Crypto-taxation (if the expression is allowed) has been one of the novelties of this year’s income statement. Many of the citizens who owned bitcoins for the first time had to declare it to the Treasury. But the tax treatment of cryptocurrencies is still largely deficit on a large scale. And a great riddle to decipher.
A study last week by the International Monetary Fund, entitled Taxing cryptocurrencies estimates that every year around 400 billion euros are lost to global public coffers because they fail to effectively tax the returns generated by these assets as capital gains , or tax the transactions made with VAT.
The international body indicates that by 2021, a 20% capital gains tax on cryptocurrencies would have raised around $100 billion worldwide. The figure, according to the IMF, is around 4% of global corporate income tax revenue, or just 0.4% of total tax collections. 2021 was the year bitcoin touched $70,000. At the current market size, global crypto tax revenue would be less than 25 billion per year. “This, in the larger scheme of things, is not an enormous amount,” the authors acknowledge.
In detail, according to the study, if all cryptocurrency transactions were taxed with VAT, they estimate that potential revenue would range from $47.4 billion to $118.5 billion.
As for the potential tax revenues derived from more effective taxation on capital gains obtained through cryptocurrencies, they are between 10 billion and 323 billion dollars. This leads to losses for the tax administrations that would reach, at the high end of the range, 440,000 million dollars (around 400,000 million euros).
But why is it so hard to raise when it comes to cryptocurrencies? Their nature (they are an investment asset and at the same time pretend to be a currency) and their operation mean that it is still complicated to get to the identity of the owner. “The fundamental obstacle to applying fiscal regulations in relation to cryptocurrencies is the element of anonymity”, explain the economists of the Monetary Fund.
The desire to hide is also explained by the fact that cryptocurrencies remain the favorite tool of evaders. For example, the Chainanalysis Crypto crime report 2023 report indicates an increase in money laundering activities from 14.2 billion dollars in 2021 to 23.8 billion dollars in 2022 through cryptocurrencies. These groups use messaging apps for private transactions that are difficult to track (and often end up in real estate assets), not only by the IRS, but by law enforcement authorities.
There is still no consensus on how to tax cryptocurrencies – capital gains (which is the most common) or gambling – and it doesn’t help that the world’s tax systems were designed before the advent of blockchain technology (blockchain). It is very difficult for the tax administration to get into the blockchain system. The IMF suggests that more information obligations could apply for cryptocurrency miners (ie at the time of computer creation of these cryptocurrencies). Other options would be to apply environmental impact taxes.
This tax has also started to be applied in Spain. “Difficulties? All. The platforms with which cryptocurrency holders operate should inform the tax authorities of any gains. But those located abroad do not always comply, especially those in tax havens”, acknowledges José María Mollinedo, general secretary of the Tax Technicians (Gestha). “The only way to achieve an effective implementation of taxes is to establish an automatic exchange of information as happened with the global corporate tax. But it took decades for that.”
Today national treasuries have limited instruments and cannot exercise sovereignty over cryptocurrency financial platforms located in some third countries. Only one in four tax administrations in the world has access to suspicious transactions, according to the OECD.
Even if we wanted to catch up with the obligations, at the moment – recalls Mollinedo – some of the expected declaration models are not yet available, so the full effects of the tax will be seen from the next years. The general elections have paralyzed the process of regulatory development.
