Recent developments in the field of cryptocurrency taxation
In recent weeks, two opposite tendencies have been observed in the field of cryptocurrency taxation. On one hand, the tax authority of Singapore proposed to exempt Bitcoin and other cryptocurrency transactions from goods and services tax (GST). If the proposal is accepted, it will enter into force on the 1st of January 2020. At present, the supply of digital payment tokens is subject to GST. Virtual currencies covered by the new proposal include, but are not limited to, Bitcoin (BTC), Dash (DASH), Ether (ETH), Litecoin (LTC), Monero (XMR), XRP, and Zcash (ZEC). It should be noted that stable coins will not be covered by the proposal. Instead, they may be defined as financial services. The proposal initiated by the Singaporean tax authority corresponds to the approaches of Portugal, Australia, and Germany towards the taxation of cryptocurrencies.
While Singapore works on exempting cryptocurrencies from taxation, the United States contemplates on how to collect more tax from cryptocurrency transactions. Although such transactions are taxable in the United States, only 53% of Americans plan to report their cryptocurrency losses or gains. To address this, the Internal Revenue Service (IRS) proposed a number of measures to identify crypto tax fraud. The measures may include, for example, (i) checks of social media posts, (ii) interrogating friends and relatives of people suspected in tax fraud, and (iii) conducting electronic surveillance with the aim to find out whether suspects use cryptocurrencies. The IRS may also legally require software companies, such as Microsoft, Apple, and Google, to provide the IRS with information about the application download history of a suspected individual. Once the IRS gets this information, it will examine whether each of the applications downloaded by the individual concerned enables him/her to operate with cryptocurrencies.
Due to the heavy taxation of cryptocurrencies in the United States, many blockchain companies choose to establish their headquarters in tax-friendly jurisdictions, such as Bulgaria, Switzerland, Singapore, and Gibraltar. For example, blockchain companies operating in Bulgaria are subject to a flat corporate tax rate of just 10%. The Bulgarian personal income tax is also fixed at 10%. Thus, not only the blockchain companies but also their managers and employees may benefit from the Bulgarian low-tax regime.