Содержание статьи:
- The Principles of Taxation
- Should crypto be taxed?
- Digital Currency Taxes in the European Union
- Digital Currency Taxes in the United States
- Conclusion
Ever since cryptocurrenciesbecame relevant, governments throughout the world have begun discussions on howto effectively regulate and tax the industry. A large part of the communitydoes not agree with this, granted that the main purpose of digital currenciesis to get rid of centralization and create a new financial society that isn’tcontrolled by a central authority. Despite this aspect, regulation needs to berespected if you want to stay out of trouble.
So far, there isn’t astandardized approach towards cryptocurrency taxation, so in this article, wewill explore principles of taxation, and discuss whether cryptocurrenciesshould be taxed.
The Principles of Taxation
To kickthings off, taxation plays several fundamental roles in modern economies, thusa world without taxes is mostly a utopia at this point. With this in mind, someof these key roles include funding expenditure required for running public servicesalongside other obligations, helping meet and sustain state equity preferences,influencing market behaviour, smoothening out macroeconomic fluctuations, andsupporting a diversified national industry, employment rates and economicgrowth.
Research hasshown that there are a total of four principles associated with an effectivedesign of the taxation framework. It should be backed by simplicity, stability,neutrality and flexibility. Regardless, the fiat currency taxation frameworkvaries widely from one country to another, and it is far from being simple,stable, flexible or neutral. Judging by this aspect, it is impossible to expecta convergent approach towards cryptocurrency taxation. Additionally, at thistime, countries cannot agree on whether to permit or forbid the new wave ofcurrencies, so taxing them efficiently is bound to be a longsome process.
Should crypto be taxed?
The answer to this question isquite complicated and varies according to the country that we are studying. Ingeneral, governments impose a tax bracket and percentage on profits obtained bycitizens through their work, investments or luck. Profits are usually obtainedin the form of fiat currencies, hence taxes are to be paid in fiat as well.Things make sense so far. However, theprocess gets a lot more confusing when dealing with digital currencies, sincemost countries do not class them as fiat. Yet, you can still earn a profitusing crypto. So, should it be taxed?
From a governmental standpoint,part of all revenue should go towards ensuring the provision of public goodsand services. If people don’t contribute, the current society would fail. Yet,how can you tax a digital asset that isn’t officially recognized and regulatedby a governmental body? After all, you can’t impose a 16% tax on bitcoinholdings, unless you plan on accepting it as a payment method as well.
On a theoretical level, mostcryptocurrencies are semi or fully anonymous. There is no easy way to determinean individual’s crypto portfolio unless they engage in trading, or submit theirinformation. Because of this, it makes more sense to tax crypto once it isexchanged to fiat. But what happens if cryptocurrencies are mass-adopted andthe fiat economy ceases to exist? The general consensus here is that only timewill tell.
Now, that we’ve present thegeneral worldwide taxation guidelines, and the debates on which approach wouldbe correct for the cryptocurrency market, it’s time to dwell into thegeneralities and common practices of the digital asset taxation framework inthe European Union and the United States.
Digital Currency Taxes in the European Union
As the European Union consists of28 member states (soon-to-be 27), it is not surprising that a harmonized taxpolicy does not exist. However, these countries are mostly similar when itcomes down to their legislation and public policies, so major differences can’tbe expected.
There is a decision issued by the European Court of Justice that is applicable everywhere in the EU, stating that digital assets represent a form of currency. As such, all transactions are exempt from the value-added-tax, known as VAT. Despite this, there is no unitary policy on whether other forms of taxation, such as the capital gains tax should be applied to crypto-based profits.
In Germany, the Ministry of Finance has decided not to charge a tax when digital currencies are used to purchase goods and services, but do so when individuals exceed an imposed profit margin. Estonia charges both VAT and a capital gains tax, as it considers that cryptocurrencies are not only a method of payment but also an investment tool. France has reduced the tax rate associated with retail crypto traders, whereas crypto-related profits obtained on a non-recurrent basis are considered non-commercial profits and are not subject to tax.
On the other hand, several EUcountries, which are considered to be crypto-friendly, chose a differentapproach. In the Netherlands, using digital currencies is classed as anexchange of goods, and is therefore not subject to tax. Crypto holdings, on theother hand, are taxed using the basic income rate. Denmark wants to become theworld’s first cashless society, so to encourage crypto growth, it won’t betaxing cryptocurrency traders and the associated profits – this doesn’t applyto crypto-based businesses, which will be taxed accordingly.
Digital Currency Taxes in the United States
Back in 2014, the U.S. InternalRevenue Service (IRS), released a set of guidelines targeted towardscryptocurrency investors, letting them know that “the sale or exchange of convertible virtual currency, or the use ofconvertible virtual currency to pay for goods or services in a real-worldeconomy transaction, has tax consequences that may result in a tax liability.”
An important aspect to keep inmind is that the IRS has decided to treat digital currencies as property,meaning that all transactions are taxable, regardless of whether you purchasegoods or services. However, the most relevant tax for crypto investors is thecapital gains tax, which happens when a digital asset is sold for a higherprice than it was purchased for. However, as we’re dealing with cryptos, whichare well-known for their volatility, tracking the initial prices can be quitecomplicated. Some have stated that the IRS wants people to comply, by doingtheir best to figure out taxable gains.
Those who do not report theirbitcoin taxes to the IRS can expect fines of $250,000, and probably prisontime, so this shouldn’t be taken lightly. As there is no set reporting mechanismin place, and the IRS has not released a clear guideline on how crypto-basedtaxes should be dealt with, reports indicate that over 46% of users did notreport their crypto profits to the IRS.
Conclusion
As you can see, policies vary widely from country to country, and there still is a lot of confusion going on in terms of which types of crypto income are taxable, which should be reported, and what the tax rates are. In the future, states will hopefully choose a standardized approach, or at least offer clear guidelines into how crypto-related income should be reported. This is especially relevant now, granted the increased volatility rates, trading volumes and total market capitalization of the cryptocurrency industry.
Featured Image via BigStock.
Disclaimer: While we did our best collecting and fact checking everything presented in this article,
please do your own research if you are about to file taxes involving cryptocurrency profits.
Consult a CPA or other professional, this is an informative overview, no tax filing advice.
