International cryptocurrency taxation — what to expect?
One of the benefits that the inventors of cryptocurrency envisioned were easier cross-border transactions. The friction involved in these transactions, both in time and cost is great. A side benefit of that is that until recently, in many places, cryptocurrency gains or transactions were not taxed.
Countries have been steadily clamping down and levying tax on cryptocurrency-related transactions, such as Japan’s sliding scale rate from 15 to 55%. At the recent G20 summit in Argentina, the declaration was released to outline a proposal for a globally standardizing taxation to uncomplicate cross-border transactions.
Recently, a Japanese legislator released a proposed reduction and standardization of the cryptocurrency tax rate to 20%, moving it in line with the rate for capital gains in the nation.
The Japanese actually brought up the topic during the summit, noting that companies that trade in Japan but are not based there are exempt from taxation by Japanese law. They seek consensus among the G20 nations for a more clear and standard method of taxation.
In the G20 Summit final report, regulation of cryptocurrency, specifically to help combat terrorism and money laundering, was seen as a priority for the nations. While we see a desire by many nations to gain control over cryptocurrency systems, the very nature of the blockchain architecture makes that difficult.
Furthermore, the central regulation of currency through restrictions and taxation is specifically what cryptocurrency was meant to avoid by placing that power in the hands of the system architect and user base.
Regulation is coming
Regardless of the original intent of cryptocurrency, there is no doubt that regulation is coming. While many in the cryptocurrency industry are resistant to it, the more involved the industry is in shaping the regulations the better. Public opinion is still not solidified for the new technology, with many seeing it as a means for people to hide criminal activity.
Self-regulation is the best path for the industry, and Japan is ahead of the curve there too with the recent formalization of the Japan Virtual Currency Exchange Association. The collection of 16 native exchanges seeks to steer regulation in a positive direction for the industry instead of waiting for the government to unilaterally apply changes.
Part of all this regulatory change in Japan they are also working to crack down on tax evaders by requiring exchanges to share information on users including personal info like address and 12-digit ID number.
While it’s clear Japan is ahead of the curve on these regulations and tax policy, the rest of the world is not far behind. In fact, it’s predicted that by 2020 we’ll see a more standardized global regulatory and tax structure.
It is important to remember that for cryptocurrency to really take hold and grow to be adopted for more widespread usage, some of the stigmas must be removed. This can be achieved by sensible and minimally restrictive regulations placed on the industry.
Bitcoin regulation is a hot topic around the world as leaders struggle to grasp the concept of cryptocurrency and the implications of its decentralized architecture. To say that governments were caught off guard by the development and growth of the industry would be an understatement.
While taxing each bitcoin transaction is still likely to be applied differently in each country, the competition to attract bitcoin and other cryptocurrency exchanges to different countries will lead to varying tax rates unless a global standard is created.
So far, many companies have had to expend significant resources to keep ahead of shifting regulations by repeatedly changing their base of operations. The loss of efficiency with such moves is hampering those companies’ ability to grow and develop, so it is in everyone’s best interest for more global stability.
Keeping track of country-by-country differences is very confusing, especially at the rate at which everything is constantly changing. The US Library of Congress lists regulations for each country, but it is constantly having to update the documents.
The future is in the industry’s hands
Resistance to these global regulatory advances will be detrimental to the future of cryptocurrency, and the wiser company executives will recognize that. For mass adoption, the risks of fraud, theft and illegal activity must be eliminated from these systems.
Taxation of cryptocurrency is as inevitable as any other form of regulation, so it’s in the hands of the industry to help shape it in a constructive way. Most governments are warming to the idea of cryptocurrency, and are seeing benefits in making their regulations friendly for companies to be based there.
Even Japan, who has been one of the least crypto friendly countries is starting to soften and really look at ways of embracing the industry in the future. The G20 is looked upon global leaders in these policy-making arenas, so the fact that this was a topic at their latest summit means the industry should take notice.