Tax regulation of transactions with crypto assets in Russia and abroad

Valova Anna Aleksandrovna ORCID: 0000-0003-2296-8824 Postgraduate student, Financial University 125057, Russia, Moscow, Leningradskii Prospekt, 49/2 valovs@yandex.ru Other publications by this author

1. Introduction

The trend of the last decade in the field of digital economy is the emergence of a new, previously non-existent crypto economy, operating in such categories as tokens, cryptocurrencies, blockchain, smart contracts, decentralized financial services. The speed of transaction processing, cost reduction, accessibility to the masses, the possibility of obtaining exorbitant profitability and performing transactions bypassing intermediaries contribute to the rapid growth of transactions with crypto assets around the world. According to experts from PricewaterhouseCoopers, by 2030, blockchain technologies will ensure the growth of the global economy by $1.7 trillion and by 2025 this technology will be used by most companies ^[1]. The most famous blockchain-based product is cryptocurrencies, the total market capitalization of which increased 4 times during 2021 and on some dates exceeded 3 trillion US dollars ^[2]. Currently, the leading cryptocurrency bitcoin ranks 16th in terms of market capitalization among all traded assets (including shares of public companies, precious metals), ahead of the market capitalization of palladium, platinum and companies such as Alibaba, Nestle, Samsung, Mastercard and many other global giants ^[3].

While the relative indicators of the volume of capitalization of crypto assets compared to global financial assets are low and are similar to 1% of the total market capitalization of the latter ^[4], the expansion of the use of crypto assets for various purposes – investment, capital preservation, risk hedging, settlements and transactions, including bypassing sanctions, use in prohibited and even criminal activity, combined with the international nature of transactions, the special properties of crypto assets and the increasing influence on the traditional financial system, is of increasing concern to regulatory authorities ^{[5, 6]}.

One of the main challenges for government agencies in the digital economy is the issues of tax regulation of transactions with crypto assets, including taxation and tax administration of transactions with such assets. Some countries are already regulating this area in various forms, including through amendments to national legislation, while other countries are still on the way to developing approaches to regulating transactions with crypto assets. At the same time, there is no unified approach to taxation and administration of transactions with crypto assets. The special characteristics of this type of assets make it difficult for state control in this area with the help of traditional regulatory instruments and generate risks of tax evasion. The importance of the tax consequences of transactions with digital assets, one of the types of which are crypto assets, has been repeatedly emphasized by the OECD, starting with the Report on Action 1 of the BEPS Plan 2015 ^{[7, p.143]}.  Russia is one of the states that joined the BEPS project and is actively implementing instruments aimed at combating tax evasion into national tax legislation. Special tax regulation of transactions with crypto assets in Russia has not yet been fully introduced and the relevance of this issue is confirmed both by the relevant draft laws with amendments to the Tax Code of the Russian Federation and by numerous requests from taxpayers to the Federal Tax Service of Russia, the Ministry of Finance of Russia on the regulation of taxation of transactions with this type of assets.

The purpose of the study is to update approaches to tax regulation of transactions with digital assets based on distributed registry technology, including cryptocurrencies in different countries. To achieve this goal, the following tasks were set: to identify the features of crypto assets that allow considering crypto assets as a specific category for tax regulation purposes, to formulate theoretical approaches to taxation of crypto assets, to investigate practical experience and trends in taxation of transactions with such digital assets both in the international arena and in the Russian Federation; to identify the main problems in tax regulation transactions with crypto assets and suggest ways to solve them.

The object of the study is public relations related to taxation and tax administration of transactions with digital assets based on distributed ledger technology, and primarily with digital currencies (cryptocurrencies). The subject of the study is the tax regulation of transactions with crypto assets in various jurisdictions, including in the Russian Federation.

2. Material and methods

The study used information and analytical materials and guidelines of international organizations, including the Organization for Economic Cooperation and Development (Organization for Economic Co-operation and Development - OECD), the Financial Stability Board (FSB), the Intergovernmental Commission on Financial Monitoring (Financial Action Task Force on Money Laundering — FATF), information from the Central Bank of the Russian Federation, the provisions of the current legislation of foreign states and the Russian Federation, data on existing legislative initiatives in the area under consideration, explanations of the Ministry of Finance of the Russian Federation and the Federal Tax Service provided in the ConsultantPlus legal reference system, the work of scientists and specialists on relevant topics. The processing of the obtained data was carried out using universal (analysis, generalization) and special-legal (comparative-legal, historical-legal) methods of cognition.

3. Crypto assets as a specific category for tax purposes

The rapid development of information technology has led to the emergence of a new specific type of digital assets that are widely used in transactions on the market of digital goods and services – crypto assets. There is no single generally accepted definition of this term, while in Russia, as some scientists note, the term "digital financial assets" is more often used ^[8].

