but that doesn’t mean you have to approach the close of the tax year with a sense of dread. With the right planning, you can automate much of the process, saving yourself no end of time, hassle and expense.
Accurately filing your crypto taxes calls for maintaining detailed records of all your transactions and trades that occur over the course of the year. As a result, most of the specialist tax software on the market also doubles as an excellent portfolio tracker. That’s right: even if you have no interest in paying tax, you can still derive value from a product that records all of your crypto gains (and losses), and presents them in an attractive package that can be viewed on desktop or mobile. The following tools provide all that plus a whole lot more.
Koinly promises to help cryptocurrency owners calculate their taxes and minimize their bill in the process. It’s compatible with the tax system in over 100 countries and is free to start using: you’re only charged when you need to generate a tax report. When you sign up, you’re prompted to select whether you wish it to realize gains every time you trade crypto; if you select no, Koinly will simply serve as your portfolio tracker. Like the other tools profiled here, Koinly requires you to link exchange accounts and wallets, which can be done manually or via API. You can then review your transactions, tag airdrops, forks, and lost or gifted coins. 33 exchanges are supported as well as six blockchains including BCH, LTC, and BTC.
Koinly automatically matches transfers between your wallets and shows you gains or losses for each transaction. There are also tools for analyzing your trading habits, tax loss harvesting, and cost tracking including mining expenses. The Hodler plan ($79 per year) covers 300 transactions and can record income and capital gains tax. The Trader plan ($179) covers 3,000 transactions, while Oracle ($399) has capacity for 10,000 transactions and offers enhanced support and import assistance.
Blox offers many of the same features as Koinly, but is targeted at crypto businesses as well as individuals. It benefits from CPA tools that allow teams to create an auditable record of all crypto activities, which can be exported as a CSV or imported directly into accountancy software that Blox has integrated with. Your current portfolio is neatly displayed in the dashboard, where you can view an account overview, access specific transactions, and see a daily snapshot of your portfolio. With thousands of cryptocurrencies listed within Blox, even the most dubious of tokens can be tracked and the corresponding tax obligations calculated.
If you don’t feel confident filing your crypto taxes yourself, Blox provides the means to export the data for your bookkeeper, who can take care of the rest. There’s also a suite of tools devised specifically for cryptocurrency miners, including cloud-hosted mining solutions. Blox even operates its own nodes to help ensure that transactions and balances are accurate. The Pro plan is free and covers 100 transactions (tx) and up to $50K AUM, while the Business plan, at $99 per month, covers 10K tx and $20M in assets. There’s also an Enterprise plan ($249) for heavy users that will accommodate a whopping $60M AUM.
Cointracking’s greatest strength is as a cryptocurrency portfolio monitor. Its tax prepping properties are also useful, but the quality of the insights it provides active traders is particularly good. There’s a timeline tool, which populates with trading milestones, there are charts displaying your balance per day, trades per month, trades per exchange, average purchase price and much more. When it comes to taxes, Cointracking supports the FIFO, LIFO, HIFO and LOFO methods, of which FIFO (first in, first out) is the most commonly used.
There’s the ability to track coins that have been held for longer than a year, and which can thus be sold tax-free in certain jurisdictions. Other tools include the ability for U.S. citizens to create an FBAR report in the event of them owning foreign financial accounts containing assets worth over $10,000. The number of exchanges and wallets that Cointracking supports via API or CSV is impressive; there’s even legacy support for closed exchanges, from Btce to Mt. Gox. The free plan covers 200 tx, rising to 3,500 for Pro. There’s also an Unlimited plan for heavy traders. Another good thing about Cointracking is that you can pay for your subscription in BTC including the option to take out a lifetime license.
Don’t Let Tax Take Over Your Life
In many countries, the U.S. especially, the laws concerning crypto taxation are unfair, vague, and subject to interpretation. Only last month, North Carolina’s Rep. Ted Budd reintroduced the Virtual Value Tax Fix Act in the U.S. House of Representatives. The bill seeks to put a stop to the double tax that is currently imposed on cryptocurrency, making it unnecessarily complex to calculate and record tax every time a purchase is made.
As a cryptocurrency user, there’s little you can do to influence government policy when it comes to taxes; the state moves ponderously, and it may be a while yet before citizens in the U.S. and elsewhere see anything approaching a fair crypto tax policy. In the meantime, the best thing you can do is record your transactions using a purpose-built tool and then get on with your life in the knowledge that the hard part is done. Automate your tax and then you can relax.
What other tax tracking tools do you recommend? Let us know in the comments section below.
Disclaimer: Readers should do their own due diligence before taking any actions related to third party companies or any of their affiliates or services. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any third party content, goods or services mentioned in this article.
As the Indian government deliberates on the country’s crypto policy, the tax authority continues to send out letters with lengthy, probing questions to crypto owners. News.Bitcoin.com talked to industry experts to find out the implications of these letters, what people can do when receiving them, and how crypto assets are taxed in India.
The Indian Ministry of Finance’s Office of the Deputy Director of Income Tax has reportedly been sending letters to Indians asking a long list of questions regarding their dealings in cryptocurrencies. Twitter handle Indiabits recently shared one of these letters which comprises 26 probing questions, ranging from sources of income to the names of the cryptocurrencies the taxpayer deals in and details of hardware wallets.
“Furnish the details of all the wallets you are using along with their unique ID/number” was one question. The letter requests information on the taxpayer’s hardware wallets, including their balances, as well as details of wallets owned by the taxpayer’s family members on crypto exchanges both in India and abroad. One question reads:
Please state whether you are buying / selling bitcoins and other cryptocurrencies from websites like Poloniex.com, Coinbase.com, Bittrex.com or any other websites registered out of India.
