Holders of cryptocurrencies have long struggled with their tax obligations. These fiduciary duties have been complicated by the tax agencies, which have several stages behind the technology and are now playing a cryptographic catch-up role. The updated US and UK tax guidelines were finally released this year, but the initial relief felt by the conscientious bitcoiners was to be short-lived. Upon closer examination, the documentation left many cryptographic questions unanswered.
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It's 2019 and the tax is still taxing
The lack of uniformity in the cryptography earnings tax, which makes some national governments happy to move forward and others determined to immediately recover their pound of flesh is frustrating, to say the least that we can say. the latest directives Her Majesty's Revenue and Customs (HMRC) for residents of the UK has managed to blur the waters already starchy.
Once again, the tax authorities have tried to clarify the taxation of cryptography, which has become a source of uncertain questions. It was the same thing when the IRS issued crypto-tax guidelines in 2014 and again in October of this year. So, why are such arms of the state incapable of establishing clearly defined tax principles on virtual money? Is it because the powers that be do not fully understand this rapidly changing environment or the underlying technology? Or is the nature of sales of forks, airdrops and tokens inconsistent with strict tax rules?
Robin Singh is the founder of the crypto-tax platform Koinly. "Part of the problem, he explains, is that regulators do not understand cryptocurrencies. In the latest IRS guidelines, for example, the IRS designates split pieces as "drops of air after a fork". They are aware that there is no real airdrop – the register is simply copied. This misinterpretation is at the root of the problem that investors are now faced with: paying income tax on split coins that they may not have the intention of d & # 39; use. "
Exchange of tokens' Aren 't Currency'
HMRC recently update to his advice on crypto taxes, published November 1, discussed cryptographic transactions by corporations, such as partnerships and sole proprietorships, and individuals. In essence, it was intended to put an end to the confusion over the extent to which cryptocurrency transactions result in a capital gains tax, contributions to national insurance, tax on companies, VAT and income tax.
The main argument of HMRC's argument is that, in general, the "trade-in chips" are not currencies, shares or marketable securities, which means that they are exempt from stamped. Nevertheless, tokens used in debt transactions are subject to stamp duties.
Bitcoin is explicitly mentioned in the policy document as an example of an exchange token, with the security and utility tokens to be processed in a future update. Although the policy document titled "Cryptoasset Tax" is far from exhaustive. And, to quote an informative line, "tax policy can evolve with the development of the sector".
Cryptographic obligations for individuals
As before, HMRC wanted to clarify that "the tax treatment of all types of tokens depends on the nature and use of the token and not the definition of the token". In other words, incur no tax at all.
If you sell trading chips whose value is appreciated, they will – as investments – be subject to capital gains tax; Taxes and contributions to the national insurance are also due on the encrypted assets received from employers in the form of cash payment and from mining operations or air drops.
In cases where individuals act primarily as businesses by frequently performing financial transactions involving cryptographic assets, their taxable business profits are subject to income tax rather than to the tax on the assets. capital gains. Of course, you can reduce your tax payable by offsetting losses by future profits. the cost of the asset itself can be a deduction.
A thankless task for tax agencies
Since assets such as bitcoins are traded on exchanges that do not use sterling, HMRC's indications are that the value of any gain or loss must be converted into pounds sterling on the individual's income tax return. The guidelines emphasize that people must keep separate records of each cryptographic asset transaction, including the type of asset; transaction date; if they were bought or sold; number of units and value of the transaction in pounds sterling; total accumulated investment units held; and bank statements and portfolio addresses.
Of course, it's easy to dig holes in the guide. The tax authority says that reasonable precautions must be taken to conduct "appropriate assessments" of transactions in a consistent manner. However, it does not specify what would be appropriate and what methodology would be acceptable. The HMRC also betrays its own ignorance when discussing cryptosphere fraud, noting that theft is not considered an assignment "given that the person still owns the assets and has the right to recover them". right to recover them, but they probably have no prospect of doing so. Theft victims also can not claim a capital gains tax loss.
Cryptographic tax obligations for businesses
As you might expect, HMRC's advice to businesses is even more complex and confusing than it is for individuals. Cryptographic mining companies are subject to tax based on factors such as the degree and frequency of activity, level of organization, risk and profitability. But most commercial activities in the cryptosphere are subject to some kind of tax, be it buying and selling tokens, trading chips for other assets (including other forms of cryptocurrency) and the supply of goods and services in exchange for tokens, the latter involves VAT on the "sterling value of the trading chips at the time the transaction takes place".
The confusion stems from such qualifiers as "the type of tax will depend on who is involved in the business," although the process by which accounts must be prepared is, at least, unambiguous: they must follow accounting principles generally recognized (GAAP) or where applicable, International Accounting Standards (IAS).
If the activities of an enterprise constitute a business, the revenues and expenses form part of the calculation of the resulting profit. If a partnership trades, the partners will be taxed on their share of the commercial profit. And if the trading chip activity is not considered a "trading activity", the gain from the eventual sale of a crypto asset will be charged against the corporate tax.
Where are we going from here?
The fact that the status of security and utility tokens remains unknown does not indicate that HMRC continues to struggle with fundamental issues regarding the imposition of the cryptography tax. Although the latter guidelines answer long-standing questions about "tokens of exchange", they throw out more. Is HMRC ready to finally change its position that cryptocurrency is not money, for example? This one will be put in the infinity, all the more so as the adoption by traders will increase. For bitcoiners in the United Kingdom, the United States and other countries of crypto-computing, divining the intention of tax authorities has become a dark art.
Do you think tax agencies are responsible for the complication of cryptographic tax guidelines or are they struggling to keep pace with a rapidly changing industry? Let us know in the comments section below.
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