March was a busy month for both the Organization for Economic Co-operation and Development and the Biden administration to announce plans for guidance and clarify cryptocurrencies.
The OECD has released a public consultation document outlining the proposed global tax transparency framework for crypto assets. The proposal requires crypto exchanges to share details of transactions with foreign tax authorities and aims to address some of the transparency challenges facing the global crypto market. , Provides an overview of the proposed amendments to Common Reporting Standards. This is because each country, including the US Treasury, is promoting its own cryptocurrency reforms.
“We need to go back to 2017 when the OECD adopted CRS to provide information exchange between members,” said Charles Kolstad, a partner in the legal firm Withers Bergman LLP’s individual clients and tax group.
“Under the CRS, countries that adopt this standard will automatically report and receive tax-related information,” Kolstad said. “The framework didn’t specifically deal with virtual assets and service providers, so there was ongoing discussion to address this issue, resulting in a new global tax transparency framework. The CryptoAssetReporting Framework, released as a public consultation document in late March, complements CRS. “
CARF provides reporting and automatic exchange of tax information on crypto assets between governments, requiring brokers to identify customers and their tax jurisdictions and report total transaction value on an annual basis.
“The purpose of the OECD framework is to believe that significant tax evasion is occurring due to the recognition of anonymity in the field of cryptocurrencies, so we hope to expand the group of people covered by the CRS. I’m out, “Kolstad explained. “The important thing is that one country is not significantly present. The United States The United States is not part of the CRS network and therefore does not automatically obtain information about people operating abroad. That said. , The United States may seek to obtain the same information from FATCA that the OECD obtains. “
Will FATCA (Foreign Account Tax Compliance Act) be passed as part of the HIRE Act to report to foreign financial institutions and certain other non-financial foreign companies about foreign assets held by U.S. account holders? , Obliges to be subject to withholding tax. payment. The HIRE Act also included legislation requiring Americans to report foreign financial accounts, depending on their value.
The OECD is seeking public comments on the proposal, Colstad said. “Despite the high likelihood of comments, the OECD is not particularly interested in relaxing the rules for the crypto space player category. We expect the rules to be adopted when the draft is drafted. Since then, only 97 countries have adopted CRS to enforce the law in their own countries. “
Action in the United States
A few days before the OECD’s actions, the Biden administration issued a presidential order with a focus on cryptocurrencies, including a government-wide overview of digital assets.
“The surge in the crypto market, the increased participation of American investors, and the increasing number of countries planning to digitize the sovereign currency show that guidance is welcomed and timely development.” Said Joyce Bebe, a Finance Fellow at Rice University, Baker Institute.
“How the federal government treats cryptocurrencies depends on who you ask,” she said. “Since 2014, the IRS has considered cryptocurrencies as property rather than currency for federal income tax purposes. However, this does not mean that cryptocurrency tax reports are clear or straightforward. Has filed multiple lawsuits regarding reporting cryptocurrency profits, and fluctuations in tax standards over different dates mean that record keeping can be a hassle, while the IRS has made non-compliant investors. We are targeting cryptocurrency exchanges to pursue and collect millions of unpaid taxes. “
Other government agencies have their own views on cryptocurrencies.
“The Securities and Exchange Commission believes that cryptocurrencies are securities and are therefore subject to their oversight. We have filed several lawsuits against entities that did not comply with the SEC’s registration and disclosure rules, 2022 2. In May, we fined multiple operators, including a $ 50 million fine for BlockFi, which showed investors an interest in lending cryptocurrencies. “
The Commodity Futures Trading Commission, on the other hand, considers cryptocurrencies to be commodities. Due to non-compliance with the Commodity Derivatives Act, we have taken steps against unregistered crypto trading platforms.
Also, the Financial Crimes Enforcement Network (FinCEN), whose main mission is to protect the financial system from misuse and combat money laundering, has a different view than the IRS, SEC, or CFTC.
“In published guidance, authorities have shown that cryptocurrencies are a form of currency under FinCEN regulations,” Beebe explained. “Specifically, we say that cryptocurrencies are exchange media that act like currencies in some environments, but they do not have all the attributes of real currencies. For example, in any jurisdiction. However, there is no statutory currency status and it is usually held in coins and banknotes. “
And recently, the Ministry of Labor has warned trustees about their obligation to be cautious when using digital assets (cryptocurrencies, tokens, or other derivatives) as an investment in a 401 (k) plan. 2022 tax. ”
“The plan trustee warns us to take” utmost care “before considering adding cryptocurrency options to the investment menu of a 401 (k) plan for plan participants,” she said. Said. “These investments are very speculative and often difficult to evaluate,” she said. “In addition, participants may lack knowledge of how they work.”
Similarly, the state has its own position on the issues surrounding cryptospace. Washington State first announced a plan for guidance on non-fungible tokens (NFTs). In Washington’s view, these digital assets stored on the blockchain are subject to state sales and business taxes. The Revenue Department will issue an Excise Recommendation with guidance on how to approach the taxability of NFTs.
“Washington’s position on NFTs is exactly what I thought they would say, and several other states will take the same position,” said Avalara’s Vice President of US Tax Policy and Government Relations. Scott Peterson said. “NFTs aren’t that complicated, at least conceptually. What NFTs represent can complicate sales tax. Bundled transactions are always complicated in terms of sales tax. Someone has multiple products. This is not the first time to bundle into one transaction. The state has good rules for common examples, such as software bundled with hardware. In other cases, the state is purchased by the consumer. It relies on some form of “essence of the transaction” or other phrase to reach what it is. “
“While the world of cryptocurrencies is evolving and the possibilities for new services are endless, these different perspectives across federal agencies highlight potential contradictions and room for a unified approach.” Beebe says.
The administration’s presidential decree includes six key areas: consumer and investor protection, financial stability, illegal finance, US leadership in the global financial system and economic competitiveness, financial inclusion, and responsible innovation. It will be.
“The development of the dollar-based central bank digital currency, which is the digital form of the US dollar, is not officially listed as one of the six priorities,” Beebe said. “But more than 100 countries have explored the concept of the CBDC. The presidential directive raises a sense of its importance and calls on institutions to evaluate the technical infrastructure and design strategic plans related to the CBDC. . “
Is there a CBDC in our future? There is a possibility.
“In January 2022, the Federal Reserve published a survey on the benefits and risks of the CBDC,” Beebe said. “This survey does not provide policy recommendations. Instead, it aims to facilitate discussions with stakeholders and solicit public comments,” she said. “We have shown that we will not issue the CBDC without the support of Congress and the government. In addition, the Federal Reserve will supplement the issue of the CBDC, rather than replacing it with banknotes. I said. CBDC and banknotes will coexist. ”
According to Beebe, despite fundamental security and privacy concerns, presidential directives recognize cryptocurrencies as a potentially viable payment method.
“Rather than banning these transactions, the focus of our policy is to ensure equal and secure access to all,” she said. “This directs a series of investigations and investigations to continue investigating issues related to digital assets. Meaningful policy recommendations are government agencies that complete the investigation and provide concrete policy proposals. Sometimes it becomes clear throughout the year. The November midterm elections can affect the timing of implementing the proposed policies. “