Another question concerns all income received in cryptocurrencies. “Have you received any bitcoins / cryptocurrency in lieu of any sales made / services rendered / exports made outside India? Please furnish the details of such transactions along with the details of the person making such payments and his wallet / blockchain public ID details.”
The letter also warns that a fine would be levied for willful omissions. “If you intentionally omit to so attend and give evidence or produce the books of accounts of documents, a fine up to Rs. 10,000/- [~$140.97] may be imposed upon you under section 272A of the Income Tax Act, 1961.”
What Crypto Traders Should Do
Anoush Bhasin, founder of Quagmire Consulting which specializes in crypto tax solutions, explained to news.Bitcoin.com Tuesday: “The notice has been issued by the Investigation Division of the Income Tax Department. Usually, such notices are issued when the taxman has reason to believe that a person has concealed or is likely to conceal a particular income.” He believes that “It is probable that the taxman became aware of some information which makes him suspect that crypto transactions were undertaken and probably not reported in the tax return.”
Bhasin suggested that “Anybody who has received such a notice should not take it lightly.” Affirming that “One should provide complete information as required and extend full cooperation during the hearings,” he clarified:
Not complying with the notice or furnishing incomplete / inaccurate information may lead to the taxman conducting a Search & Seizure operation.
Varun Sethi, founder of Blockchain Lawyer, shared with news.Bitcoin.com that people are receiving these letters because India’s tax laws cover “all types of incomes — Legal, undisclosed, disclosed, illegal incomes. Thereby the levy of taxes on gains on cryptos is a legit exercise.”
He also expressed that anyone receiving this type of notice should ensure compliance. “With the tax return filing due date nearing (Aug 31, 2019) the taxpayers should pay taxes on gains made for the cryptos trades. Though there isn’t any clear field for the disclosure of the specifically crypto taxes yet it is possible and necessary to disclose the gains made and then pay taxes thereof.”
How Crypto Assets Are Taxed in India
Bhasin further explained to news.Bitcoin.com that “Income earned from dealing in crypto assets is taxable,” noting that “the legal status of an income is of no consequence to the applicability of tax laws in India.”
He elaborated, “In case you buy and sell frequently, with the purpose of profiting off daily fluctuations in prices, you will be categorised as a trader and liable to pay taxes as a business.” As for miners, “the mining operations will be considered a commercial undertaking and therefore be subject to tax as a business,” Bhasin described:
In case you have bought and held crypto assets for a considerable period of time, as a means of investment (aka hodling), you will be categorised as an investor and will be liable to pay capital gains tax (at the time of liquidation).
Ongoing Tax Issue
A social media influencer who goes by Twitter handle “Indian Cryptogirl” told news.Bitcoin.com that “Over the past 2 years, a lot of people have been getting this” tax letter.
“A friend of mine got this way back in 2016. He went to the office, proved that he did not use any black money for the purchase of crypto by showing all his transactions and he was let go with a warning,” Indian Cryptogirl recalled. She believes that “If you’re not doing extremely high-value transactions that don’t match your earnings, you should be fine,” noting:
I feel it won’t end until India has a safe regulated crypto environment with defined guidelines, without which people have no idea what to follow to avoid such IT [income tax] notices.
Nischal Shetty, CEO of local crypto exchange Wazirx, shared with news.Bitcoin.com that if the letter is authentic then “it’s interesting to see that the Income Tax department has done some good ground work to understand crypto trading.” While still uncertain how authentic the letter is, he believes that “There’s nothing to worry here and I would suggest anyone receiving this to honestly answer the queries and pay their taxes.” The CEO asserted that “Every crypto trader should diligently file their taxes,” adding:
This also helps our cause of getting positive crypto regulations in India as the government will see the positive effects of crypto on income tax collected.
Tax Laws and Crypto Proposal
The Indian government has yet to decide whether to regulate or ban cryptocurrency. The interministerial committee (IMC) tasked with studying all aspects of cryptocurrency and providing recommendations has submitted a report with a draft bill to the government. The finance minister, however, recently admitted that she had not looked at the report and bill in detail.
Meanwhile, the Indian crypto community has ramped up efforts to engage lawmakers to show them how flawed the IMC report is in hopes that the government will not go ahead with the draft bill to ban cryptocurrencies. In the meantime, cryptocurrency is not prohibited in India. This was recently confirmed by Union Minister of State for Finance & Corporate Affairs Anurag Singh Thakur.
Reiterating that “Tax laws in India are applicable irrespective of the legal status of income,” Bhasin told news.Bitcoin.com that “Even if a ban is introduced, taxes would continue to apply to crypto income and it would not stop the taxman from chasing unaccounted or untaxed income earned from dealing in crypto assets,” elaborating:
Since the IMC recommendation, from the date of coming into effect, does propose a 90 day window to disclose and dispose crypto assets, any information provided in response to this notice would also get covered by the grace period.
What do you think of the Indian tax authority sending this probing letter to crypto owners? Let us know in the comments section below.
Disclaimer: Bitcoin.com does not provide tax, legal or accounting advice. This article is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any decisions. Neither Bitcoin.com nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Images courtesy of Shutterstock.
Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The Local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.
Green policy and crypto energy consumption in the US.
Society is now witnessing the implementation of digital currencies, AI and blockchain technology worldwide. These new digital technologies, necessitate very high consumption of electric energy, currently produced with coal and fossil fuels with adverse environmental effects. A global shift towards green energy will require the removal of the technological/infrastructure, financial and regulatory/tax policy barriers. In a series of articles, we will evaluate the tax, digital technology and solar policies (including space power satellites) of the top CO2 emitting countries.
The United States is at the forefront of blockchain and artificial intelligence (AI) technology adoption — both the government and private industry. And Bitcoin’s volatility recovery is fueling this process.
