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Tax Guidance on Cryptocurrencies Improving at a Global Level

Tax Guidance on Cryptocurrencies Improving at a Global Level

In the latest iteration of its Annual Global Crypto Tax Report 2020, accounting giant PwC says the world has witnessed an important increase in the amount of guidance being offered by governments on the taxation of cryptocurrencies. 

Since 2014, when 7 countries (Denmark, the USA, France, Sweden, Australia, the Netherlands and the UK) had tax guidance in place, 23 countries have established basic parameters on how to tax the growing cryptocurrency market.

However, not all guides are equal, as shown by PwC’s newly minted PwC Crypto Tax Index, a tool used to measure how comprehensive each country’s tax guidance is.

PwC’s Index takes into consideration twenty different activities linked to the taxation of cryptocurrencies to develop this index. These include:

  1. Calculation of capital gains on buy/sell of crypto-assets for individuals
  2. Calculation of gains/losses on buy/sell of crypto-assets for businesses
  3. Direct taxation of mining income
  4. VAT/GST/Sales tax on trading payment tokens
  5. VAT/GST/Sales tax on mining income
  6. VAT/GST/Sales tax on trading utility tokens
  7. Initial Coin Offerings (ICOs) and token issuance – payment tokens
  8. ICOs and token issuance – utility tokens
  9. VAT/GST/Sales tax on the trading/exchange of security tokens
  10. Taxation of hard forks
  11. Taxation of airdrops
  12. ICOs and token issuance – security tokens
  13. Application of local financial transactions taxes or stamp duties to crypto-assets
  14. Direct taxation of staking Income
  15. VAT/GST/Sales tax on mining – transaction validation fees
  16. Application of Common Reporting Standards (CRS) rules to virtual asset service providers (e.g. crypto exchanges/wallet providers)
  17. Taxation of crypto funds
  18. Crypto borrowing and lending and DeFi
  19. Non-fungible tokens/tokenised assets
  20. VAT/GST/Sales tax on staking income

According to this index, Liechtenstein, Malta, Australia, Switzerland and Singapore round out the top five, followed by France, Sweden, Canada, Italy and the UK in the top ten.

The USA narrowly missed the top ten, entering the ranking in the twelfth position.

PwC Crypto Tax Index

Overall, the study finds that “the most common treatment is to view cryptoassets as a type of property,” which usually “means that spending these for acquiring goods and services leads to a tax charge on disposal.”

As quoted by Cryptonews’ Linas Kmieliauskas and Tim Alper, the company believes “this will continue to act as a major impediment to mass adoption of many crypto assets as a means of payment, unless technology solutions can be found to ease the administrative burden for users.”

Additionally, as reported by Bloomberg Wealth’s Joanna Ossinger, PwC found that “very few jurisdictions have issued guidance on topics like crypto borrowing and lending, DeFi, non-fungible tokens, tokenized assets and staking income.”

Despite this improvement in the number of tax guidance on the crypto world, PwC concludes that it has not particularly kept up to speed with the very rapid development in the industry.

According to the report, “what this means is that those businesses that are pushing the boundaries of the technology to explore new business models — especially those that transcend national boundaries — are often faced with significant tax uncertainty. They will have to go back to first principles and predict the likely reaction of policy makers and tax authorities in 3-4 years time. This can be very difficult for a start-up organisation.”

Additionally, PwC finds that “it will be important that future guidance issued is principles-based and not overly prescriptive” in order to “avoid the guidance becoming out of date before it’s released and prevent tax from holding back the development of exciting new business models that may not yet be conceived by policy makers.”

Finally, PwC calls for tax authorities to work together in the development of regulations targeting cryptocurrencies considering “the fact that business models in this industry are so international and that there is a relatively clean slate to work from when it comes to tax and Blockchain.”

You can check out the full PwC report HERE.