Legal regulation of tax benefits in the taxation of income of individuals transactions with digital rights (cryptocurrencies)

Titorenko Semen Konstantinovich Lecturer, Department of International and Public Law Department, Financial University under the Government of the Russian Federation 125167, Russia, Moscow, Leningradsky ave., 49/2 titorenko96.st@gmail.com Other publications by this author

The Russian Federation has introduced Federal Law No. 324-FZ dated 14.07.2022 "On Amendments to Part Two of the Tax Code of the Russian Federation" ^[1] on Taxation of digital Financial Assets and digital Rights, including both a digital financial asset and a utilitarian digital right (hereinafter referred to as the "CFA").

A feature of the legal regulation of cryptocurrency turnover in the Russian Federation is the creation of a separate law aimed at comprehensive regulation of cryptocurrency turnover. So, from January 1, 2021 Federal Law No. 259-FZ dated 31.07.2020 "On Digital Financial Assets, Digital Currency and Amendments to Certain Legislative Acts of the Russian Federation" ^[2] (hereinafter referred to as the "CFA Law") came into force, the introduction of this law confirmed the legal status of the token and as a result became the basis for calculating and paying taxes for transactions made with tokens, in terms of taxation of income received from the turnover of cryptocurrencies, the issue remains debatable, since the concept of "digital currency" is not identical to the scientific and technical concept of cryptocurrency.

There remains an open question on the legal regulation of cryptocurrencies. The author believes that Article 141.1 of the Civil Code of the Russian Federation should be applied to the relations on the turnover of cryptocurrencies.

However, studies related to the taxation of personal income have no practical significance in the absence of a system of tax control over transactions with digital rights.

An outstanding feature of the distributed ledger system is the decentralized nature of transactions that are not conducted through a central counterparty who can track transactions and submit relevant reports.

Tax control is defined in Article 82 of the Tax Code of the Russian Federation and is the activity of authorized bodies to monitor compliance with legislation on taxes and fees.

Tax control is an integral part of financial control and a type of state control.

Among the main tasks of tax control are:

- ensuring proper calculation, full and timely payment of taxes and fees to the budget;

- creation of a system that prevents violations of the legislation on taxes and fees;

- providing sanctions for violation of the legislation on taxes and fees.

Various classifications of tax control are distinguished ^[3].

By the time of tax control:

- preliminary;

- current (operational);

- follow-up.

Based on the method of tax control: continuous and selective.

In addition, tax control is based on the following principles (guiding principles and ideas expressing the essence of tax control): legality, legal equality, respect for human and civil rights, the principle of publicity, compliance with tax secrecy, the principle of responsibility, the principle of presumption of innocence of the taxpayer, the principle of independence, the principle of planning, the principle of objectivity and reliability.

Tax control is carried out in the following main forms:

- tax audit;

- survey of taxpayers;

- verification of accounting and reporting data;

- inspection of property, premises and territories.

The implementation of tax control in each individual field of activity is associated with certain problems specific to a particular area.

It is particularly necessary to note the position of E.L. Vasyanina ^[4], which indicates that the problem of tax control on transactions with digital rights is insufficient specification of the grounds for the occurrence of tax obligations and elements of the composition of the personal income tax.

In a scientific article by O.V. Kozhevina and D.V. Shmeleva ^[5], the following list of problems arising in the implementation of tax control on transactions with digital rights is highlighted:

- the lack of the possibility of organizing centralized control in the sphere of digital rights turnover;

- partial anonymity of the operations carried out despite the fact that the most well-known operators of information systems have introduced mandatory account verification, most of the participants in blockchain systems continue to act anonymously, or through nominal account holders. The combination of these factors indicates the partial anonymity of the majority of transactions with digital rights;

- the lack of the possibility of conducting a centralized assessment of digital rights. Due to the lack of the possibility of conducting a centralized assessment of all digital rights available on the market, this does not allow us to quickly calculate the real cost of the operations carried out

- lack of a unified position regarding the classification of digital rights as a financial instrument or intangible asset;

- constant change of technologies related to the improvement of operations carried out with digital rights, as well as their own properties of digital rights. This industry is constantly developing, and therefore it is difficult to define a unified and consistent legal regulation of the turnover of digital rights.

