Tax evasion afflicts Cryptocurrencies in US, Europe, Australia

The biggest problem concerning cryptocurrencies could be the damage caused Tax evasion, in the long run, to the state finances through loss of revenue due to the lack of adequate taxation on profits

by Lorenzo Ciotti
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Tax evasion afflicts Cryptocurrencies in US, Europe, Australia

The biggest problem concerning cryptocurrencies could be the damage caused Tax evasion, in the long run, to the state finances through loss of revenue due to the lack of adequate taxation on profits. According to some authors, these new currencies, remaining pseudo-anonymous, could serve as a cover for illegal activities, such as money laundering or tax evasion; if this can take place through the use of cash obtaining anonymity to all intents and purposes, this is not possible if some cryptocurrencies are used such as, for example, Bitcoin, since in these cases the transaction register is in the public domain and anyone can consult it.

Australia is perhaps among the first countries to take a stand on the issue, introducing new anti-money laundering and counter-terrorism financing laws through the Australian Taxation Office, ATO to tax cryptocurrency profits.

In the European Union, due to the principle of fiscal neutrality with reference to foreign currencies, it has been defined that the purchase of cryptocurrencies is VAT exempt. With regard to the payment of taxes on the so-called capital gains, the matter is still controversial.

The rise in popularity of cryptocurrencies and their adoption by financial institutions has led some governments to consider whether regulation is needed to protect users. The Financial Action Task Force defined cryptocurrency-related services as virtual asset service providers and recommended that they be regulated with the same money laundering and know the customer requirements of financial institutions.

In May 2020, the interVASP Joint Messaging Standards Working Group published IVMS 101, a universal common language for communicating required originator and payee information between VASPs. The FATF and financial regulators were informed during the development of the data model.

In June 2020, the FATF updated its guidelines to include the Cryptocurrency Travel Rule, a measure that requires VASPs to obtain, maintain, and exchange information about the originators and recipients of virtual asset transfers.

Subsequent standardized protocol specifications have recommended the use of JSON for forwarding data between VASPs and identity services. As of December 2020, the IVMS 101 data model has yet to be finalized and ratified by the three global standard-setting bodies that created it.

The European Commission published a Digital Finance Strategy in September 2020. This included a draft Cryptocurrency Markets Regulation (MiCA), which aimed to provide a comprehensive regulatory framework for digital assets in the EU.

On June 10, 2021, the Basel Committee on Banking Supervision proposed that banks that held cryptocurrency assets should set aside capital to cover all potential losses. For example, if a bank were to hold $2 billion worth of bitcoin, it would have to set aside enough capital to cover the entire $2 billion.

This is a more extreme standard than banks are generally held to when it comes to other businesses. However, this is a proposal and not a regulation.

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