BetterNews #10: CryptoTax Compliance

During the last months, we have noticed that tax authorities all over the world became more involved in the matters of crytoassets taxations. Below we summarised some of the most recent updates from the tax authorities of Brazil, New Zealand, and the United State.

Brazil

The Department of Federal Revenue of Brazil has published Normative Instruction RFB 1,888 / 2019 requiring reporting obligations regarding all transactions involving cryptocurrencies. According to the Instruction, failure to obey the filing requirements will result in a fine up to 500 Brazilian Reals (approximately USD 130) or from 1.5% to 3% of the amount of the unreported transaction.

The applicability of reporting obligations extends to individual traders, companies, and brokers and specifically covers sales, purchases, donations, barters, deposits, and withdrawals.

New Zealand

Inland Revenue of New Zealand has released two finalized public rulings (BR Pub 19/01: Income tax — salary and wages paid in crypto-assets and BR Pub 19/02: Income tax — bonuses paid in crypto-assets). The first ruling is dedicated to the question of whether regular remuneration received by employees in cryptoassets for services performed by the employee under an employment agreement are subject to Pay as you earn (PAYE) taxation. The authority considers that the concepts of “salary” and “wages” are wide enough to include regular payments in crypto-assets concluding that PAYE tax rules should apply.

The second ruling establishes that payment of crypto-assets to an employee as an incentive or bonus is also should be recognized as “PAYE income payment” and should be subject to tax.

United States

During July and August, the Internal Revenue Service (IRS) started sending letters on “Reporting Virtual Currency Transactions” to taxpayers that they have reason to believe may have failed to report income from digital currency transactions. The contents of the letters differ but mainly the IRS asks the recipients to do the followings:

• complete the returns with a signed statement (under penalty of perjury/felony) confirming that the recipient’s tax returns complied with federal tax law;
• amend prior returns if they did not accurately report their virtual currency transactions.

Taxpayers failing to report income on their federal tax returns may be exposed to additional tax and interest.

Conclusion

Development of tax rules in the cryptoeconomy clearly proves that the law is not far behind the technology and regulators will eventually find ways to control the income gained in cryptoassets. The IRS’s approach also is interesting cause it shoes that tax authority already has a piece of information about certain taxpayers. The IRS is known for being the trendsetter in the taxation field, so we may expect that tax authorities around the world will be more involved and probably include infrastructure providers into the discussion and reporting processes