Human nature is characterized by a reluctance to share what has been earned, and few get pleasure in filling out tax returns and giving part of the income to the state. It is even truer if the income to the budget is from cryptocurrencies, which are still outside the legal framework. It is naive to believe that the aspirations of state structures to legalize cryptocurrencies are inspired solely by concern for the safety of crypto investors. The possibility of obtaining additional income from citizens carrying out operational activities with cryptocurrencies is one of the main goals of financial regulators.
While the question remains how the state will learn about the crypto assets of citizens, especially since even the KYC procedure, which deprives the owners of cryptos of habitual anonymity, has not been commonly introduced. At the same time, the state policy regarding taxation is quite straightforward, as a citizen must pay tax on all the incomes that he receives. We tried to find out if miners and crypto traders can sleep in peace without worrying about tax returns from the income they received.
Today, only crypto enthusiasts from Singapore sleep best, as there, a tax on virtual currency is not collected in any form. Although the regulators promise to change the situation, while the country is a quiet haven for crypto businessmen, especially from Japan, where the tax rate ranges from 10 percent to 50 percent. In the country of the rising sun, there is a progressive tax rate, and the more your income, the more you will have to pay to fulfill your civic duty.
Europeans enjoy quite a mild regulation in Slovenia and Bulgaria, but the involvement of these countries in the European Union will soon make adjustments to the regulation of cryptocurrencies. Belarus has already unequivocally stated that taxes from cryptos will not be charged—at least not by 2023.
The IRS government agency is responsible for taxation in the United States, and a number of crypto instruments have already sent regular reports to the IRS with the data of their users. The calculation of the tax is made on capital gains proceeding from the market value of the cryptocurrency at the time of its receipt. Maxim Efremov, an expert at the Russia OECD Center of the Russian Academy of Sciences, told about how the regulator identifies crypto holders: "In July, the topic of tax administration for cryptocurrencies was discussed at the OECD platform. Obviously, the biggest problem for tax authorities today is to uncover the revenues that were received in cryptocurrencies. Based on the experience of the U.S. voiced on the platform, it should be noted that the tax authorities do not attempt to identify the receipt of income while the funds are in cryptocurrencies. But as soon as the person sells the cryptocurrency and gets fiat for then, then the tax authority will question the taxpayer. At the same time, a law-abiding citizen can declare incomes received in the tax period and pay taxes."
It is interesting that countries do not spend their administrative resources on identifying miners and their registration. The system remains simple: if you got fiat, then you will pay a tax on your income.
It is also worth noting that the international system for the automatic exchange of tax information, which was created by the OECD (Russia participates), tries to answer many questions posed by cryptocurrencies. The current regulation of automatic exchange of information does not include the exchange of information on the presence and amounts of cryptocurrencies that a person has. Because of this, there may be cases of dilution of the tax base, when a person would hide their income from tax services using cryptocurrencies.
The norm is also interesting, according to which the measures of the tax legislation may not be fixed by law, but are framed in the form of an explanation of the relevant regulatory authorities. A similar approach was introduced as early as 2014 by the British HM Revenue and Customs (HMRC). The manual on turnover of cryptocurrencies mentions their investment status among other things and the need to pay a capital gains tax that goes up to 45 percent.
Miners in most Western countries fall under the category of self-employed citizens, for which a separate tax is provided. Here, however, the responsibility of declaration remains on the conscience of the miner, as well as the adequacy of the amounts indicated as income.
This summer, the Ministry of Finance of the Russian Federation explained that the income from cryptocurrencies should be recorded independently in the declaration and the tax paid on the income of individuals constituting 13 percent in our country. The profit should be calculated based on the difference between the value of the cryptocurrency at the time of purchase and the income received from its sale. And here's the pickle: even if you bought Bitcoin for $1,000, and its rate has grown by many times, from the point of view of the law, you have not yet received any income. Receipt of income is recorded when you transfer the cryptos into fiat, and only after the occurrence of this event does it make sense to think about editing the tax return.