Two approaches to the supervision of encrypted assets: taxation and prohibition

Recently, the UK Revenue and Customs (HMRC) regulations introduced a digital service tax. The country’s cryptocurrency trading platforms are required to pay a 2% digital service tax. In early April last year, the UK Revenue and Customs Administration introduced a digital service tax policy, mainly to ensure that technology giants such as Facebook and Amazon must pay more taxes. Taxation of the digital economy is obviously a global consensus, and is essentially to solve the tax distribution problem of cross-border giants.

When the UK Revenue and Customs issued its guidelines on the taxation of crypto investments, it stated that the purpose is to help cryptocurrency traders and investors understand their tax obligations in the UK. Not treating cryptocurrency as currency, but more like traditional investments like stocks, which means that cryptocurrency profits are subject to capital gains tax. And clearly pointed out that the exchange’s transaction costs cannot be offset by profits, and urged traders to keep records.

Exchange Tokens, Utility Tokens, Security Tokens and Stablecoins are all encrypted assets. “Crypto assets are usually not financial instruments because they do not represent cash or financial contracts; crypto assets are not commodities, so crypto asset exchanges are not commodity exchanges; crypto assets are not currencies, so trading of crypto assets is not a form of foreign exchange. “The UK Revenue and Customs Administration also pointed out, “There are many crypto assets, each with different characteristics. Since cryptocurrencies do not represent currencies, commodities or financial contracts, it is unlikely that cryptocurrency trading platforms will gain access to online financial markets. Benefit from the exemption.”

CryptoUK, a trading agency that represents the UK’s digital asset industry, said that such taxes are unfair and are likely to be passed on to investors and consumers.

Coinbase, one of the world’s largest cryptocurrency trading platforms, is clearly “targeted” by this new regulation. The company’s British subsidiary Coinbase UK reported its 2020 sales of 18 million pounds, and the company recently reported that its global revenue has quadrupled. Coinbase UK’s annual income easily exceeds the 25 million pounds (33 million U.S. dollars) tax threshold, which means that people who buy and sell cryptocurrencies on its exchange may be charged higher fees.

British regulators have been updating their regulatory framework, and the British Financial Conduct Authority (FCA) has recently been tightening its regulatory stance. According to reports, it spent approximately $671,000 to hire consultants from a blockchain analysis company to specialize in combating crimes related to cryptocurrencies.

Cryptocurrency and capital gains tax

For a long time, the cryptocurrency market has been in a gray area of ​​the law. Individual cryptocurrency transactions may be allowed in some countries, but companies and exchanges engaged in cryptocurrency transactions are often closely watched by regulatory authorities.

The market value of cryptocurrencies has expanded rapidly this year, and investors are eager to see them. Many countries plan to impose capital gains taxes on cryptocurrencies. At present, there are “four major weapons” universally existing in the world to adjust the personal income gap: personal income tax, capital gains tax, inheritance tax and real estate tax.

Capital gains refer to capital goods, such as stocks, bonds, real estate, land or land use rights, etc., when the income is greater than the expenditure when they are sold or traded. Simply put, if you buy an asset and then sell it, as long as the selling price is higher than the buying price, the portion of the income should be subject to capital gains tax.

Real estate accounts for 60% of Chinese residents’ asset allocation, and shares account for only 2%. Therefore, we have a complete modern real estate tax system, including real estate corporate income tax and real estate value-added tax. In the U.S. residential sector’s asset portfolio, company equity accounts for nearly 20% of the share, pension and mutual funds together account for about 42%, and more than 30% to 50% of the latter two’s asset portfolio is invested in the stock market. The US stock market serves as a place for the distribution of wealth in the whole society, so the levy of capital gains tax is particularly important.

Last month, the United States also proposed rules on cryptocurrency “brokers” in its $1 trillion infrastructure bill. According to the regulations, investors will face capital if they sell cryptocurrencies after holding them for more than one year. The risk of profits tax. Roger Ver, the CEO of, an early Bitcoin investor regarded as the “Bitcoin Jesus”, holds up to 300,000 Bitcoins. Because of his extreme liberal attitude, he took the initiative to give up his American citizenship. Foer knew that for the economic freedom he wanted, he had to give up his nationality and choose a less restrictive and more welfare place. He became a citizen of the twin islands of St. Kitts and Nevis. He will not be subject to income tax, inheritance tax and capital gains tax.