According to reports, the United States government spending on blockchain is expected to Increase by 1,000% between 2017 and 2022, while U.S. investors are expected to increasingly invest in digital assets to add diversity to their investment portfolios and resume cryptocurrency mining as it once again becomes profitable.
The announcement by Facebook — with 2.7 billion users — that it will be issuing a new cryptocurrency named Libra to compete with China’s blockchain-based mobile payment system — with 1.5 billion users — has put pressure on the largest U.S. financial institutions for a quick blockchain transformation. Already, JPMorgan Chase has announced that it will be issuing an utility settlement cryptocurrency (USC) coin called JPM Coin. BNY Mellon, Nasdaq and State Street, on the other hand, are backing the development of USCs denominated in five major fiat currencies: the U.S. dollar, the Canadian dollar, the British pound, the Japanese yen and the euro.
Blockchain applications not limited to fintech and are being adopted across various industries in the U.S. For example, the shipping-focused blockchain TradeLens, developed by IBM and Maersk, recruited two major marine cargo carriers to help usher in the digital transformation of the global supply chain. Separately, IBM piloted a blockchain and internet of things sensor solution to track sustainable groundwater usage. Pfizer Inc. and other leading American pharmaceutical companies joined a project to build a blockchain network for the health and pharmaceutical industries.
In the aerospace industry, blockchain technology is being implemented in myriad ways, including flight recorders, airspace management, cyber security, tracking parts during the manufacturing process and in establishing secure, efficient and prioritized data as well as command communication pathways among ground and space-based sources. In addition, U.S. energy companies Brooklyn Microgrid, Clearway Energy Group and Grid are developing applications for trading renewable energy credits on a blockchain.
These new digital technologies will replace many jobs and necessitate a very large consumption of electric energy that is currently produced with coal and fossil fuels — which has adverse environmental effects, according to the United Nations World Meteorological Organization. Cryptocurrency mining alone generates about 22 megatons of carbon dioxide emissions each year, based on a study by the Technical University of Munich and Massachusetts Institute of Technology.
A report issued by LUT University in Finland and the Energy Watch Group in Germany states that transitioning to green energy — 69% solar — can be accomplished globally in an economically competitive way in order to reduce greenhouse gas emissions in the energy system to zero by 2050. Among other important options, solar power satellite (SPS) systems remain one of the most promising but is currently a largely undeveloped option to accomplish this goal.
Solar power satellites
Paul Jaffe, an electronics engineer who has investigated SPS systems for the U.S. Naval Research Laboratory (NRL), explained that “anything we can do to wean away from coal and fossil fuels is a step in the right direction. Implementing SPS might result in a clean, constant, and globally distributable energy supply — unmatched by any earth-bound source.”
The SPS transmission idea — in which energy captured from the sun is transmitted via microwave beams to nearby planets from a space station — was first mentioned in a short story in 1941 titled “Reason” by Russian-born, U.S. science fiction writer Isaac Asimov.
In 1968, the concept for SPS technology emerged when aerospace engineer Peter Glaser published the first technical article, “Power from the Sun: Its Future,” in the journal Science, in which he described collecting solar power in outer space via solar cells on a satellite system at geosynchronous orbit, where sunlight is available almost continuously (more than 99.8% of the time each year), that would be capable of converting sunlight directly into electricity and distributing it to Earth via a wireless transmission system to a receiver.
There are two potentially viable options: laser and microwave beams. According to an NRL research report from 2009, SPS systems offer one of several possible solutions to the energy independence and dominance of our country and our military, but that there remain significant system risks in many areas. For example, safe power densities for wireless energy transmission generally restrict applications to large, relatively immobile receiver sites. Jaffe explained:
“While safety is a concern, wireless power transfer can be implemented to stay below existing safety limits. In general, microwave transmission requires larger diameter transmitters and receivers than laser.”
Unlike land-based solar power, which has been inefficient due to the atmospheric, day/night light interference, a SPS system could continuously harnesses the sun’s energy, working not only when there is daylight but also at night, during rain or snow and even on cloudy days — 24 hours a day, 365 days a year. For these reasons, the concept of SPS initially attracted a lot of attention during the 1970s, when NASA technical reports indicated that the SPS concept was technically feasible but economically unrealistic — and thus, the U.S. government and its agencies cut funding for solar cell research during the 1980s. According to Jaffe:
“For space solar to work, it will almost certainly need to offer some compelling advantage in a given application before it can compete on cost. There are several segments involved: launch, manufacture of the space and ground portions, and the industries associated with each. The logistics will be challenging.”
The International Academy of Astronautics completed the first international assessment of SPS during 2008-2011, involving diverse subject matter experts from some 10 countries concluding that it is technically feasible and that it might be realized in as little as 10-15 years. “Space solar is an enabling technology that could leapfrog the electric-power transmission grid on Earth, and have a similar effect that previous satellites have had on communications,” Jaffe said, but it has yet to electrify U.S. terrestrial grids. Instead, ground-based solar energy has been making an important contribution of one-sixth to the U.S. energy mix.
The world’s largest renewable energy company, Nextera, forecasts solar energy costs at $30 to $40 per watt, post 2023. While, utility-scale solar farms in India already generate solar energy for $0.03-$0.04 a watt according to Greg Nemet, a professor at the University of Wisconsin-Madison’s La Follette School of Public Affairs, who has written a new book on global policy and market forces that combined to make solar electricity one of the cheapest forms of energy, said “It’s possible solar prices could have bottomed out a decade or two sooner had the U.S. not slashed funding in the 1980s” — or had the U.S. environmental tax policy been more favorable toward solar energy and SPS by including it in government incentive programs as opposed to heavily subsidizing fossil fuels since the enactment of the U.S. tax code in 1873.