The International Monetary Fund refers to crypto assets as digital assets that use cryptography to ensure security and are coins or tokens based on distributed ledger technology and/or blockchain, including asset-backed tokens ^[9]. The Bank of Russia defines a crypto asset as an asset that exists digitally or is a digital representation of the value of another asset and was created using distributed ledger technology ^[4].

In the Russian and foreign doctrine, there is also no unity in the definition of this concept. I.A. Astrakhantseva, for example, indicates that a crypto asset is a general term "to denote digital tokens that are issued and circulated in distributed registry systems" ^{[10, p.5]}. L.V. Sannikova, Yu.S. Kharitonova define crypto assets as "tokens and cryptocurrencies" ^[11].  Some foreign authors understand a crypto asset as a digital asset intended for use as a medium of exchange and a store of value, which usually uses distributed ledger technology (often called blockchain), which allows all participants to make transactions with each other without the need for a central coordinating organization (such as a bank or clearing house) ^[12].

It should be noted that in addition to the presence of various definitions of the concept of "crypto assets", there are approaches about the lack of an opportunity in the exact formulation of this term due to the rapid development of technologies and a wide variety of assets presented ^[13].

We believe that it is expedient to establish a unified generalizing terminology in this area and without reducing the definition to detailed technical descriptions that take into account the variety of types of crypto assets, we propose to use the concept of "crypto assets" as a universal term for digital assets based on cryptography (using encryption methods) and Distributed Ledger Technology (DLT), in particular, on the "blockchain" technology.

For the purposes of systematization of approaches to the tax regulation of crypto assets, it seems important to divide them into certain categories, united by any criteria on which taxation and administration of transactions with this type of assets may depend. There are various classifications of crypto assets, while taking into account the fact that there is no established terminology regarding the names of certain types of crypto assets (for example, the terms "digital currency", "virtual currency", "digital asset", "coin", "payment token" can be used in relation to cryptocurrencies), the authors of these classifications they can give different meanings to the same terms, names of crypto assets.

For example, I.G. Knyazeva, A.V. Nikitin divide crypto assets into cryptocurrencies (digital currency), tokens (digital assets that investors receive from the company in exchange for investments) and SMART contracts - self–regulating algorithms designed to automate the process of executing contracts operating in the blockchain system ^[14]. L.A. Novoselova identifies software tokens, payment tokens (virtual currency), credit tokens, investment tokens and tokens securing rights to other objects among the virtual units operated by the blockchain ^[15].

The Bank of Russia distinguishes digital currencies (stablecoins and unsecured cryptocurrencies) and tokenized assets (digital financial assets and utilitarian digital rights) among crypto assets ^[4]. 

The author of the article suggests using the classification of crypto assets depending on their economic function and conditionally dividing all crypto assets into payment tokens (cryptocurrencies), investment (financial) tokens and utility (utility) tokens. This classification is found in foreign doctrine, in particular, such authors as P. Chatterjee ^[16], V. Ferrary ^[17], P.Hacker and C. Thomale ^[18] rely on this classification. A similar approach is followed by the Organization for Economic Cooperation and Development (OECD) ^[19] and certain jurisdictions (for example, Switzerland ^[20]). In the Russian doctrine, this classification is addressed, in particular, by I.A. Astrakhantseva, R.G. Astrakhantsev ^[10], K.B. Razdorozhny ^[21]).

Cryptocurrencies (payment tokens) are designed to be used similarly to traditional fiat currencies, that is, they can be used as a means of exchange for goods, works, services (for example, bitcoin, Ethereum, Dogecoin). Investment or financial tokens are designed as tradable assets and are intended for investment purposes, they are similar to securities and guarantee a share of the income of the issuing company (for example, DAO, Spice, tZERO, BCAP). Utility tokens provide the owner with access to a certain service, can be considered as a certificate for a product or service, even when they are not yet available (for example, Storj, Filecoin).

The above classification is very conditional, which is primarily due to the constant development of digital technologies and the possibility of the emergence of new, difficult to classify types of crypto assets. In such cases, the author of the article agrees with V. Ferrari that an individual approach to determining the status of a crypto asset should be maintained and it is necessary to be guided by the concept of the priority of "substance over form", considering the actual functions of the token in specific circumstances and time ^[17].

Confirmation of the constant appearance of new types of tokens can be, for example, one of the main trends of 2020-2021 in the blockchain – NFT tokens (Non Fungible Token) – non-interchangeable tokens that appeared as a result of the technology of the same name implemented on the basis of Ethereum smart contracts in 2017. The NFT market is constantly increasing, in particular, the volume of sales of this type of tokens in 2021 increased 220 times and reached $ 22 billion ^[22].  According to experts ^[23], the appearance of this type of tokens has changed the crypto paradigm, since each such token is unique and not interchangeable (before that, tokens were interchangeable, equivalent to each other), thus it is impossible for one NFT to be equal to another.

In fact, an NFT token is a digital certificate for a unique object, for example, for a work of art in a single copy, an item in a computer game, or even for real estate. Like Bitcoin, NFT contains data about its owner in order to facilitate identification and transfer between holders.

