29th October 2020
At the beginning of the month we flagged the digital tax challenges that have dominated news reports recently. As digital transformation becomes a common trend across the globe, countries’ governments have understandably been reviewing how companies are taxed, not only where the service is carried out but also where it is delivered. Whilst it is a grey area at the moment, digital taxation is a hot topic that will only continue to grow in importance.
For contractors operating internationally, technology can present both an opportunity and a challenge. In particular, the lack of consistency across countries can cause some confusion. We’ve highlighted before that some destinations have implemented changes to digital taxes and legislation as the world of work continues to evolve. In APAC, numerous jurisdictions have introduced digital taxes for multinationals, the European Commission has revealed plans to push ahead with its own digital tax next year and Spain is targeting virtual services delivered by the likes of instant messaging service providers. But not every location is making the same moves.
And, it’s not just digital taxes that are evolving as a result of tech developments. For contractors, virtual currency is an increasingly widely discussed topic. However, this also throws a number of challenges into the mix when it comes to remaining compliant with local and global tax legislation.
How transactions are moderated and monitored virtually is changing and authorities are taking greater steps to better police online currency.
So, what’s the latest in the world of contractor virtual currency tax?
Common Reporting Standards to cover virtual assets
Last week the Organisation for Economic Co-operation and Development (OECD) published a report on existing tax rules for virtual currency assets that painted an interesting picture. What perhaps stood out most is the fact that the document highlighted that a number of locations currently have no specific guidance on crypto assets, though almost every country considers virtual currency to be a financial asset, commodity or an intangible asset other than goodwill. As such, they should be treated as capital gain-earning assets.
Belgium, Cote d’lvoire, Italy and Poland were the only locations to consider virtual and fiat currency as the same for tax purposes. And only a small number of destinations subject crypto asset holdings to transfer or property taxes.
While the above indicates that there’s still some way to go before global authorities have a complete grasp on virtual currencies and the required tax payments of these, the OECD did state that the Common Reporting Standard will be expanded next year to include the exchange of data on virtual currencies. It is hoped that this move will equip tax authorities with the information to tackle non-compliance where crypto-currency is being used to avoid tax payments. The OECD also intends to use this data to help governments with tax enforcement on digital transactions.
Contractor virtual currency tax compliance
With the OECD indicating that crypto assets such as virtual currency will be a major focus next year – not just for themselves, but also tax authorities and governments worldwide – we highly expect that 2021 will be an interesting year in the world of tax compliance.
But it is important to add that it’s not just digital developments that are changing global regulations. Authorities are fighting sophisticated tax evasion schemes with equally sophisticated tools. We’ve mentioned before that countries are turning to technology in the fight against fraud, with the use of artificial intelligence to monitor social media accounts for any red flags of non-compliance.
As crypto assets increase in popularity, we will likely see more authorities implementing actions to better manage and monitor transactions and ultimately recover funds owed to the country. For many contractors, virtual currency tax compliance will likely be added to the list of regulations to follow. And with the potential for variations in legislation across borders, navigating crypto currency tax is going to be incredibly challenging – if not impossible – to manage well for those without the compliance expertise.
Expert help will be needed
As international authorities continue to implement stricter and more sophisticated tax regimes, contract professionals operating internationally will be facing significant financial and legal risks if they don’t comply with laws in both their chosen destination and home country. But we know all too well that navigating global tax legislation is a challenge – and one that shouldn’t be faced without the relevant knowledge and connections.
While you may be operating compliantly in one destination, that doesn’t mean that you will remain on the right side of the law in a new location. At 6CATS International, we not only have a team of fully trained compliance experts on-hand to help you no matter where in the world your next assignment is, but we also have global on the ground connections to support contractors in any overseas move.
Contact us today to find out how we can help take the compliance burden from your shoulders.