Particularly interesting in relation to the control of the turnover of digital rights is the conclusion in the article by M.A. Egorova and A.V. Belitskaya ^[6] that the turnover of digital rights is an unregulated activity.

Foreign legislation has attempted to resolve a set of the listed problems related to the conduct of tax control on transactions with digital rights.

So, in France, various tax regimes apply to cryptocurrency miners and professional cryptocurrency traders (i.e., those whose usual professional activity is to buy or sell cryptocurrencies) ^[7].

Cryptocurrency (digital rights) miners are taxed differently, depending on whether their income exceeds or does not exceed 70,000 euros ^[8]. If their income for a calendar year is no more than 70,000 euros, they are taxed according to the income tax scale, but after reducing the tax base by 34%. For example, if a miner receives 50,000 euros in cryptocurrency (digital rights) for his mining activities, only 33,000 euros will be taken into account when calculating the income tax base after the restriction is applied ^{[9, 10]}. If the income of a cryptocurrency miner (digital rights) exceeds 70,000 euros, he no longer has the right to reduce the tax base. In addition, it is taxed not on the income tax scale, but on the corporate tax scale.

Professional traders in cryptocurrencies (digital rights), whose total income does not exceed 170,000 euros, can claim a fixed reduction in the tax base of 71% and are taxed in accordance with the French income tax scale for the remainder ^[11].

In the Manual of the Federal Ministry of Finance of Germany on taxation of income received from transactions with cryptocurrency (digital rights) ^[12], it is indicated that a tax-free minimum of 256 euros is established for the income of individuals. The tax authority of the German state of North Rhine-Westphalia has published a guide according to which a taxpayer has the right to reduce the tax base on the income of an individual by the amount of expenses incurred related to the mining of cryptocurrencies (digital rights) ^[13].

It follows from the analysis that foreign legislation within the framework of tax control has focused its attention on the subsequent control of digital rights transactions.

G.V. Arsenyeva and I.S. Khramova ^[14] point out that the use of standard tax control mechanisms in relation to the turnover of digital rights is impossible, which is explained by a number of reasons:

- relative anonymity of transactions with digital rights, in which it is impossible to identify all participants in the transactions, even when the transactions are mediated by transactions on the bank accounts of the participants in the transaction;

- the impossibility of conducting desk inspections related to the movement of funds on the accounts of individuals in credit institutions, since the law allows for desk tax inspections by the tax authority only in relation to entities engaged in entrepreneurial activity.

In a situation where the state does not have the technical ability to exercise current control over digital rights transactions, it is necessary to focus on institutions that can be controlled by the state.

To date, in fact, the identification of transactions with digital rights has been completely shifted to credit institutions through which taxpayers carry out settlements on transactions with digital rights. As part of the supervision of financial transactions of citizens, credit institutions are required to verify the validity of transactions of individuals, if the transaction exceeds 1,000,000.00 rubles or the totality of transactions carried out by an individual exceeds 1,000,000.00 rubles per month.

However, it should be noted that this approach is carried out by random sampling and does not allow systemically tracking most of the transactions with digital rights, given that persons conducting transactions with significant amounts conduct them through nominee account holders of credit institutions.

At the same time, we believe that this is the only effective measure to identify transactions related to digital rights.

There are no other effective ways to identify the transactions being carried out, since only in this case the purchase and sale of digital rights in terms of payment are carried out through independent persons - credit institutions.

At the same time, according to the statistics of the Federal Tax Service of Russia ^[15], after the introduction of the professional income tax, more than 5 million taxpayers were registered as self-employed, which indicates that the establishment of a preferential taxation regime for the self-employed provided an opportunity for a large number of self-employed to legalize their income.

Consequently, the system of tax benefits has no less impact than the system of tax control in a certain area, especially if the area cannot be fully controlled by the state.

The digital rights turnover market is unregulated, therefore, it is necessary to focus attention not on the tax control system, but on the possibilities of providing tax benefits to individuals who receive income from transactions with digital rights. Enabling individuals to legalize their income will allow, among other things, the development of the economy of the Russian Federation.

In conclusion, it is necessary to grant participants in the digital rights turnover market the right to use tax incentives to encourage the payment of taxes, in which it is more profitable for the taxpayer to pay taxes on income from transactions with digital rights than to evade taxes.