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 crypto assets remains largely loss-making on a large scale. And a great enigma to decipher.
A study carried out last week by the International Monetary Fund, entitled Taxing Cryptocurrencies, estimates that up to 400,000 million euros are lost each year in world public coffers by failing to effectively value the returns produced by these assets as capital gains or tax them with the VAT transactions made.
The international organization indicates that in 2021, a 20% tax on the capital gains of cryptocurrencies would have raised around 100,000 million dollars worldwide. The figure, according to the IMF, is about 4% of global corporate income tax revenue, or just 0.4% of total tax collection. 2021 was the year that bitcoin touched $70,000. At the current size of the market, global crypto tax revenue would be less than $25 billion a year. “That, in the grander scheme of things, is not a huge 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 to $118.5 billion.
As for the potential tax revenue derived from a more effective tax on capital gains obtained through cryptocurrencies, these are between 10,000 and 323,000 million dollars. This leads to losses for the tax administrations that would reach, in the upper range of the range, 440,000 million dollars (about 400,000 million euros).
But why is it so difficult to raise when it comes to crypto? Their nature (they are an investment asset and at the same time pretend to be a currency) and their operation make it still difficult to trace the identity of the holder. “The fundamental obstacle for the application of tax 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 continue to be the preferred tool of evaders. For example, the Chainanalysis Crypto Crime Report 2023 consultancy report points to an increase in money laundering activities from $14.2 billion in 2021 to $23.8 billion in 2022 through cryptocurrencies. These groups use messaging applications for private transactions that are difficult to trace (and often end up in real estate assets), not only by the Treasury, but also by police authorities.
There is still no consensus on how to tax cryptocurrencies – capital gains (which is more common) or gambling – and it doesn’t help that the world’s tax systems were designed before the advent of blockchain technology. It is very difficult for the tax administration to get into the blockchain system. The IMF suggests that higher disclosure obligations could apply to cryptocurrency miners (i.e., at the time of their computer creation). Other options would be to apply taxes for environmental impact.
In Spain, this tax has also begun to be applied. “Difficulties? All. The platforms with which cryptocurrency holders operate should inform the tax authorities of any profits. But those located abroad do not always comply, especially those in tax havens”, acknowledges José María Mollinedo, general secretary of the Finance Technicians (Gestha). “The only way to achieve an effective implementation of the taxes is to establish an automatic exchange of information just like it happened with the global corporation tax. But this took decades.”
As of 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 one wanted to catch up with the obligations, at the moment – ??Mollinedo recalls – some of the expected declaration models are not yet available, so the full effects of the taxation will be seen from the next few years. The general elections have paralyzed the regulatory development process.