Under certain circumstances, it can be said that NFTs can act as utility (utility) tokens ^{[24, 25]}. In other circumstances, NFTs may be treated as securities and referred to as investment tokens. Thus, the US Securities and Exchange Commission, which is the main regulator of the US financial market, has already drawn attention to transactions with NFT and made a number of statements that these crypto assets (especially "fractional" NFTs, which allow the sale of parts of NFT and make ownership of them more accessible) may be subject to securities legislation securities in the United States, while the way such assets are sold (whether money is supposed to be invested, whether it is expected to benefit from the transaction, entrepreneurial activity) may indicate the investment nature of the transaction ^[26]. 

The above analysis of the concepts and varieties of crypto assets shows that crypto assets can have different economic purposes and act in transactions as a means of payment, a means of exchange, a commodity, an investment asset, a digital certificate for access to a product or service. Accordingly, it is advisable to separate approaches to taxation depending on the type of crypto asset, while it is necessary to take into account the fact that crypto assets can have hybrid characteristics and be issued, for example, as one type of crypto asset, and used as another type).

In general, it can be noted that it is the special properties of crypto assets, the features inherent in this category of assets, that create difficulties for tax regulation and distinguish them into a specific category. Among such characteristic features that may affect the tax consequences of transactions with this type of assets, one can distinguish:

- the existence of crypto assets in intangible, digital form;

- based on cryptography methods and distributed registry technology, in particular on blockchain technology;

- hybrid nature, which allows, depending on their purpose, the circumstances of transactions, to be used for investment purposes, as a means of payment or as a right of access to any product, service or certification of any significant facts.

The peculiarities of transactions in the blockchain imply, in addition, a high degree of anonymity of transactions, the absence of bank intermediaries, the international nature of transactions without reference to the territory of any state, which creates problems in the implementation of tax administration of transactions with this type of assets.

4. Basic approaches to taxation of transactions with crypto assets

An important issue for determining the appropriate tax regulation of transactions with crypto assets is the determination of their legal status. However, in the answer to this question, there is no consensus among the tax administrations of different countries. The difficulty of determining the appropriate regime for such assets is related both to the rapid development of technologies, evolution and the emergence of new types of crypto assets, and to the very properties of such assets (decentralization, hybridity, the ability to act as different types of crypto assets, depending on the purposes of use). Despite the different approaches to determining the legal status, in general, in most jurisdictions, crypto assets are considered as a form of ownership.

Legislative guidelines regarding the regulation of various types of crypto assets have mostly not been adopted, which accordingly entails the absence of tax guidelines. However, this fact in general does not mean that states are ready to refuse taxation when performing transactions with crypto assets only on the grounds that there are no detailed tax rules specifically for such assets, since taxation can be carried out on the basis of general provisions of tax legislation, depending on the nature of the transaction ^[27].

It should be noted that the regulation of all the above three types of crypto assets is currently at the initial stage of its development. A relatively small number of jurisdictions have issued comprehensive guidelines that take into account the classification of tokens. An example of such a jurisdiction is, in particular, Singapore, whose tax administration published in April 2020 a guide on the taxation of digital tokens, in which the taxation procedure depends on the type of tokens and the rights they grant ^[28].

In general, there is an approach abroad that the turnover of investment tokens should be regulated by financial legislation, in particular, securities legislation, and utilitarian tokens should be regulated by consumer legislation ^{[29, p.35]}.

Accordingly, for accounting and taxation purposes, investment tokens that grant the owner the right to cash or other financial asset are positioned as financial assets and are subject to taxation according to the rules provided for traditional investment instruments. Utilitarian tokens, which represent the right to receive current or future goods and services, are usually considered as an advance payment for these goods and services, therefore transactions with them are most often not taxed at all ^[30]. In the few tax manuals regulating transactions with utilitarian tokens, there may be conditions for postponing the recognition of income received as a result of the issuance of utilitarian tokens and their placement during the ICO until the actual provision of services or the provision of goods, as, for example, in the tax circular of the State of Israel concerning the consequences of digital tokens issued for the provision of services or products under development ^[31].

The tax regulation of transactions with payment tokens (cryptocurrencies) is more differentiated by country, which, among other things, depends on the different legal qualifications of these digital assets in a particular jurisdiction, the specifics of the country's tax legislation and different approaches to the occurrence of tax events that can generate cryptocurrencies at various stages of their "life cycle", starting from receipt, including as a result of mining, before their disposal. These circumstances, together with the materiality of the turnover indicators of cryptocurrencies due to their global use by individuals and legal entities around the world, primarily for the purpose of generating income, predetermine the need for a more detailed consideration of the issues of tax regulation of transactions with cryptocurrencies and the problems that arise in this case.

