Legal regulation of taxation of income of individuals on transactions with digital financial assets

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.

In terms of the legal regulation of taxation of personal income, as mentioned above, the relevant federal law has been adopted. At the same time, the law does not determine unambiguously whether the legal concept of a digital financial asset and the generally accepted concept of a token coincide.

The law identifies a certain list of features that define the concept of digital law:

- type of digital law;

- may consolidate: a monetary claim or certain rights on securities provided for by the decision to issue digital financial assets;

- the issuance, accounting, circulation of digital financial assets is possible in an information system based on a distributed registry system or in another information system.

The discrepancy between the concepts established by the legislator and the concepts used directly by the participants of the relevant market is a characteristic feature of the legal regulation of the cryptocurrency market of the Russian Federation.

Based on the enumeration of the above features, it can be assumed that the legislation uses the definition of "distributed registry system" instead of the generally accepted concept of "blockchain". Similarly, it can be assumed that in the CFA Law, the legislator intended to use the concept of a token, the concept of a digital financial asset instead.

It should be noted that a characteristic feature of the token that distinguishes it from cryptocurrencies is the possibility of centralized issuance. It is this feature in the definition of digital financial assets issued in an information system based on a distributed ledger system ("blockchain") that gives reason to believe that the legislator intended to introduce exactly the definition of a token.

At the same time, it is important to note that there are alternative views of legal scholars on the qualification of digital financial assets, so K.B. Razdorozhny ^[3] makes an unambiguous conclusion that a digital financial asset enshrines the concept of cryptocurrency in legislation.

Among the scientists who qualify a token as a digital financial asset, it should be noted M.Y. Kuzmenkova ^[4] notes that a digital financial asset is exactly a token and distinguishes several subspecies: a payment token, a utility token and asset tokens.

A similar position is held by A.V. Shamraev ^[5], who points out that the introduction of the concept of a digital financial asset made it possible to consolidate all the known features of the token and brought it out of the legal vacuum.

Since the second half of 2022, the process of issuing CFA has begun in the Russian Federation, in particular, Sberbank Group of companies has started issuing CFA, and using the example of the first decisions, it is possible to determine the procedure for implementing the provisions of the CFA Law.

Thus, the Sberbank Group has defined the rules of the information system ^[6], within which the CFA issue is carried out, as well as the first decisions on the CFA issue have been published ^{[7, 8, 9, 10, 11, 12]}.

At the same time, from the published decisions on the release of the CFA, published on the website of the operator of the information system in which the release of the CFA is carried out, it follows that the decisions fully comply with the requirements of the CFA Law.

In this case, the question arises, is full compliance with the requirements of the CFA Law a necessary feature of the CFA, which distinguishes CFA from tokens?

For example, there are tokens issued by non-residents of the Russian Federation, for example, one of the most popular tokens ^[13]:

- USDT;

- Bitcoin BTC;

- EthereumETH;

- Shiba InuSHIB, etc.

The listed tokens were issued in accordance with foreign legislation and do not fully comply with the requirements of the CFA Law.

In particular, decisions on the issue of tokens that comply with the requirements of the CFA Law have not been published and information about the CFA issuer has not been disclosed to the appropriate extent.

This discrepancy leads to the question of whether the norms of Article 214.11 of the Tax Code of the Russian Federation apply to the income of individuals received from the sale of tokens or not.

In accordance with the norms of Article 214.11 of the Tax Code of the Russian Federation, personal income tax is calculated based on the financial result, which means income from transactions with CFA, minus expenses on transactions with CFA.

At the same time, as a general rule, the personal income tax is calculated based on the income of individuals, without a corresponding deduction of expenses.

Thus, as a general rule, the personal income tax is calculated at the rate of 13% of the income received, if the income exceeds 5 million rubles, the tax is calculated at the rate of 15% of the income received.

In this regard, the question arises whether the norms of the CFA Laws apply to previously issued tokens that do not comply with the requirements of the CFA law.

In order to conduct the research, the author studied the judicial practice in cases related to the relations on the turnover of tokens and digital financial assets, in particular, the author conducted a study on the example of law enforcement practice in relation to transactions with the generally recognized (classic) USDT token.

So, for example, in the Decision of the Arbitration Court of the City of Moscow dated 03.11.2022 in case no.A40-243242/2021 ^[14] (dispute on recovery of unjustified enrichment) The court qualified USDT as a digital financial asset of the Tether token, therefore, the court recognized the application of the CFA Law to the relations arising from the generally recognized token.

Similarly, in the Ruling of the Arbitration Court of the Republic of Tatarstan dated 11.10.2022 in case No. A65-21581/2021 ^[15], the court recognized the application of the concept of CFA to relations arising over USDT.

However, the above acts are an exception, in most cases the courts do not define USDT through the concept of CFA ^{[16, 17]}, which is enshrined in legislation.

Also, the author notes that even in the listed judicial acts, the Ninth Arbitration Court of Appeal is the highest court that applied the provisions of the CFA Law to relations arising from transactions with USDT.

Consequently, most courts, in the absence of clear explanations and recommendations, do not dare to apply the provisions of the CFA Law to relations arising about generally accepted (classical) tokens.

At the same time, in foreign legislation, the concept of a token is not differentiated into a concept similar to a "digital financial asset" and the concept of a "token" ^{[18, 19]}. Consequently, a foreign legislator does not have such a differentiation, similar to the relations in the Russian Federation.

In particular, the author notes that this situation underlines the importance of the development of information law in the Russian Federation. The development of the digital environment causes the need for appropriate legal regulation, so in the absence of a clear and unambiguous understanding of the terminology used in the field of legal regulation of the digital environment entails an ambiguous understanding of the legal regulation of other industries regulating relations arising about objects of the digital environment.

Thus, tax law requires the establishment of clear and consistent norms that regulate the relevant relations. Otherwise, a dispute arises when determining the tax base when conducting transactions (operations), for example, with generally recognized (classical) USDT tokens, whether it is necessary to calculate personal income tax from income from transactions with digital financial assets or from the financial result of transactions with digital financial assets.

In this case, an error in determining the tax base may entail significant and unjustified property losses of an individual.

At the same time, it is necessary to note the progressiveness of the legislation of the Russian Federation, since foreign legislation has no similar analogues.

Based on the analysis of the norms of the CFA Law, the concept of the CFA and the concept of the token are identical, therefore, the norms of Article 214.11 of the Tax Code of the Russian Federation are subject to application to relations arising regarding tokens issued before the entry into force of the CFA Law.

In conclusion, the author notes that appropriate clarifications are needed by the Supreme Court of the Russian Federation on law enforcement practice, regarding the applicability of the norm of the CFA Law to relations arising from transactions with tokens.