Foreign experience in legal regulation of cryptocurrency taxation

Andrianova Natalia Gennadievna PhD in Law Researcher at the Department of Administrative Law and Administrative Process of the Institute of State and Law of the Russian Academy of Sciences 119019, Russia, Moscow, Znamenka str., 10 natalia.g.andrianova@gmail.com Other publications by this author

With the development of human society and, in particular, markets, there was a need for more advanced exchange tools. In this regard, the introduction of cryptocurrencies has revolutionized the international payment system in sizes that were unimaginable just a few years ago ^[1]. The rapid spread of cryptocurrencies around the world since 2009 ^[2] raises a legitimate question about the need for legal regulation of the taxation of transactions with cryptocurrencies. The problems of determining the tax and legal consequences of transactions with cryptocurrencies are the main ones in the digital economy ^[3,4,5].

The nature of the taxation rules for cryptocurrencies may vary significantly in different states and will mainly depend on the approach of the state in relation to the legal regulation of cryptocurrencies as such on the territory of the relevant state ^[6,7]. Next, different models of legal regulation and taxation of cryptocurrencies in foreign countries will be analyzed.

USA. The US Tax Service classifies cryptocurrencies as a type of digital assets. Digital assets are broadly defined as any digital representation of value that is registered in a cryptographically secure technological system ^[8]. Digital assets are not a fiat currency, since they are not presented in the form of coins or banknotes of the United States or another state and are not issued digitally by the central bank of the state. A digital asset that has an equivalent value in the national currency or acts as an analogue of the national currency is called a convertible virtual currency. Cryptocurrency, according to the US Tax Service, is an example of a convertible virtual currency that can be used as a means of payment for goods and services, carry out digital trade between users and exchange for national currencies of states or digital assets. For federal taxation purposes, digital assets are treated as property. The general principles of taxation applicable to property transactions also apply to transactions with digital assets. Transactions with digital assets, as a rule, are subject to reflection in the tax return. A taxpayer's taxable profit or loss may arise as a result of the following transactions: sale of a digital asset for fiat money; exchange of digital assets for property, goods or services; exchange of digital assets or their purchase/ sale; receipt of a digital asset as payment for goods or services; receipt of a new digital asset as a result of mining.

Thus, in the United States, cryptocurrencies are recognized as a kind of convertible virtual currency that can be used as a means of payment. At the same time, for the purposes of federal taxation, digital assets are considered as property.

Singapore. Cryptocurrencies are not legal tender in Singapore. The Singapore Tax Authority (IRAS) classifies cryptocurrencies as digital payment tokens ^[9]. Profits earned from long-term investments in cryptocurrencies or capital gains are not taxed. The payment token serves as a payment method, but is not a fiat currency, since it is not issued by an authorized state body and is not a legal tender. For income tax purposes, IRAS considers a payment token as intangible property, since it represents a set of rights and obligations and has no physical form. Therefore, transactions involving the use of payment tokens as payment for goods or services are considered as barter trading. If an organization receives payment tokens for the goods or services provided to them, such an organization will be taxed on the cost of the basic goods/services provided.

Thus, in Singapore, cryptocurrencies are considered as digital payment tokens, which serve as a payment method, but are not a fiat currency. Transactions with cryptocurrencies are subject to taxation.

New Zealand. There are no separate special regulatory legal acts regulating cryptocurrencies in New Zealand. Belated explanations of how regulators will treat cryptocurrencies within the existing legal framework have caused some confusion and uncertainty^[10]. The High Court of New Zealand has established that cryptocurrencies are property ^[11]. The fundamental difference from fiat currency is that cryptocurrencies are not controlled by any government agency. Distributed transaction registries and rules established by consensus between the participants of the relevant infrastructure are the key characteristics of cryptocurrencies. The main features of crypto assets are:

· their impalpability;  

· using blockchain technology;

· decentralization; 

· the rules are established by consensus between the participants of the relevant infrastructure.

The court's decision was based on the definition of "property" in accordance with New Zealand law.  Property is property of any kind, tangible or intangible, real or personal, tangible or intangible, which includes rights, interests and claims of any kind in relation to property, regardless of how they arise. The court ruled that the cryptocurrency corresponds to four key characteristics of property ^[12]:

1. A precisely defined object. Machine-readable strings of cryptocurrency symbols are sufficiently distinguishable that they can be uniquely identified by the owner of an account on a particular network.

2. Identification by third parties. A combination of the account owner's public key (a code that allows the user to receive cryptocurrencies to his account) and a private key (a second code available only to the account owner) together with the requirement that both of these keys are required to record the transfer of cryptocurrencies, it means that cryptocurrencies are sufficiently identified by third parties.

3. The possibility of obtaining by third parties. Cryptocurrency can be purchased by third parties.

4. Some degree of constancy or stability. The blockchain keeps public records of cryptocurrency units, because of this, the cryptocurrency retains some degree of constancy or stability.

Cryptocurrency in New Zealand is not considered a means of payment. The Department of Internal Revenue considers cryptocurrency as property for tax purposes. Any profits and losses received from transactions with cryptocurrencies will, as a rule, be taxed. Crypto exchanges transmit information about cryptocurrency transactions of an individual to the tax authorities. The purchase and sale of crypto assets is also subject to taxation.

Thus, cryptocurrencies are not recognized as a means of payment in New Zealand. For tax purposes, cryptocurrencies are treated as property. Transactions with cryptocurrencies are subject to taxation.

Iran. A law has been passed in Iran that prohibits the use of cryptocurrency as a legal means of payment. The government and the banking system will not consider digital coins as legal tender, and the central bank of Iran will not guarantee their value ^[13]. At the same time, the Iranian government has allowed cryptocurrency mining as an industrial activity upon obtaining a permit and compliance with the established requirements ^[14].

Thus, there are three main models of legal regulation and taxation of cryptocurrencies:

1) cryptocurrencies are recognized as a kind of convertible virtual currency that can be used as a means of payment. For tax purposes, cryptocurrencies are treated as property;

2) cryptocurrencies are not recognized as a legal means of payment. For tax purposes, cryptocurrencies are treated as property/property.

3) a complete ban on the use of cryptocurrencies, taxation of transactions with cryptocurrencies has not been established.