5. Tax regulation of transactions with cryptocurrencies

Payment tokens (cryptocurrency, virtual currency, digital currency) are the first to create and the most common type of crypto assets (currently there are more than 17,000 different cryptocurrencies ^[32]), granting the owner the digital right to use them as a unit of account for the purchase of goods, works or services. The term "payment tokens" also includes later forms of their development, backed by real assets (for example, fiat currencies or securities), which are a more stable form of cryptocurrencies and are therefore called "stablecoins". In addition, payment tokens also include another relatively recent form – the "digital currency of the central bank", which is supported by government agencies and is considered as a digital form of the national currency. Currently, a number of countries are actively researching the need to introduce this form of currency (China, Sweden, USA, Canada, Great Britain, South Korea, Norway, etc.) ^[33]. 

The undisputed leader in terms of market capitalization, occupying about 41% of the volume among all cryptocurrencies, is currently the most popular cryptocurrency bitcoin. Data on the market capitalization of the ten leading cryptocurrencies in the world are shown in Table 1. 

Table 1 - Leading cryptocurrencies by capitalization ^[34]

In many countries, cryptocurrencies (virtual currencies) are considered "legal" because their purchase and sale are not prohibited, as well as their use for the purchase of goods and services is not prohibited. However, some jurisdictions have taken the path of both a complete and partial ban on virtual currencies. A general ban on the use of virtual currencies and/or any transactions related to virtual currencies has been introduced in Bangladesh, Bolivia, Iraq, Morocco, Nepal, Northern Macedonia, Lesotho, Saudi Arabia. Some jurisdictions, including Algeria, explicitly state that the possession of virtual currencies is illegal ^[35].

There are jurisdictions that have banned the use of virtual currencies as a means of payment, that is, the purchase of goods and services using virtual currencies is prohibited. Jurisdictions with such bans include, in particular, Ecuador ^[36] and Indonesia ^[37].

Among the tax events that lead to the need to pay taxes when making transactions with cryptocurrencies, it is necessary to highlight the receipt of cryptocurrencies, including as a result of mining, free distribution (airdrop), hard branching in the network due to a change in the protocol of the blockchain project (hard fork), as well as the disposal of cryptocurrencies as a result of exchange for other cryptocurrencies, goods, services or fiat currencies, or unilateral disposal as a result of loss, donation.

The first tax event in the life cycle of cryptocurrencies is mainly considered to be cryptocurrency mining (Andorra, Finland, Japan, New Zealand, USA, UK) ^{[38, p.24]}. That is, the value of the received unit of virtual currency is included in the taxable income upon receipt of the token, income tax is applied at the usual rate within this category of income or at the rates of personal or corporate income tax. Expenses related to the receipt of this income are deductible.

In some jurisdictions, the receipt of a new unit of virtual currency is not considered a taxable event and only disposal is considered as such (Czech Republic, France, Poland). In this case, the total value of the virtual currency at the date of its disposal is included in taxable income, in many cases minus the costs incurred to acquire the asset. These deductions usually also include the computational costs of mining.

There are also jurisdictions in which the taxation procedure differs depending on whether mining takes place for personal or commercial purposes (Australia, Canada, Germany, the Netherlands).

Tax issues when receiving cryptocurrencies as a result of free distribution (airdrops) are settled only in a small number of jurisdictions, including because such tokens are usually distributed in minimal quantities and have a small market value, since their main purpose is to raise awareness about a new project. In the UK, for example, if tokens are received without the need to perform any actions in return and are not received as part of business activities related to crypto assets or mining, when receiving such tokens, income does not need to be declared. The market value of the received crypto assets is considered to be the cost of acquisition and the crypto assets will be subject to capital gains tax upon their disposal ^[39]. In the USA, new coins received through airdrops are taxed as ordinary income based on their market value, while if the tokens are not listed on the stock exchange and have no market price, the income from receiving them is not taxed ^[40]. 

As in the case of the distribution of cryptocurrencies, the receipt of new coins as a result of a hard fork (the division of a single blockchain into two due to a significant change in the rules of its protocol) remains largely unregulated ^[41]. As a result of the hard fork, a new chain of blocks appears and all holders of cryptocurrencies in the old chain receive "free" cryptocurrencies. Whether it is a tax event to receive new cryptocurrencies during a hard fork, the moment of income, confirmation of the amount of such income upon receipt of coins and their disposal, answers to these questions have yet to be given in most jurisdictions.

The disposal of virtual currency usually leads to a taxable event. Disposal can occur in exchange for remuneration – for example, through exchange for a fiat currency, another virtual currency, a digital asset, a product, a service, or in a situation without mutual exchange of values, or without the participation of the parties, for example, through donation, inheritance, loss or theft.

Usually, an exchange between virtual and fiat currencies is considered a taxable event. In a number of countries, a distinction is made between exchanges carried out by individuals and exchanges carried out in the course of business activities. Individuals or companies involved in occasional income-generating activities related to cryptocurrencies for personal purposes are subject to capital gains tax, which means that benefits and reduced rates can be applied to capital gains.