What troubles the rich Americans is that Ron Wyden, chairman of the Senate Finance Committee, the Democrat, also proposed a “billionaire income tax”, which requires taxation of assets exceeding $1 billion or income exceeding $100 million for three consecutive years. Artificially pay taxes on unrealized capital gains. The proposed tax on the “unrealized capital gains” of the wealthy has aroused heated discussion in the United States and appeared on American social media searches.

In addition to the United States intends to impose capital gains tax on cryptocurrency assets, other countries have similar practices.

The Austrian Federal Ministry of Finance plans to tax cryptocurrencies in the same way as mainstream stocks and bond investments. Starting in March next year, Austria plans to impose a 27.5% capital gains tax on digital currencies including Bitcoin and Ethereum. This initiative will become part of its national tax reform.

On September 8, the Ukrainian Parliament passed a 276:6 absolute majority of votes to legitimize and supervise cryptocurrencies and other virtual assets. According to reports, Ukraine plans to open the cryptocurrency market to companies and investors by 2022. The new legislation will allow companies engaged in crypto-asset businesses to legally work and pay taxes in Ukraine.

According to reports, last month, the Australian Senate Technology and Financial Center Committee led by crypto-friendly Senator Andrew Bragg made 12 broad recommendations on the regulation of digital assets and the financial technology industry. Proposals include a new licensing system for crypto exchanges, a new law governing the DAO, and a thorough reform of DeFi’s capital gains tax.

South Korea also said that it will start levying a 20% capital gains tax on cryptocurrencies in January next year.

Discussion on my country’s Virtual Assets Supervision and Taxation

China is the first country in the world to rectify virtual currencies. Since 2013, a series of laws and regulations have been promulgated successively, denying the legality of virtual currency as currency and securities trading and free convertibility in the country from the system and implementation level.

On September 24, 2021, ten ministries and commissions including the Central Bank, the Office of Cyberspace Affairs, Public Security, Inspection and Law jointly issued a notice to further prevent and deal with the risks of virtual currency transaction speculation. The ten ministries and commissions will establish a work coordination mechanism to jointly combat virtual currency transaction speculation. It is clarified that the provision of services by overseas virtual currency exchanges to residents in China via the Internet is also an illegal financial activity.

On October 19, the China Taxation News under the State Administration of Taxation published an article “Preventing Tax Risks Brought by Virtual Currency”, which conducted in-depth research and discussion on the risk of tax loss caused by virtual currencies.

The article reads: “According to the principle of’the law is not retroactive’, the services previously provided by overseas exchanges to residents of our country can be regarded as’the law is not expressly prohibited’, but they must be obtained from our country in accordance with the tax law of our country. According to the previous transaction volume and income of each virtual currency exchange, the overall taxation scale of the exchange industry is quite considerable, and the taxation of other related industries needs to be further clarified.

Although my country currently imposes strict restrictions on illegal financial activities in the form of virtual currencies, from the current situation, it is difficult for Bitcoin and other virtual currencies to disappear in a short period of time, and the future development direction cannot be determined. At the same time, within the current legal framework, my country does not prohibit individuals from holding virtual currencies such as Bitcoin, and the transaction of virtual currencies is defined as an’invalid civil act’, but it is not explicitly prohibited by law. From a tax perspective, for domestic and foreign businesses and residents participating in virtual currency transactions, my country should strengthen departmental collaboration and international multilateral regulatory cooperation, focusing on preventing illegal cross-border outflows of funds and the use of virtual currencies to avoid taxation at home and abroad. The account is included in the tax-related information exchange of financial accounts. “

However, according to the notice issued by the ten ministries and commissions on September 24, my country currently classifies the mining and trading of virtual currency as illegal financial activities, so there is no way to levy taxes on virtual currency transactions and profits. Related taxation It shows people another kind of regulatory thinking.

The supervision of virtual currency in Hong Kong is slightly different from that in the Mainland. On November 3, Hong Kong Securities Regulatory Commission Deputy Chief Executive Leung Fengyi pointed out that in recent months, he has received inquiries from some financial institutions, hoping to provide virtual asset services to private bank customers and professional investors. Some licensed companies hope to act as agents, etc. Ways to provide cryptocurrency trading services. She said that she is reviewing the regulatory framework for virtual assets and believes that we should pay attention to investor protection.

She believes that good supervision will help financial technology companies and their services to grow. With sufficient support, companies can expand their business scale and provide services to a wider range of investors.

Posted by:CoinYuppie,Reprinted with attribution to:
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