Contractor recruitment and cryptocurrency

21st July 2021

Bitcoin, Ethereum, the Chinese Fei ch’ien and the Black Market Peso, favoured by Mexican and Colombian cartels. These are just some examples of the names fuelling the burgeoning global trade in digital cryptocurrencies, which use blockchain technology, machine learning and smart contracts programmes to record and secure transactions. But with governments and tax authorities increasingly scrutinising personal data relating to digital assets, organisations including recruitment companies must be aware of the tax implications of this trends to avoid getting caught up in crypto tax fraud.

Contractor recruitment and cryptocurrency: what you need to know   

Completing a statement of assets form to declare any dealings or holdings in cryptocurrencies is a requirement for those submitting their tax returns in the UK. Indeed, HMRC recently published its ‘Cryptoassets Manual’, which covers multiple subjects, including workers being paid in digital currencies. These payments are, of course, liable to income tax, national insurance contributions and capital gains tax in the case of sellers, so organisations who decide to go down the digital currency route must tread very carefully. Countries such as New Zealand, the UK, the Netherlands and Estonia all allow for employees to be paid in cryptocurrencies.

HMRC in the UK is just one example of a tax authority that is looking to ensure that individuals and companies trading in cryptocurrencies do not avoid paying the rightful amount of tax. Digital assets and platforms were first mentioned in the EU’s Directive of Administration Cooperation – or ‘DAC7’ – directive in 2020. The Organisation for Economic Cooperation and Development’s (OECD) Common Reporting Standard (CRS) will also cover digital assets such as crypto assets and e-money, which will be part of the EU’s latest ‘DAC8 directive’.

With a population of over 50 million inhabitants, South Korea is one of the top performing economies in south east Asia, home to household names such as Samsung, LG and Hyundai to name a few. And it happens to have no fewer than 60 crypto exchanges! Local authorities are taking stringent steps to tackle digital tax evasion and tax fraud, having recently clawed back WON53bn of assets (or the equivalent of £33m or $47m) in cryptocurrencies from 12,000 individuals, including a famous TV host.

If back taxes aren’t paid by those implicated, the digital assets could be confiscated and liquidated. Tax evaders are being dealt with in no uncertain terms, sending out a very clear message to those not fulfilling their tax obligations, “We will do our utmost to protect law-abiding taxpayers and fulfil our fair taxation mandate by probing and tracing assets that tax dodgers may be concealing in the midst of the recent cryptocurrency trading fervour,” said Kim Ji-ye, director-general at the Gyeonggi Province Fairness Bureau.

Cryptocurrencies and contractor recruitment

In the US, taxpayers will be only too aware of Form 1040 which asks whether they have traded in any ‘virtual currency’. The Biden Administration’s 2022 budget proposals and the US Treasury Department’s ‘Green Book’ is targeting tax evasion by taxpayers who can use offshore crypto exchanges and wallet providers, which allows them to hide their income and thereby avoid paying tax.

The US proposals state that brokers, exchanges and hosted wallet providers “must report information relating to certain passive entities and their substantial foreign owners when reporting with respect to crypto assets held by those entities in an account with the broker” with the aforementioned having to “report gross proceeds…with respect to sales of crypto assets with respect to customers, and in the case of certain passive entities, their substantial foreign owners”.

Recent technical problems with the online portal used by India’s Revenue Service (IRS) has meant that Multinational Enterprises (MNEs) had to file their 15CA and 15CB forms manually. There have been many issues with the system that was launched on 7th June amid a barrage of criticism from companies unable to complete their compliance administration. A press release from the Ministry of Finance read, “The new portal has been fraught with several technical glitches/issues leading to taxpayer inconvenience.”

The embarrassing saga even led India’s Finance Minister to post on Twitter that the platform developed by the global Indian IT services company, Infosys, should “not let down our taxpayers in the quality of service being provided”. Multinational companies have actually gone to Mumbai’s High Court – and it could even go as far as India’s Supreme Court to determine if their subsidiaries are liable for Goods & Services Tax (GST).  Although it hasn’t progressed as far as classifying digital assets, India’s Central Economic Intelligence Bureau (CEIB), part of the Union Ministry of Finance, is considering a GST on cryptocurrencies.

Turkey’s Central Bank (CBRT) has also clamped down on cryptocurrency trading with exchanges coming under Anti-Money Laundering (AML) and terrorism financing regulations. With a 600% rise in Bitcoin transactions, around one in five individuals trading in digital currencies and volumes of $1bn daily, the cryptocurrency market is big business in Turkey. The Turkish government intends to introduce its own digital lira by 2023. Elsewhere, to better protect consumers, the Monetary Authority of Singapore (MAS) now requires that Digital Payment Token (DPTs) providers are licenced while Russia’s State Duma recently passed new regulations on digital currencies.

Whether you’re an individual or an organisation looking to use blockchain technology to handle payments in digital cryptocurrencies such as Bitcoin and Ethereum, it is crucial that you are fully aware of the complex tax liabilities surrounding digital assets. As we’ve seen in South Korea and many other countries around the world, the increasing scrutiny on income derived from digital assets and cryptocurrency transactions is a clear warning and further reinforces the need for recruitment agencies placing international contractors to be compliant with all local tax legislation.

If you’re looking for global contractor management advice, get in touch with our team of experts today.

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