Virtual currencies can also be exchanged to pay for goods or services, or wages. These transactions are mainly treated as barter transactions for tax purposes. The disposal of a token to pay for goods and services usually entails a taxable event for the owner of the virtual currency. As for the recipient of virtual currency as payment for goods, services or wages, receiving virtual currency does not change the basic tax regime that would apply if the purchase was made in fiat currency.

Taxation issues when virtual currencies are disposed of in the absence of a counter-provision (donation, inheritance, embezzlement) are rarely considered specifically in the tax manuals of foreign jurisdictions.

In cases where a virtual currency is donated, different regulatory options are possible. Firstly, a donation can be considered as an outflow for tax purposes for the donor and may result in a taxable event, although there may be exceptions for donations to registered charities (UK) ^[42]. Secondly, the gift may not lead to tax consequences for either party. An example of the second approach can be the United States, where a gift worth less than $ 15,000 does not entail tax obligations for either the donor or the donee ^{[43, p.25]}.

In terms of value added tax in the EU countries since 2015, a common understanding has been reached that transactions with cryptocurrency are not subject to VAT (both mining and exchange). This is due to the fact that in October 2015 the European Court of Justice ruled in the case of Skatteverket v Hedqvist ^[44] that virtual currency exchange services for fiat currencies and vice versa are not subject to VAT. The European Court of Justice has ruled that virtual currencies are comparable to fiat currencies in the sense that their sole purpose is to ensure exchange. Therefore, the court ruled that transactions, including the exchange of fiat currency for virtual currency and vice versa, are VAT-exempt transactions. A similar approach is used in many jurisdictions outside the EU.

Property tax regulation in terms of cryptocurrencies is carried out in a small number of countries that have issued guidelines on the application of inheritance, gift, wealth and similar taxes to these assets. In particular, in the UK, virtual currencies are treated as property for the purposes of inheritance tax law, so they will be counted in the total value of the property, which will be taxed if it exceeds 325,000 pounds ^[42]. In Finland, virtual currencies inherited are taxed at the cost of their acquisition. Subsequent income from disposal is also subject to capital gains tax ^[45].

6. Problems of tax regulation of transactions with cryptocurrencies and ways to solve them

The widespread use of cryptocurrencies, the special properties of this type of crypto assets create unique problems for tax regulation of transactions with them.

First of all, just as there is no unified understanding of what crypto assets are, there is no unified approach to determining the legal status of cryptocurrencies, which affects different rules of their tax regulation. Cryptocurrencies can be considered in different countries as an intangible asset, commodity, property, currency, financial asset, private money, etc. The attribution of cryptocurrencies to a particular type of asset entails the application of appropriate taxation rules.

The absence of relevant legislation, including special changes in tax legislation regarding transactions with cryptocurrencies, does not entail the absence of taxation, but creates difficulties in determining tax events for various types of transactions with cryptocurrencies. Questions that arise not only from taxpayers, but also from tax authorities:

- does and at what point does taxable income arise during mining, when receiving coins as a result of distribution (airdrops) or hard fork of the network (hardfork), how to confirm the value of new coins and evaluate them, including in the absence of official rates for new coins not traded on cryptocurrency exchanges?

- should the exchange of some cryptocurrencies for other digital assets, fiat currencies or goods be considered an event entailing tax obligations for participants in cryptocurrency transactions?

- what types of direct taxes (on income, capital gains, property taxes) should be applied to income from transactions with cryptocurrencies and storage of cryptocurrencies?

- should transactions with cryptocurrencies be subject to VAT and how to calculate the tax base in case of taxation? 

A number of scientists, analyzing the issues of regulating transactions with cryptocurrencies, agree that special difficulties in this area are associated with the difficulty of identifying transactions with cryptocurrencies, determining the recipient of income due to the decentralization of these assets, a high degree of anonymity of transactions, the absence of bank intermediaries in settlements, the international nature of the use and non-compliance of transactions with crypto assets under existing rules and standards for the exchange of information, including at the interstate level.  A.V. Tikhonova, in particular, draws attention to the problem of distortions caused by the lack of interrelation between the financial activities of taxpayers in the cryptosphere and tax control ^[46]. M.R. Pinskaya, K.N. Tsagan-Mandzhieva note the risks of blurring the tax base in the field of cryptocurrency transactions due to "the lack of binding of the blockchain platform to the geographical boundaries of a particular the state", "the lack of the need for economic agents to delegate part of their powers to the state as an institution of power", as well as independence from financial intermediaries – banks, from which information about the movement of capital is usually received by the tax authorities ^[47].

At the same time, the author of the article agrees, in particular, with I.D. Fialkovskaya, who, on the one hand, focuses on the problem of tax evasion in this area, noting that analogues of offshore companies arise in the cryptocurrency environment and a stable approach to legislation, control and cooperation is needed, while, on the other hand, there is a danger the fact that this area may become overly regulated, which may hinder the digital development of individual jurisdictions (and, accordingly, reduce tax revenues) due to the outflow of investors to other more loyal jurisdictions ^[48].