U.S. environmental tax policy
Environmental tax is used as an economic instrument to address environmental problems by taxing activities that burden the environment (e.g., a direct carbon tax) or by providing incentives to reduce the environmental burden and preserve the environmentally friendly activities (e.g., tax credits, subsidies). It is used as part of a market-based climate policy that was pioneered in the U.S., which also includes cap-and-trade energy emission allowance trading programs that attempt to limit emissions by putting a cap on and price on them.
Environmental taxes are designed to internalize environmental costs and provide economic incentives for people and businesses to promote ecologically sustainable activities, to reduce carbon dioxide emissions, to promote green growth and to fight climate change via innovation. Some governments make use of them to integrate climate and environmental costs into prices to reduce excessive emissions while raising revenue to fund vital government services.
Carbon Tax: Under a carbon tax regime, the government sets a price that emitters must pay for each ton of greenhouse gas emissions they emit so that businesses and consumers will take necessary steps — such as switching fuels or adopting new technologies — to reduce their emissions in order to avoid paying the tax, as taxes have distortionary effects that influence free-market decisions. Carbon taxes are favored because administratively assigning a fee to CO2 pollution is relatively simple compared to addressing climate change by setting, monitoring and enforcing caps on greenhouse gas emissions as well as regulating emissions of the energy-generation sector. Four subsets of environmental taxes are distinguished: energy taxes, transport taxes, pollution taxes and resource taxes.
The U.S. is the world’s number two in CO2 emission, owing 84% of its greenhouse gas emissions to fossil fuels. Currently, it does not impose a federal carbon tax. However, the congress in a bi-partisan effort is aiming to introduce a carbon tax in the US. Because, according to the Organization for Economic Cooperation and Development (OECD), greater reliance on environmental taxation is needed to strengthen global efforts to tackle the principal source of both greenhouse gas emissions and air pollution.
A carbon price/tax of between $50-$100 per ton will be needed to be implemented by signatories to deliver on Paris Agreement commitments by 2030 according to a report titled “High-Level Commission on Carbon Prices”, written by Nobel Laureate Economist Joseph Stiglitz and Nicholas Stern.
Tax Credits: Through tax credits, subsidies and other business incentives, governments can encourage companies to engage in behaviors and develop technologies that can reduce CO2 emissions. Just as tax credits for fossil fuel energy sources has enabled growth and development, renewable energy tax credits are incentives for the development and deployment of renewable energy technologies.
According to an International Monetary Fund (IMF) report, subsidies to hydrocarbon industry accounted for 85% of global subsidies of $4.7 trillion (6.3% of global GDP) in 2015, which were projected at $5.2 trillion (6.5% of GDP) in 2017, with the U.S. ranking number two in subsidies to the hydrocarbon industry, at $649 billion. In stark contrast, during 2016, subsidies for renewable energy totaled $6.7 billion — dropping 56% from 2013 levels, according to a report prepared by the U.S. Energy Information Administration. About 80% (or $5.6 billion) of the 2016 renewables subsidies came in the form of tax breaks, half of which went to biofuels like ethanol and biodiesel and the other half benefited wind and solar in the form of tax credits, which are set to expire at the end of 2021, though a permanent 10% investment tax credit for solar and geothermal installations will remain.
According to the IMF as well as the International Energy Agency, the elimination of fossil fuel subsidies worldwide would be one of the most effective ways of reducing greenhouse gases and battling global warming.
Increased digital technology adoption in the U.S. and around the world, will continue to push CO2 emission to its highest levels in history, if the electricity used to fuel it is largely produced with hydrocarbon energy. To cut down on CO2 emission during the height of the cryptocurrency bull market in 2017, the use of an SPS system was proposed to electrify crypto currency mining.
Transitioning to clean energy has become inevitable, a survival concern, so much so that investment advisors who manage nearly half the world’s invested capital, of more than $34 trillion in assets are urging the G20 for compliance with the Paris Agreement to save the global economy $160 trillion. Because the alternative, will result in damages of $54 trillion.
Nevertheless, switching to solar energy will likely necessitate — among other issues — adjustments to the U.S. environmental tax policy, which currently heavily favors fossil fuels.
Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Cryptocurrency taxation is a subject that concerns a growing number of users, traders and investors. An area that creates a lot of confusion among taxpayers is the application of VAT, or the value-added tax most countries levy on the sales of goods and services. Georgia has become the latest nation to free crypto-fiat transactions from VAT, a decision that affirms Bitcoin’s status as a currency. The same has already happened in many other jurisdictions, despite the absence of comprehensive regulations.
VAT-Free Crypto Exchange, No Income Tax for Traders
Traders of digital coins, both companies and individuals, will not owe VAT to the government in Tbilisi. That’s according to a newly adopted bill aimed at regulating the taxation of entities that trade or mine cryptocurrencies. The law was recently signed by Georgia’s finance minister Nodar Khaduri and entered into force at the end of June. The document provides a legal definition for decentralized digital money:
Cryptocurrencies are digital assets that are exchanged electronically and based on a decentralized network. Their exchange does not require a reliable intermediary and they are managed using distributed ledger technology.
From now on, residents of the South Caucasian republic exchanging coins to local or foreign fiat currency will not be obliged to pay the value-added tax. Furthermore, private citizens who conduct such transactions will also be spared from income tax. Khaduri stressed that the national currency, the Georgian lari, will remain the only legal tender in the country and using cryptocurrencies for payments will not be allowed. But that’s valid for any foreign currency as well.
Mining companies will have to pay VAT unless they are registered abroad. Georgia, which offers abundant and cheap electrical energy generated by its many hydropower plants, has become a regional mining hotspot over the past few years. Now many companies from the industry are likely to relocate their official headquarters to offshore zones while maintaining their operations in the Caucasus.
