PwC’s Global Cryptocurrency Tax Report Reveals Need for New Regulatory Directions

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One of the founding fathers of the United States, Benjamin Franklin, once said, “But in this world nothing can be said certain except death and taxes. While this phrase was carried out in 1789, the same is still true today. The only difference is that taxes are slowly but surely catching up with crypto assets.

Therefore, it should come as no surprise that the Big Four accounting firm, PricewaterhouseCoopers, has just released its first annual cryptocurrency tax index as part of the “Global Cryptocurrency Tax Report”. The in-depth report contains the latest global crypto-tax developments, as well as crypto-tax information for over 30 jurisdictions. Interestingly, 61% of the jurisdictions surveyed published guidelines on calculating crypto capital gains and losses for individuals and businesses.

The survey’s Crypto Tax Index ranks jurisdictions based on the complete structure of their tax guidelines. The report shows that Liechtenstein, a small but innovative European country, tops this year’s ranking, closely followed by Malta and Australia.

Crypto assets are finally taken seriously

Peter Brewin, tax partner at PwC Hong Kong and contributor to the report, told Cointelegraph that the industry is finally starting to see more activity from some supranational policymakers like the Organization for Economic Co-operation and Development. As a result, tax authorities have shown increasing interest in crypto assets, but these guidelines are dated:

“What our research shows is that guidelines issued by many tax authorities are already out of date. Yes, it’s important for people to know how to account for the tax on trading Bitcoin and other cryptocurrencies, but it really is crypto-tax 101.

Although basic guidelines have been established on how to tax common crypto assets, Brewin points out that gaps remain. “What we really need, and which is lacking in almost all jurisdictions, is principled guidance suited to the new decentralized economy,” he said.

That being said, one of the main lessons of the report is that no jurisdiction has yet issued guidelines on topics that shape the future of a digital asset economy. For example, there are no tax guidelines for crypto borrowing and lending, decentralized finance, non-fungible tokens, tokenized assets, and staking income.

This is alarming, given the recent surge in DeFi and billions of dollars are stuck in DeFi contracts because criminals can exploit the hype. While impressive, the PwC report highlights that without guidance, innovative companies and startups will face significant tax uncertainty, especially when it comes to cross-border activities.

The document provides some recommendations; for example, with regards to the taxation of DeFi, it is mentioned that this should include how DeFi platform income is taxed at the recipient level and whether jurisdictions can seek to tax payments at source . This is similar to how withholding taxes are commonly applied to interest payments in traditional finance.

The report also takes into account the ever-changing ecosystem of the crypto industry, therefore noting that future directions should be principled and not overly prescriptive.

Crypto Still Primarily Seen As Property

Another important finding from the report is that most jurisdictions view cryptocurrencies as a form of property from a tax perspective. In fact, very few view digital assets as currency for tax purposes. The report notes that this is because the disposal of an asset is considered to be similar to a barter transaction; therefore, the results in a gain or loss could be subject to tax.

However, this is not the case in all jurisdictions. For example, countries like Israel are starting to propose that Bitcoin be taxed as a currency. If this proposal becomes law, digital currencies such as Bitcoin (BTC) could be taxed at a lower rate in Israel than those currently in place.

However, taxing cryptocurrencies as a currency could also cause problems. The report points out that a tax change could potentially be triggered every time an individual spends a digital asset. This is problematic because many consumers are not able to calculate their gains or losses from each of their daily transactions. This is not usually the case with fiat, but it could be if cryptocurrencies were to be used, which would create another barrier to mass adoption.

Tax uncertainty will create challenges

Overall, PwC’s crypto tax report shows that while significant work has been done to provide guidance for the taxation of digital assets, the industry is not up to date with recent developments. In turn, businesses will continue to face fiscal uncertainty, creating new challenges for adoption and innovation.

While this may be the case, authorities are aware that new crypto taxation guidelines are needed. Mazhar Wani, fintech leader at PwC US, told Cointelegraph that while it is difficult to estimate when official guidelines will be released on topics such as DeFi and staking, these points are being discussed by global tax authorities. . “The OECD is also looking at many of these points as it fits into their broader initiatives, so we hope to see something soon,” he said. However, Brewin points out that when it comes to DeFi, tax clarity could take much longer:

“Especially when you have a fully decentralized platform, it’s not clear to me that this approach will work, given that you’re dealing with a completely different animal. We haven’t really seen a parallel for that in terms of taxation.

While this may be the case, Brewin suggests that today’s challenges can be overcome if the industry continues to work with policymakers to ensure they understand the complexity and ever-changing nature of the business. crypto industry.


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