The solution of these problems, according to the author, boils down to activities in several areas. The legislative definition of the legal status of cryptocurrencies at the level of a separate jurisdiction will contribute to a more accurate understanding of their tax obligations by participants in cryptocurrency transactions, will allow them to fully use the tax rules established for a certain category of assets, including the application of appropriate preferential provisions.

Determining the moment of occurrence and the procedure for taxation of income generated as a result of transactions with cryptocurrencies, including mining, free distribution, hard fork, disposal as a result of exchange for other digital assets, fiat currencies or in the case of unilateral disposal, the establishment of clear rules for assessing the income received will lead to an increase in self-declaration of income by bona fide taxpayers, an increase in tax revenues to the budget, as well as reduce the risks of disputes with tax authorities due to the possible different interpretation of the tax obligations of the parties to cryptocurrency transactions.

A point adjustment of the norms of tax legislation aimed at establishing preferences in the cryptocurrency sphere, for example, establishing the absence of the need to impose VAT on transactions with cryptocurrencies, the introduction of reduced income tax rates or, in general, exemption from taxation (as proposed, in particular, by D.A. Kochergin ^[49], M.R. Pinskaya and K.N. Tsagan-Mandzhieva ^[47]), depending on the terms of ownership, the category of taxpayer, the sum threshold, will, on the one hand, preserve the investment attractiveness of work in a separate jurisdiction, on the other hand, reduce the costs of administration, identifying the income of small investors, while ensuring the receipt of tax payments to the budget due to the absence of the need to commit shadow operations in this area due to easy regulation.

A critically important area of work in the field of improving the tax regulation of transactions with cryptocurrencies is to increase the transparency of transactions with this type of assets, since without the possibility of verifying declared income, the probability of their reliable declaration is low. The implementation of this task will be facilitated by the introduction of special requirements for participants in the crypto asset market (for example, qualification requirements), financial intermediaries (the obligation to exchange information, tax agency, the need to comply with anti-money laundering procedures for the purpose of identifying participants in transactions).

In addition, unilateral measures applied within individual states alone are not enough, in this regard, the author certainly agrees with A.V. Tikhonova ^[46], M.R. Pinskaya ^[47] on the need to expand international cooperation in the field of information exchange in relation to transactions with virtual currencies and the creation of appropriate information exchange channels. An important step in this direction is the work of the OECD on a standard in the field of turnover of crypto assets, similar to that used in the traditional economy to combat tax evasion ^[50], the implementation of which in the national legislation of individual jurisdictions will significantly strengthen the contribution to the international fight against tax evasion in the cryptosphere.

7. Tax regulation of transactions with Crypto assets in the Russian Federation

The development of regulation of digital assets, including the taxation of their turnover, is one of the priorities of the implementation of state policy in Russia. Within the framework of the national project "National Program "Digital Economy of the Russian Federation" ^[51], the deadlines for the implementation of regulatory regulation of the digital environment from 01.11.2018 to 31.12.2024 have been established, according to which there is a consistent adoption of legal acts regulating relations related to digital assets.

In 2019, amendments were adopted to the Civil Code of the Russian Federation, which introduced into civil circulation the construction of "digital rights" (Article 141.1 of the Civil Code of the Russian Federation), which are understood as "binding and other rights, the content and conditions of which are determined in accordance with the rules of the information system that meets the criteria established by law." As experts point out, the adoption of these amendments essentially means the regulation of tokens, which is certainly broader than such a category as cryptocurrencies ^[52]. This was followed by the adoption of the law on crowdfunding (Federal Law No. 259-FZ dated 02.08.2019 "On Attracting Investments using Investment Platforms and on Amendments to Certain Legislative Acts of the Russian Federation"), which entered into force on January 1, 2020. This law introduced the regulation of utilitarian digital rights (digital rights on demand for the transfer of a thing, exclusive rights to the results of intellectual activity, performance of works or provision of services), which are essentially property rights.

On January 1, 2021, Federal Law No. 259-FZ of 31.07.2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation" (hereinafter referred to as the Law on the Central Federal District) came into force. Within the framework of this law, definitions of digital financial assets and digital currency were given, and the specifics of regulating their issuance and turnover were established. The appearance of the law on the Central Federal District in Russia was designed to regulate the capital raising market using new technologies, as well as to determine the legal status of the placed instruments and the requirements for the infrastructure where their placement and turnover takes place. Depending on the rights that digital financial assets grant to their owner, they may be close in essence to existing financial market instruments, for example, stocks, bonds, derivative financial instruments. The regulator in this area is the Bank of Russia, which controls the infrastructure for the issuance and exchange of digital financial assets, includes legal entities that meet regulatory requirements in the register of information system operators in which digital financial assets are issued.