Europe Considers Bitcoin a Currency for VAT Purposes
So far, European countries have been trying to regulate cryptocurrencies almost in a decentralized manner. Bitcoin is often treated differently by tax authorities in various EU member states and elsewhere on the continent. Germany, for example, considers the purchase of digital assets an investment but capital gains tax is due only if the coins are held for less than a year.
For many practical purposes, the United Kingdom treats cryptos like foreign currencies. Residents of Bitcoin-friendly Switzerland are expected to pay income and profit tax on their digital cash holdings. Estonia applies capital gains tax on the profit from crypto investments while Slovenia does not tax the gains of individual cryptocurrency traders.
Generally, purchases and sales of cryptocurrency are not subject to VAT taxation in Europe, which is the birth place of the value-added tax. Financial regulators and revenue services in most countries often refer to a decision by the Court of Justice of the European Union (ECJ) which ruled in 2015 that services for the exchange of bitcoin with any traditional fiat currency are exempt from VAT.
Despite the absence of a common European approach towards cryptocurrencies in terms of VAT taxation, the topic has been discussed by the VAT Committee of the European Commission on several occasions. Different proposals on the treatment of digital assets for VAT purposes have been reviewed by the advisory body which provides clarifications on EU’s VAT Directive. These proposals include the classification of Bitcoin as currency, electronic money, negotiable instrument, security, or digital product.
Since the ECJ ruling, the case for accepting bitcoin as a currency has been gaining ground in the light of applicable VAT regulations. In essence, the court decided that the exchange between virtual and traditional currency constitutes the supply of services which are exempt from VAT under Article 135(1)(e) of the VAT Directive.
VAT Is the Cash Cow of Many Governments
Value-added tax (VAT) is a widely implemented indirect tax based on the increase in value of a product or service until it reaches the market. It is collected by retailers from end users and, in most cases, in the jurisdiction where these products and services are consumed. It’s usually a flat rate charged on the final value of the sold goods or provided services.
VAT is an important income source for many governments around the world. Well over 160 nations employ the tax and in certain countries like France it accounts for around half of the state budget receipts. It is generally considered fairer than the sales tax used in the U.S., for example, which can potentially be charged on itself as it is applied at each stage of production and distribution.
Wrapping one’s head around extensive VAT regulations can be a difficult task for many businesses and those in the crypto industry are no exception. But companies need to do so, as when they are registered under VAT laws they are entitled to apply for tax credit for the VAT amounts paid on the value of the materials and services used during production. The mechanism presents an opportunity to get some money back from the government.
Crypto-Related Services Pose a Challenge to VAT Rules
The ECJ ruling led to the issuance of additional interpretations by the VAT Committee that have no legal effect but can nevertheless be used as a reference by national authorities dealing with matters related to the VAT treatment of cryptocurrencies. One of them suggests that no VAT should be charged on the value of the digital coins themselves when they are used as a means of payment.
VAT is due, however, on the value of goods and services purchased with cryptocurrency. Their supply should be treated in the same way as taxable supplies of goods and services paid with fiat currencies. The taxable amount in such transactions should be the one received by the supplier. And if it is denominated in cryptocurrency, the tax should be paid on the equivalent expressed in the national currency of the respective EU member state at the time of the transaction.
Although these suggestions, detailed in a recently published article by PWC Cyprus, provide many answers pertaining to the VAT treatment of crypto transactions, important questions remain unanswered. And these are actually very hard to answer. For example, how do you define the appropriate exchange rate when reporting the value of a crypto transaction in fiat money?
According to the VAT Directive, if bitcoin is viewed as a foreign currency that could be either the latest rate recorded on “the most representative exchange market” of the member state or the latest official exchange rate published by the European Central Bank (ECB). The VAT Committee provides a third option as well: “the open market value of the virtual currency, determined under the responsibility of the taxpayer.”
Neither of these alternatives, however, are directly applicable to cryptocurrencies without more questions. First of all, there’s no central bank publishing a daily spot price for bitcoin. Second, cryptos are often exchanged on a global platform that may not necessarily be the most representative for a particular country. And third, how do you determine the abstract “open market value” of a volatile digital asset without selling it?
Other aspects of VAT taxation in the case of cryptocurrency transactions that the VAT Committee has attempted to clarify include the provision of wallet and exchange services as well as the verification of crypto transactions through mining. For instance, free wallet services are exempt from taxation but the advisory body believes that when providers charge fees, they should fall within the scope of VAT, just like Swift services offered by traditional banks. As for exchange services, they are exempt from VAT when the supplier buys and sells the coins as a principle owner. But where a platform acts as an intermediary between buyers and sellers and charges a fee for their access to its virtual marketplace, these services are subject to VAT.
Things are much more complicated with crypto mining. On the one hand, until miners are rewarded with newly minted coins, transaction fees are in principle paid voluntarily. That means they are still outside the scope of VAT. On the other hand, fees are paid in most cases anyway, as wallets usually have them as a default option and users are not willing to wait too long for their transaction to be processed. Currently, the European Commission’s VAT Committee supports the view that mining is an “essential activity for the actual transfer of funds,” which is closely related to the supply of digital coins and is not a support service. Hence, crypto transaction fees should not be subject to VAT.
What’s your opinion about the applicability of the VAT regime in regards to crypto-related transactions? Share your thoughts on the subject in the comments section below.
Images courtesy of Shutterstock.
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A recently published U.S. Internal Revenue Service (IRS) slide describes alarming recommendations on how tax agents should deal with digital currency users who are not paying taxes. The slide recommends that agents question crypto users’ friends and family, comb through social media posts and issue subpoenas to make sure U.S. residents are paying taxes on their cryptocurrencies.
