Crypto Assets – OECD Uniform Tax Framework 2021
The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization that promotes better economic policies, is planning to issue a tax reporting framework for crypto assets by 2021. In a report published early October 2020, the OECD said it is “advancing its work to design a tax reporting framework that will ensure tax transparency with respect to crypto-assets, including the income derived from the sale of such assets.”
The digital economy and its business models present some key features which are potentially relevant from a tax perspective. Further, the digital economy is in a continuous state of evolution and its impact on tax systems needs to be monitored.
This report includes contribution from more than 50 nations on the tax consequences and treatments available for crypto assets from creation to disposal, including the differences in income and property taxation.
The OECD’s report provides guidance to help standardise the tax treatment of crypto assets in the digital economy that could include a financial transactions tax and more disclosures under the common reporting standard.
The report further proposes a type of financial transactions tax (FTT) on crypto-assets and states that the common reporting standard will be reached out to virtual asset service providers.
In the last two (2) years, the interest in crypto assets has grown a 1000 fold especially from the G20 finance ministers and tax authorities. Countries are now considering creating Central Bank-backed digital currencies.
This is especially following the 2019 launch of Facebook’s cryptocurrency in Libra. Facebook, for example, is backing the development of stable coins and crypto assets that maintain a stable value relative to a specified asset.
The market capitalization of virtual currencies is already at Usd. 346 billion. Digital companies such as PayPal that are now dealing in crypto assets could face a huge tax burden in coming years as the OECD’s guidance, alongside its wider digital tax plans tied to pillar one and two, may set the pace for policy change.
Virtual currencies are in rapid development and tax policymakers are now thinking about their implications to economies. Virtual currencies pose unique challenges for tax policymakers for a variety of reasons, including their fast-moving values, decentralisation, pseudo-anonymity, and hybrid characteristics.
They also risk eroding the global tax base because countries have adopted different approaches to determining cost basis, including number of units in the US, deemed chronological order of transactions in Finland, and basis pooling in the UK.
The tax policy and evasion implications have been generally unexplored until now, and they structure a significant part of the general regulatory system. These divided ways to deal with tax assessment make it hard to execute a standard system to tax cross-border crypto-asset transactions, regardless of whether these are virtual monetary forms or some other financial instrument.
However, some large e-commerce platform companies, such as Expedia, Shopify, and Twitch are already accepting bitcoin.
Technology is emerging at breath-taking speeds and sizes, which has lead to a number of challenges arising. It is important to note that the challenges related to blockchain and cryptocurrencies will continue to provide thought-provoking discussions.
Blockchain entails three things: crypto-economics, crypto-technology and crypto-politics. The collaboration of governments and private enterprises could lead to the development of solutions that regulate the decentralised digital currencies’ structure in order to achieve global goals of greater transparency and resiliency across markets.
The flexibility that blockchain and cryptocurrencies brings to existing systems will allow money to become programmable and taxable in real time. In the future, the potential uses for these technologies in financial markets and the regulatory benefits surrounding it have the potential to revolutionise how governments and taxpayers conduct their business and pay their taxes.