With regard to the development of the digital financial assets market in Russia, experts are positive and note that these instruments have great potential, since at present, in the conditions of external sanctions, when the traditional financial market has been seriously tested, the issues of attracting financing with reduced costs for business (digital financial assets can solve this problem) they come to the fore ^[53].

In order to ensure more efficient functioning of these instruments, to increase the competitiveness of digital rights in Russia, in development of the provisions of the law on digital financial assets, the President of the Russian Federation signed the law on taxation of transactions with digital financial assets on 14.07.2022 ^[54]. This document amends the Tax Code of the Russian Federation in terms of exemption from VAT on the issue of financial assets, services of information system operators, exchange operators, as well as services to ensure user access to these information systems. When selling digital assets, the VAT tax base will be the difference between the sale price of such an asset and the purchase price.

The profit or loss from transactions with the assets in question will be determined collectively with transactions with non-negotiable securities and non-negotiable derivative financial instruments and separately from the general tax base. A reduced income tax rate of 13 percent will be applied to certain types of income of Russian organizations that own digital financial assets, and a rate of 15 percent for similar income of foreign organizations. Calculation and payment of personal income tax will be carried out by tax agents, which may include operators of information systems or exchanges.

Thus, with regard to the turnover of digital financial assets, the issue of their taxation is regulated at the legislative level. The situation with the turnover of cryptocurrencies (digital currency in more common terminology in Russia) seems to be more complicated. 

Discussions about the legalization of cryptocurrencies have been going on in Russia for the past five years, the digital currency is not officially banned. At the same time, the law on the Central Federal District, in addition to introducing the definition of digital currency, also prohibited the acceptance of digital currency as payment for goods, works and services. There is a norm that the claims of these persons related to the possession of digital currency are subject to judicial protection only if they are informed about the facts of possession of digital currency and the commission of civil transactions and (or) transactions with digital currency in accordance with the procedure established by the tax legislation of the Russian Federation. The Bank of Russia has repeatedly expressed its position on the need to restrict the circulation of this asset on the territory of Russia, including the prohibition of mining cryptocurrencies due to the negative impact of these crypto assets on inflation rates, their use in illegal activities and high risks of loss of welfare of citizens ^[4]. Both representatives of the business community and some government agencies criticize this position. In particular, the Ministry of Economic Development, the Ministry of Finance of Russia, and many statesmen consider it necessary to legalize cryptocurrencies by introducing their regulation, since it is impossible to ban this phenomenon. According to research by the University of Cambridge, Russia is on the 3rd place in the world in terms of cryptocurrency mining ^[55]. In February 2022, the relevant draft law "On Digital Currency" was submitted by the Ministry of Finance of Russia to the Government of the Russian Federation ^[56], in May 2022, the draft law "On Mining in the Russian Federation" was submitted to the State Duma and is scheduled for consideration in the autumn session of 2022 ^[57]. We believe that the regulation of this area, including the legislative definition of mining, regulation of the procedure for payment of digital currency, the establishment of requirements for participants in cryptocurrency transactions, digital currency exchange operators will increase the transparency of transactions and, accordingly, will increase tax collection rates.

Currently, the crypto market in Russia is estimated at 16.5 billion rubles (an indicator comparable in volume to the amount of all deposits of Russian citizens in bank accounts), 12% of the country's population has crypto wallets, and the potential for additional tax revenues to the budget due to the legislative regulation of the turnover of cryptocurrencies is estimated at about 1 trillion rubles. ^[58].

An example of the continuation of the state's plans to strengthen tax control of cryptocurrency transactions is the introduction on December 1, 2020 by the Government of the Russian Federation for consideration in the State Duma of draft amendments to the Tax Code of the Russian Federation related to digital currency ^[59]. Currently, as of 07/16/2022, the bill was adopted in the first reading and is being finalized taking into account comments from relevant committees, the legal department for consideration in the second reading.

The changes proposed by the bill relate to two directions. Firstly, substantive changes are being introduced directly in terms of taxation of transactions with cryptocurrencies. Digital currency is recognized as property that is not subject to depreciation, transactions with such currency should not be subject to VAT. Secondly, the changes relate to the order of administration of transactions with cryptocurrencies. Owners of cryptocurrencies will be required to report annually to the tax authorities on the availability of cryptocurrencies, their turnover and balance, if the amount of receipts or write-offs of digital currency for the year amounted to more than 600 thousand rubles. Substantial fines are imposed for violations of tax obligations: 10% for failure to report on the amount of receipts or write-offs of digital currency; 40% of the amount of unpaid tax when making settlements using digital currency.

Despite the fact that the bill does not reflect such controversial issues as the taxation of income when receiving cryptocurrencies as a result of mining, the date of recognition of such income, the settlement of the issue of the legal status of cryptocurrencies should be noted as a positive moment. The consolidation of the legal status of cryptocurrencies as property for tax purposes will allow to settle controversial issues of the application of exemption from personal income tax of income from the sale of cryptocurrencies that have been owned for more than three years, based on the provisions of Clause 17.1 of Article 217 of the Tax Code of the Russian Federation, as well as to use the property tax deduction provided for in clause 1 of Clause 1 of Article 220 of the Tax Code of the Russian Federation.