IRS Proposes Extreme Tactics for Investigating Crypto Users
An IRS slideshow created by James Daniels, IRS-CI cyber crimes program manager, describes some concerning methods IRS agents should use to crack down on crypto-using tax evaders. The slide follows the IRS’ recently announcing tax guidelines on cryptocurrencies, which will contain rules about the tax treatment of digital assets and forks. Even though the new tax guidelines haven’t been issued to the public, IRS agents who enforce the tax laws have have had no problems prosecuting bitcoin users for tax evasion. Agent Daniels’ recently published slide gives a lot of detail on how agents should combat crypto tax evaders by using a variety of investigation methods. Within the 181-page document, there are thorough descriptions of what a cryptocurrency is and chronicled paragraphs on assets like ripple (XRP) and bitcoin cash (BCH). The report discusses a myriad of digital currencies including BTC, XMR, BCH, XLM, XRP, and LTC. Daniels’ descriptive study even calls certain hardware wallet users “fanboys.”
Toward the end of the report, the slideshow explains how agents can track a bitcoin address using a public block explorer. “Once a Bitcoin Address is identified, it can be looked up on a Bitcoin Blockchain Explorer to find information such as value, transaction times, transaction locations, which may help in corroborating information, identifying additional addresses, or assist in locating the subject,” the text expounds. “It can also be used to show if bitcoins were transferred after a seizure warrant was served, which is discussed below.” Additionally, the slides give a well-documented summary of bitcoin mixers and how they are used to obfuscate trails of transactions on a public ledger. If an IRS agent determines a tax-evading suspect, the slide recommends sending grand jury subpoenas to a variety of tech companies. The slideshow states:
Issuance of a Grand Jury Subpoena should be considered for Apple, Google, and Microsoft for the Subject’s complete application download history.
Investigating a Bitcoin User’s Financial Habits
What’s more alarming is that Daniels’ slide advocates agents investigate the financial habits of individuals who are using crypto to evade taxes. This includes, but is not limited to, conducting interviews with “bank tellers, family, and friends of the subject (if feasible), and establishments the subject frequents that may accept bitcoins. [Investigating] Facebook, Twitter, and other social media outlets.” The IRS slide suggests searching the subject’s financial accounts, including bank, credit card, and Paypal records. “[Automated clearing house] ACHs and wire transfers should be identified to see if any of them are related to bitcoin,” Daniels’ slide suggests. The “Getting Information” section in the slide states:
Transfers to and from a subject’s Paypal account should be analyzed in much the same way, verifying the parties involved with each transaction — Vendors who accept bitcoin, such as Amazon Payments, can also be considered for subpoena. However, this method may not reliably yield results.
Further into the slides, the agent explains that if the subject in question does maintain a bitcoin balance, an attempt should be made to identify their bitcoin wallet and associated addresses. The IRS report emphasizes that a user could also have numerous crypto addresses. A person can be identified if they posted a public address on social media and the slide recommends searching “through posts by the subject on his Facebook page or Twitter account.” If the suspected tax evader uses a bitcoin wallet service, a subpoena for records could be issued to the wallet company to identify the subject’s bitcoin balance, addresses, and any identifying information. The IRS cybercrime agent also states that there are various blockchain surveillance companies available that can help with an investigation. Firms that offer distributed ledger monitoring services mentioned in the IRS slides include Chainalysis, Elliptic, and Ciphertrace.
“This software could accurately trace the history of bitcoin payments and wallets — Moreover, it is able to map wallets into known “clusters”— that is, mapping addresses to known entities like Silk Road, Coinbase, and other large Bitcoin players,” the presentation explains.
Slideshow Shows Agents Are Studying Cryptocurrency Technology Extensively
The 181-page report is a daunting display of how IRS agents can invade a person’s private life in order to prosecute them for tax evasion. James Daniels’ slides also show that the IRS is well aware of bitcoin mixers, the use of Tor, and other transaction obfuscation methods. The study gives a detailed analysis of Bitmixer.io and explains that before the site closed down it mixed 65,000 BTC per month since 2014. “In addition to Bitmixer’s website on clearnet, the operation also had an official Tor mirror as well on the deep web,” the powerpoint presentation details. The slides also give step-by-step instructions for crypto beginners and explain how agents can easily sign up for Coinbase and other popular exchanges as well as a Bitcoin ATM walkthrough.
People will likely be shocked by this display of law enforcement going to great lengths to obtain cryptocurrency information on specific people. Very few crypto users are actively taking steps to protect their privacy 100% of the time. Perhaps this slideshow will urge more people to use mixing applications like Cashshuffle, operate wallets using a VPN and make sure they keep addresses off the clearnet. The recent IRS announcement that virtual currency guidelines are on the way is all but meaningless when agents will investigate or prosecute you anyway if you don’t follow the criteria. Pay taxes or wind up in a cage.
What do you think about the recent IRS cybercrimes slideshow on virtual currency use and tax evasion? Let us know what you think about this subject in the comments section below.
Image credits: Shutterstock, IRS logo, Cybercrime IRS Slideshow, and Pixabay.
Singapore plans to exempt cryptocurrencies that are intended to function as a medium of exchange from Goods and Services Tax (GST) — the local equivalent of VAT.
Singapore plans to exempt cryptocurrencies that are intended to function as a medium of exchange from Goods and Services Tax (GST) — the local equivalent of Value-Added Tax (VAT).
The news was revealed in a draft e-tax guide published by the Inland Revenue Authority of Singapore (IRAS) on July 5.
The proposed exemption, if accepted, is set to take effect on January 1, 2020, and will overhaul the current system wherein the supply of digital payment tokens is treated as a taxable supply of services.
