OECD shines light on the future of cryptocurrency taxation – Forkast News



Trying to come to grips with the nascent technology of cryptocurrency, with all its concomitant risks and potential, governments around the world have taken very different approaches toward cryptocurrency taxation and penalties for crypto tax evasion. It is not easy to strike the right balance. Yet it is also imperative to develop cryptocurrency taxation systems that are fair, continue to encourage innovation, close the loopholes on tax cheats and offer companies as well as investors clarity so that they can carry out financial planning and make informed investment and business decisions. 

“Clear and consistent regulation is needed for dealing with virtual assets, because in order to work with them companies need to understand the framework and the rulebook they are working under,” Douglas Borthwick, chief marketing officer of digital assets trading platform INX, told Forkast.News. Without a clear-cut tax policy in place, Borthwick added, investors can hardly be expected to have faith in the value of both their own assets and those underlying the industry at large.

Recognizing that there are many issues, gaps and unanswered questions in the emerging field of cryptocurrency taxation, the Organisation for Economic Co-operation and Development (OECD) has published “Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues” in advance of its 2020 Global Blockchain Policy Forum taking place this week. 

Today, the OECD blockchain forum will offer a special “Deep Dive” panel discussion titled, “Crypto-tax — Ensure a robust and transparent tax policy framework.” The panel’s speakers will include a vice president of Coinbase, a U.S. Department of Treasury senior counsel and other tax law and policy experts.

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The OECD’s cryptocurrency tax report, which was presented to G20 finance ministers and central bank governors last month, analyzes how 50 jurisdictions treat crypto-assets. The report also surveys emerging issues such as the rise of DeFi (decentralized finance) and central bank-backed digital currencies (CBDCs), which has been rapidly gaining traction around the world this year with China, France, Australia, Cambodia and many other countries all now racing to develop their own. 

One of the key findings of the OECD crypto tax report is the importance of a coherent policy toward cryptocurrency as well as the implications of crypto tax evasion, which until now are issues that have largely been neglected in favor of crypto’s macroeconomic and anti-money laundering considerations. 

The very nature of cryptocurrency is also what complicates its taxation. “Crypto in its purest form is decentralized and anonymous,” Borthwick said. While these qualities define its potential, they also engender possibilities for exploitation. The challenge facing tax authorities across the board, Borthwick said, is “to see where they can use crypto’s best attributes, while limiting its worst.”

The most common way that countries have attempted to achieve this is by taxing all income from mining and cryptocurrency exchanges as capital gains, according to the OECD report. Few countries make a distinction between business and personal activity. Virtual currencies, according to the OECD, also “form part of a taxpayer’s assets and are taxable under wealth and inheritance taxes.”

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In its recommendations to policymakers, the OECD report emphasizes the need for “providing clear guidance and legislative frameworks for the tax treatment of crypto-assets and virtual currencies,” and allowing frequent updates as is necessary to keep up with such a fast-moving, innovative field. Accordingly, “appropriate guidance” is urged with regards to other blockchain innovations “for which existing tax treatments may not be appropriate.” 

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The OECD report also highlights the need to improve compliance and suggests simplifying rules of valuation as one way to do so. 

Overall, the OECD recommends that the direction of cryptocurrency tax policy should correspond with that of other policies in related sectors, such as environmental impact. The report points out that cryptocurrency mining can be very energy-intensive. Tax policy should also align with the worldwide shift toward electronic payment systems as a replacement for cash, a trend that has accelerated during the Covid-19 pandemic. 

“Considerable scope remains to improve guidance on tax treatments, particularly in the emerging areas of stablecoins, proof-of-stake consensus mechanisms, and decentralized finance,” Grace Perez-Navarro, deputy director of the OECD Centre for Tax Policy and Administration, told Forkast.News. “The OECD’s Taxing Virtual Currencies report considers these issues and stresses that clearer guidance would provide certainty for taxpayers and facilitate compliance.”




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