Legal Regulation of Taxation of Cryptocurrency Turnover: a Comparative Legal Study of the Tax and Legal Regulation of the Republic of Turkey and the Russian Federation

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 digital financial assets and utilitarian Digital Law (hereinafter referred to as the "CFA").

However, the CFA enshrines the regulatory concept of a token, a derivative instrument based on distributed ledger technology, but not a foreign currency. Consequently, there is no legal regulation of taxation of cryptocurrencies in the Russian Federation.

Based on the provisions of the Tax Code of the Russian Federation, persons involved in the turnover of cryptocurrencies have an obligation to pay tax when conducting transactions with cryptocurrency in any case.

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.

The Turkish government estimates that approximately 2.4 million people in Turkey owned at least some amount of cryptocurrencies in 2020 ^[3].

At the moment, there is no uniform and consistent legislation in Turkey in the field of legal regulation of cryptocurrencies. Nevertheless, in the official statements of the government on strengthening control and supervision over the turnover of cryptocurrencies in the country, it was pointed out, among other things, the need for legal regulation of taxation of income and profits received from operations with cryptocurrency. In the eleventh development plan for 2019-2023, the Government of Turkey pointed to the need to implement digital money of the central bank based on blockchain into the financial system of the state and support the formation of a secure ecosystem of financial technologies (fintech), which will provide equal opportunities for individuals and legal entities, taking into account international best practices ^[4].

Also, there is no taxation system in Turkey for profits and income arising from the acquisition, sale, exchange or other operations aimed at generating profit and/or income from cryptocurrency transactions. The main reason is that there is no official definition of cryptocurrency in the tax legislation, and based on the constitutional principle of the legality of taxation and the principle of the inadmissibility of arbitrary establishment of taxes, the possibility of taxation of profits and/or income received in the form of cryptocurrencies is completely excluded ^[5].

At the same time, the income and/or profit received by the taxpayer as a result of the sale of cryptocurrency, which was obtained as a result of one of the above operations, is subject to taxation at general rates.

The absence of a legal framework for the taxation of cryptocurrencies means that there is no law that is aimed at comprehensive legal regulation of taxation of special transactions conducted with cryptocurrencies, including in relation to mining, staking and hard fork.

At the same time, the issue of attributing cryptocurrencies to electronic money was definitely resolved after the adoption of Law No. 6493 on payment systems and electronic money in 2013 ^[6]. The definition of electronic money in this law coincides with the definition of electronic money in the Directive of the Council of the European Communities 2009/110/EC of 16.09.2009, in connection with which, the Agency for Banking Regulation and Supervision of Turkey in November 2013 published an explanation according to which cryptocurrencies do not fall under the definition of "electronic money" in Law No. 6493 and therefore, they cannot be regulated or controlled in accordance with this law ^{[7, 8]}.

Nevertheless, in the literature on tax law and accounting, this issue is considered in the light of the specific features of Turkish constitutional, tax and financial legislation. Thus, in the theory of tax law, there are four options that could be adopted in accordance with the current tax legislation (with minor amendments) to ensure the possibility of taxation of income received from the acquisition, exchange and other transactions with cryptocurrencies, in the absence of a special tax base for cryptocurrencies ^[9].

So, it is supposed to consider cryptocurrency as:

- foreign currency;

- product;

- securities;

- intangible rights.

The choice of each of these methods has different tax consequences, since they are subject to different tax regimes in accordance with the Tax Code of the Republic of Turkey (TPC) ^[10] and the relevant basic tax laws, such as the Income Tax Law (LIT) ^[11], the Corporate Tax Law (LCT) ^[12] and The Law on Value-Value Added Tax (LVAT) ^[13].

The prevailing opinion in the literature is that taxation of cryptocurrencies as a commodity is the most correct option, in accordance with current legislation ^[14].

Statements by government officials confirm this point of view; for example, the former director of the Turkish Tax Administration, Adnan Erturk, noted that the Capital Markets Council and the Central Bank of Turkey objected to classifying cryptocurrencies as securities or foreign currencies, and that, in his opinion, the most correct option is to define cryptocurrencies as a commodity ^[15].

Categorization as goods would require that the income received from the sale of cryptocurrencies be taxed as commercial income in accordance with the Income Tax Law if more than one sale is made during a calendar year. A one-time sale will be taxed as accidental income in accordance with the Income Tax Law and enjoy a tax benefit in the form of an income exemption of up to 40,000 Turkish liras. Legal entities that sell cryptocurrencies as their main activity will be subject to corporate tax in accordance with the Corporate Tax Law. In addition, categorization of goods will lead to the fact that all sales of cryptocurrencies occurring in Turkey will be subject to value added tax in accordance with the VAT Law, with the possible exception of sales by brokerage firms, provided that they are added to the list of exceptions in the VAT Law; then brokers will be taxed on bank accounts and insurance transactions in accordance with the Corporate Tax Law.

The New Economic Program (medium-term) of the Turkish Government for 2021-2023, which was published in September 2020, specifies as the main goal "preparatory work on taxation of transactions carried out using virtual assets of digital value and which can be bought and sold digitally."

In addition, a report on cryptocurrencies of the Department of Technology and Communications was published, which pointed to the need for control and supervision in the field of cryptocurrencies by the Capital Markets Council, the financial regulatory authority of Turkey, which should determine the classification of cryptocurrencies as commodities, securities or other alternative ways of determining cryptocurrencies.

The Republic of Turkey has no legal regulation of the turnover of cryptocurrencies and also does not have pronounced features of the tax and legal regulation of the turnover of cryptocurrencies and tokens, unlike the Russian Federation, where not only the Law on the CFA has been adopted, but also tax and legal regulation has been introduced in terms of the turnover of tokens.

At the same time, it is important to note that the Republic of Turkey has developed an approach to classifying cryptocurrencies as goods, which can be adopted in the Russian Federation. At the moment, there is no unified understanding of cryptocurrencies in the Russian Federation, since cryptocurrencies, among other things, can be classified as a means of payment, which contradicts current legislation.

Also relevant for the Russian Federation is the approach according to which only transactions with cryptocurrency are subject to taxation at the time of its implementation, and not during accrual, since these transactions cannot be controlled by tax authorities.