IRAS outlines that until now, cryptocurrencies that function — or are intended to do so — as a medium of exchange have been treated as a barter trade that results in two separate supplies: namely a taxable token supply and a supply of the relevant goods and services.
The document sets out the two proposed core changes to taxation rules in future as follows:
“The use of digital payment tokens as payment for goods or services will not give rise to a supply of those tokens; and (ii) The exchange of digital payment tokens for fiat currency or other digital payment tokens will be exempt from GST.”
In its outline, the IRAS cites bitcoin, ether, litecoin, dash, monero, XRP and zcash as cryptocurrencies that meet its definition of a digital payment token designed to function as a medium of exchange.
The IRAS notably excludes fiat-pegged crypto assets — such as certain stablecoins — from its definition of a digital payment token, meaning they will continue to be taxed under GST after January 2020.
In a section devoted to cryptocurrency mining, the IRAS proposes that in most cases the new rules will exempt token rewards generated by mining, noting that:
“There is generally no sufficiently close nexus between the service provided by the miner to the persons whose transactions are verified, and the mined tokens that the miner received from the blockchain ecosystem. The parties paying the mined tokens are also not identifiable.”
By contrast, where “a miner performs services to an identifiable party or parties, in return for a consideration, this constitutes a taxable supply of services,” the document states.
The tax authority seeks feedback from businesses in the crypto sector on its proposed changes, which must be submitted before 26 July 2019.
In late June, Cointelegraph reported that Singapore’s central bank had held discussions with Facebook about its upcoming libra token — which is, as the Libra white paper revealed, to be pegged to a basket of bank deposits and short-term government securities held in reserve.
An Israeli court has ruled that bitcoin is an asset, confirming the central bank’s stance. The case involves the country’s tax authority and the founder of a blockchain startup who argues that profits from the sale of cryptocurrency should be tax-free. The court has ruled in favor of the tax authority, endorsing the central bank’s definition of currency.
An Israeli central district court reportedly ruled in favor of the country’s tax authority Monday, recognizing bitcoin as a financial asset and not a currency. Profits on its sale in Israel are therefore subject to capital gains tax.
Judge Shmuel Bornstein simultaneously rejected an appeal by the founder of a blockchain startup who argues that bitcoin should be considered a currency, so the proceeds from its sale should not be subject to taxation. Globes daily financial newspaper reported Tuesday:
The Central District Court in Lod accepted the tax authority’s interpretation, and held that bitcoin is an asset and not a currency, and that the transaction in question is therefore taxable.
Emphasizing that the status of bitcoin is still undefined in the country, the judge stated in his ruling that “it was hard to envisage a result whereby bitcoin would be considered a currency for tax purposes in particular,” the news outlet conveyed, noting that the case could reach the supreme court.
Itay Bracha, managing partner at Israeli law firm Bracha & Co. and the head of the firm’s tax department, shared his thoughts with local daily business newspaper Calcalist. He said: “The ruling is a signal to all those who have yet to report cryptocurrency-related profits or based their actions on differing legal advice … The ruling is unequivocal, and since it is not new legalization but a judicial interpretation, it applies retroactively.”
According to reports, the case involves Noam Copel, founder of blockchain startup DAV. “We’re building a decentralized infrastructure to revolutionize the transportation industry on the blockchain,” the company’s website explains.
Globes reported that Copel bought BTC in 2011 and sold them in 2013 for a profit of approximately NIS 8.27 million (~$2.29 million). Asserting that his profits should not be subject to capital gains tax, he told the court:
Bitcoin should be classified as a foreign currency, and that his profits should be seen as exchange rate differences received by an individual not in the course of a business, and therefore should not be taxed.
However, the Israel Tax Authority disagreed, proclaiming that bitcoin is not a currency under the central bank’s definition, so it cannot be a foreign currency as suggested by Copel. Instead, the agency claims that cryptocurrency falls under the definition of an asset, therefore profits on its sale are subject to capital gains tax. Monday’s court ruling obligates Copel to pay tax of about NIS 3 million, the news outlet estimated.
Central Bank’s Definition of Currency
The court accepted the tax authority’s position that the definition of “currency” should be the one defined by the country’s central bank which does not apply to crypto assets. The agency affirmed that bitcoin is not a currency from both accounting and economic aspects, stating that “its valuation is extremely volatile, any related investments carry high risk, its use is severely limited and restricted mostly to unlawful entities, and it is not used as a benchmark for value,” Calcalist wrote.
Copel, on the other hand, believes that from both aforementioned aspects, “the trust users put in bitcoin and its use as both a payment method and to benchmark value means it should be considered a currency.”
After listening to both sides of the argument, the judge rejected Copel’s appeal and ruled that he “had failed to demonstrate that bitcoin met this definition [of currency], or that it represented a real alternative to coins and notes in any country,” Globes described.
Bittax founder Gidi Bar Zakay, former Deputy Director of the Israel Tax Authority and currently director of the Israeli CPA Association, said that Monday’s ruling was based on current law, elaborating:
In my view, what will ultimately determine whether bitcoin is a currency is the reality test. As soon as its use becomes widespread, the legislature will have to rewrite the law in such a way as to accommodate this.
He added that when that happens, “we shall all benefit from these technological and monetary developments and from the ability of bitcoin and other cryptocurrencies to serve as efficient, trustworthy, and widely accepted means of payment.” He further opined: “the way to that lies through the regulator. If the enforcement agencies feel comfortable with the coin, and use blockchain analysis tools that make it possible to meet standards of money laundering prevention and tax avoidance prevention in a more reliable and efficient way than is the norm today, the road to it becoming a widespread means of payment will be open.”
