Cryptocurrency tax regulations – global roundup

Cryptocurrency tax contractors

22nd March 2021

As tax authorities around the world ramp up their efforts to tackle tax evasion, there is one particular area that they are beginning to focus their attentions on and target. It’s a less known but increasingly used way of making transfers digitally – welcome to the world of cryptocurrency. Here we look at the ever-changing regulations that surround crypto tax, how it is being treated for tax purposes around the world and the ramifications for contractors and tax compliance.

Cryptocurrency tax latest

We’ve all heard of Bitcoin and the technology platform, Blockchain, that allows these transactions to take place. However, what many recruiters are perhaps unaware of is the rising scrutiny of these payment channels. As reported by International Investment online, HMRC in the UK is now hot on the heels of cryptocurrency tax evasion, so much so that it is looking for a tool that “will support intelligence gathering methods” to help it to track digital assets such as Bitcoin and Ether.

According to HMRC guidelines, these currencies are “taxable economic activity” and therefore their tax treatment will be no different to any other forms of taxable income. Traders could, for example, be liable for tax on their profits and in some cases tax and national insurance will also need to be paid. Sellers will have to pay capital gains tax (CGT) and inheritance tax may also be due as part of the individual’s tax liability.

The EU is also looking to crack down on cryptocurrency to tackle tax evasion and tax fraud. The European Council directive on taxation, otherwise known as ‘DAC’ has been updated several times with ‘DAC7’ in 2020 including information on digital platforms for the first time. The tax treatment differs country by country – in Luxembourg, for example, capital gains realised within six months are taxable, but not after this time frame. The latest iteration, DAC8, will take things to a higher level and will incorporate crypto assets and e-money.

Russia’s State Duma, the lower house of the Federal Assembly, has approved new legislation for the taxation of cryptocurrency according to state-owned news agency, Ria Novosti. Crypto assets will be recognised as property with failure to declare interests resulting in significant fines and penalties. Spain has also passed a bill requiring individuals to declare their crypto holdings and any gains made from digital assets.

In Asia, the same impetus to clamp down on crypto tax evaders is being seen around the world. Korea’s national tax service (NTS) is following in the footsteps of its UK counterpart, recently announcing that it had recouped millions of dollars in unpaid taxes from several thousand individuals. A supreme court ruling in May 2018 declared that virtual assets are part of an individual’s personal wealth and therefore subject to tax.

These transactions aren’t perhaps as difficult to track as some might think. Speaking to Korea JoongAng Daily, the leading English language newspaper in the East Asian republic, Chung Cheol-woo, head of the NTS’s taxation bureau stresses, “Although it is slightly different according to the exchange, one should consider that every cryptocurrency holding is owned 100% under a real identity, under a connect bank account as well as the owner’s date of birth.”

Cryptocurrency tax clampdown                                     

Singapore is also experiencing increased levels of cryptocurrency trading. All activity in the Asia city state is regulated by the Monetary Authority of Singapore (MAS), its financial regulatory body, which now requires Digital Payment Token (DPT) providers to have a licence so that consumers are better protected. Quoted in an article on local news site Finews.Asia, Minister for Transport, Ong Ye Kung and MAS board member said the latest measures, which follow the Payment Services Act of January 2020, would “help minimise the risk of DPT service providers being exploited by criminals to launder illicit proceeds or hide illicit assets.”

Crypto tax evaders be warned

India hasn’t yet gone as far as Korean authorities in terms of classifying cryptocurrencies and making them liable for Goods & Services Tax (GST). As Archit Gupta, Founder & CEO, Cleartax, explains to Business Today, “The Central Economic Intelligence Bureau (a branch of the union Finance Ministry) has conducted a study on levying GST on cryptocurrencies and has suggested to the Finance Ministry that Bitcoin can be categorised under ‘intangible asset’ class and GST could be imposed on all transactions. However, the Finance Ministry is yet to decide on the same.”

And what are the implications for the tax treatment of cryptocurrencies in the world’s largest economy? When filing a tax return in the US, taxpayers need to declare any virtual currency dealings. The first question, on  Form 1040, the Inland Revenue Service (IRS) tax form, states on the form states, “At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” Irrespective of whether you mine cryptocurrency or are paid in virtual currency by your employer, this still counts as taxable income and must be reported.

Anyone holding or trading in crypto currencies anywhere in the world is liable to pay tax. As we’ve seen already, tax authorities all over the world are actively seeking to recover income from those who are using these digital assets to evade tax.

While recruiters are unlikely to come across cryptocurrency too much in their day-to-day at the moment, this increasing scrutiny of – and attempt to regulate – cryptocurrency tax highlights just why it’s important that agencies ensure their firm and any contractors are compliant with local and national legislation.

Do you need advice about global tax compliance or contractor management and compliance?

Contact 6CATS International’s compliance specialists today.

Contact Us