Currently, in response to numerous requests from taxpayers (the ConsultantPlus legal reference system contains more than 30 requests) on the procedure for income tax, personal income tax on income from cryptocurrencies, the Ministry of Finance of the Russian Federation clarifies that since the legal status of cryptocurrencies in Russia is not defined, income received from transactions with cryptocurrencies should be taxed taxes in the general order. At the same time, in terms of personal income tax taxation, since cryptocurrency is not classified as property for tax purposes, individuals do not have the right to property deduction until the introduction of special regulation (for example, Letters of the Ministry of Finance of the Russian Federation dated 04.09.2018 No. 03-04-05/63144, dated 08.11.2018 No. 03-04-07/80764, dated 26.09.2019 No. 03-04-05/74126).

8. Conclusions

Analysis of approaches to the regulation of transactions with crypto assets in various jurisdictions, reports of international organizations in this area shows that, firstly, the expansion of the crypto industry as a specific branch of the digital economy, its growing influence on traditional financial markets and the largely shadow nature of transactions causes concern of state regulators regarding the tax consequences of transactions with crypto assets.

Secondly, crypto assets are a specific category for taxation and tax administration purposes due to the presence of unique characteristics, including decentralization, a high degree of anonymity, the ability to act as different types of crypto assets depending on the purposes of use, which, together with the international nature of use and the elimination of bank intermediaries, complicates tax regulation of transactions with this type of assets, creates a number of problems that are not typical when performing operations with traditional instruments and requires additional adjustment of tax legislation;

Thirdly, there is no single definition of the concept of "crypto assets" and a generally accepted classification, in general, digital assets based on distributed registry technology and cryptography methods should be understood as such. Depending on the purpose of use for the purposes of tax regulation, it is possible to conditionally divide crypto assets into payment tokens (cryptocurrencies), investment tokens and utility tokens. 

Fourth, the legislation on financial instruments and securities with the appropriate taxation regime is applicable to investment tokens. The purchase of utility tokens can be considered as a prepayment for future goods or services, therefore, the placement of these tokens often does not cause tax consequences until the moment of sale of the goods or services.

Fifth, approaches to direct taxation of transactions with cryptocurrencies at different stages of their turnover are differentiated in different jurisdictions, the understanding of indirect taxation issues is more uniform and mainly consists in the absence of the need for VAT.

Sixth, the absence of special rules for tax regulation of transactions with crypto assets does not mean that taxation is impossible. Transactions are usually taxed in accordance with the norms of legislation regulating the taxation of similar assets, however, they give rise to many private issues related to the specifics of the turnover of crypto assets, may lead to a different understanding by tax authorities and transaction participants of the tax consequences of such transactions, understatement of taxes to the budget.

Seventh, point adjustments of tax legislation in terms of securing the legal status of crypto assets for tax purposes, the formation of the tax base and the moment of recognition of income when performing certain transactions with crypto assets, the exemption of transactions from VAT by analogy with the rules for financial instruments, will increase the investment attractiveness of certain types of crypto assets and will contribute to the further development of the digitalization of the economy and the receipt of benefits from the use of advanced information technologies.

Eighth, a critically important issue in the field of improving tax regulation of transactions with crypto assets is to increase the transparency of transactions, which is achieved by introducing special requirements for participants in the crypto asset market (registers of participants, qualification requirements), financial intermediaries (obligation to exchange information, tax agency), the need to comply with anti-laundering legislation procedures for the purpose of identifying participants in transactions, introduction of specialized reporting provided to the tax authorities. In the case of transactions without the participation of any intermediaries, it is important not to use the "whip method" (introducing, for example, criminal penalties for actions that are difficult to control), but the "carrot" method, stimulating the independent declaration by citizens of income from transactions with crypto assets (for example, introducing reduced tax rates, simplifying the reporting procedure, providing legal protection to persons who have officially declared cryptocurrencies). These measures will contribute to improving the tax administration of the crypto industry, which should lead to an increase in tax collection and a reduction in the shadow sector of the economy.

In general, it should be noted that, given the international nature of transactions with crypto assets, unilateral measures taken within individual jurisdictions in the field of tax regulation of these transactions should be strengthened by increasing international cooperation and synchronizing the actions of states to identify transactions with crypto assets and exchange information about such transactions. By the end of 2022, the OECD plans to complete work on a standard in the field of turnover of crypto assets, similar to that used in the traditional economy to combat tax evasion. After the release of the relevant document by the OECD, the international fight against tax evasion in the cryptosphere will receive a new impetus, and it will be advisable to implement a number of provisions of the new standard into the national legislation of individual jurisdictions.