The Israel Tax Authority has long considered cryptocurrency an asset subject to capital gains tax. In December last year, Calcalist reported that the agency had been cracking down on the unreported crypto earnings of hundreds of Israelis, sending notices to those whose activities raised suspicion. “The authority will continue to seek out unreported [crypto] earnings,” said Eran Yaakov, the head of the Israel Tax Authority, in reply to the news outlet’s request for comment. The publication explains:
Cryptocurrencies are not defined as a currency but as a financial asset in Israel. As such, trading in cryptocurrencies is subject to a capital gains tax of 25%-30% in the country.
In July last year, the tax authority reportedly reached an agreement on obtaining information on crypto transactions with Bits of Gold, an Israeli cryptocurrency exchange with about 50,000 users. The exchange will share information about traders who have made transactions of $50,000 or more over a 12-month period. The authority has also approached other platforms for the same purpose.
While Israeli law requires financial institutions to report fraudulent transactions and suspicious activities to the Israel Money Laundering and Terror Financing Prohibition Authority, sharing data with the tax authority is not mandatory. Tomer Niv, Chief Growth Officer at Bits of Gold, clarified that his exchange only transfers “the information we are required by law … in order to protect the privacy of customers on the one hand, and [comply with] the provisions of the law on the other.”
Central Bank’s Position and Global Standards
Nadine Baudot-Trajtenberg, who served as Deputy Governor of the Bank of Israel from March 2014 to the end of February, said in January last year that the central bank had been studying cryptocurrency. However, she revealed that not much had been learned from other countries’ regulations “since no regulator anywhere in the world had issued guidelines to the banking system on how to act in relation to customers’ activity in virtual currencies,” Reuters conveyed. She was further quoted as saying:
There is a real difficulty in issuing sweeping guidelines to the system regarding the proper way to estimate, manage, and monitor the risks inherent in such activity … Beyond the risks to the customer there are also compliance risks to the bank.
In December last year, Israel became a full member of the Financial Action Task Force (FATF), an intergovernmental organization which focuses on developing policies to combat money laundering and terrorism financing. The FATF currently has 36 member jurisdictions and 2 regional organizations, including the European Commission. In February the organization urged its member countries to regulate crypto exchanges like commercial banks, elaborating:
For the purposes of applying the FATF recommendations, countries should consider virtual assets as property, proceeds, funds, funds or other assets, or other corresponding value.
Do you agree with this Israeli court’s ruling? Let us know in the comments section below.
Images courtesy of Shutterstock.
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Internal Revenue Service (IRS) commissioner Charles Rettig has explained to U.S. representatives that the tax department plans to issue clearer guidance toward cryptocurrency taxation soon. Since 2014, Americans have been asking the tax agency for better clarification in regard to official tax guidelines.
In September 2018, news.Bitcoin.com reported on a group of U.S. bureaucrats who sent a formal letter to the IRS asking for more clarification in regard to the way cryptocurrencies are taxed in America. U.S. representative Kevin Brady, Tom Emmer and a variety of other state officials insisted in the letter that digital asset taxation needs clearer guidelines. Since the tax agency’s official statement in 2014, the current guidance for taxpayers is to file each and every transaction executed when using a cryptocurrency as each transaction is considered a taxable event. Meanwhile, in the U.S., cryptocurrencies are also taxed under traditional capital gains laws that apply to property investments. The letter from various representatives notes that most officials believe the IRS should have no problem issuing a comprehensive virtual currency strategy for taxes.
“[We] strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies.” the letter read.
Acceptable Methods of Calculation and the Tax Treatment of Forks
IRS commissioner Charles Rettig responded with an official statement which explains that the tax commissioner agrees with the request and the agency plans to issue tax guidelines soon. “I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance,” Rettig wrote in response to the request from congressional leaders.
Rettig’s letter details that the IRS issued Notice 2014-21, which essentially says that cryptocurrencies like bitcoin are to be treated as property. This means that existing tax statutes that apply to property transactions also pertain to virtual currencies. However, Rettig’s response notes that things have changed since then and virtual currency use as a medium of exchange and as an investment vehicle have continued to develop. The IRS commissioner details that the tax agency has received “numerous comments in response to the notice (2014-21)” and the IRS claims to be working with “internal and external stakeholders.” The stakeholders and the IRS have been identifying areas that need guidance. According to the IRS, there are three identified areas underscored by Rettig’s letter and the new guidelines should include:
Acceptable methods for calculating cost basis.
Acceptable methods of cost basis assignment.
Tax treatment of forks.
“We have been considering these issues and intend to publish guidance addressing these and other issues soon,” Rettig wrote. Following the letter, congressman Tom Emmer (MN-06), a member of the Congressional Blockchain Caucus and coauthor of the initial letter, replied back to the IRS commissioner. “I am glad to hear of the IRS’ plans to issue guidance on this important issue — Taxpayers deserve clarity on several basic questions regarding federal taxation of these emerging exchanges of value,” Emmer’s correspondence said. “I look forward to seeing their forthcoming proposal, and working together to serve the American taxpayers.”
The original bi-partisan letter from U.S. representatives expressed hope for more guidance from the IRS with a deadline for May 15, 2019. People have been complaining about the lack of well-defined tax guidelines for quite some time as many Americans believe the process is confusing. Further, the IRS has had no issues with the enforcement aspect of making people pay up and the agency has regularly sought to remind taxpayers of the penalties for non-compliance. The tax entity has also applied criminal prosecution to U.S. residents who have failed to ‘properly’ report their income tax in regard to virtual currency transactions.
What do you think about the IRS Commissioner’s response letter to the bi-partisan representatives? Let us know what you think in the comments section below.
Image credits: Shutterstock, Pixabay, and the IRS.