The OECD has published a very interesting and very necessary work called ” taxes on virtual currencies. An overview of tax treatments and emerging tax policy issues”, responding to a call from G20 leaders and finance ministers for an analysis of the risks posed by crypto-assets, due to their increasing use. It was prepared and supported by the 137 members of the OECD/G20 inclusive BEPS framework, providing a comprehensive analysis of approaches and gaps in the main types of taxes (income, VAT and property), in relation to more than 50 jurisdictions participating in the study.
Virtual currencies are a form of crypto-asset that has had a speedy evolution and that pose a range of challenges for tax policy, due to the particular nature of these assets, including their lack of centralized control, (pseudo-) anonymity, difficulties of valuation and hybrid characteristics (i.e., include both aspects of financial instruments and intangible assets).
Other challenges arise from the rapid evolution of the novel and complex underlying technology used for the creation, dissemination and use of virtual currencies, including recent developments in stable currencies and central bank digital currencies (CBDCs).
This report, while not making recommendations, does bring together some ideas for policymakers to consider in order to strengthen their legal and regulatory frameworks for taxing virtual currencies, thereby improving certainty for tax administrations and taxpayers.
Similarly, it takes advantage of the scheme, regulations, and experience of the second global standard, referring to the automatic exchange of financial accounts, under the Common Reporting Standard (CRS). This standard has been operating since 2017, with an increasing number of participating countries over the years, as well as accounts reached and amounts covered, and the plans of the OECD to start in 2021 are very interesting to collect at national level information on these assets to exchange it with other countries.
Terminology to identify crypto-assets and in particular virtual currencies.
Regulators and researchers often consider that the term “crypto-assets” covers three main categories of digital financial assets, which are based on Distributed Ledger Technology (DLT). These categories are ” payment tokens “(also known as cryptocurrencies or virtual currencies), “utility or consumer tokens” and “asset, financial or security tokens”.
“Payment tokens” are DLT-based and aim to operate as an account unit and means of payment, although they vary significantly between countries and over time.
“Virtual currencies” are not considered similar to the currency issued by governments in most countries; official and sovereign currencies are legal tender. In the light of this, the report notes that the term “virtual currency” can be misleading and therefore it is more accurate to speak of “payment tokens”.
Virtual currencies are the most widespread forms of crypto-assets and include the well-known Bitcoin and others such as Litecoin and Ether. The term “virtual currency” also covers more recently developed forms of payment tokens that are backed by real assets (e.g. government-issued securities or coins), which purport to be more stable and are therefore referred to as “stable currencies”.
Another evolution of virtual currencies is the concept of CBDC, which would be supported by public authorities and which is being considered in several countries to provide an alternative to other forms of virtual currencies.
DLT-based applications, such as blockchain, that use these cryptocurrencies, pose challenges for policymakers in a wide range of areas, including fiscal policy. The use, trade and market capitalization of these assets have increased, and their technological characteristics are evolving rapidly, posing challenges for tax administrations and policymakers.
Although each virtual currency is unique, the life cycle of digital currencies shares the following stages, which are interesting to know-including the variants that may be presented – to review the possible tax implications: creation, storage and Transfer, Exchange and evolution of a token, the specifics of which can be consulted in this comprehensive report.
Conclusions of the OECD report
From this analysis, it seems clear that the taxation of virtual currencies requires legislators to balance a number of objectives and perspectives that come into play. While this report makes no recommendations, it provides a number of general ideas that policymakers might consider in the taxation of these currencies:
Policymakers want to ensure that the country has a clear direction and an applicable legislative framework:
Consider providing guidance on how virtual currencies fit into the existing fiscal framework.
Provide a comprehensive guide that addresses the main taxable facts and forms of income associated with virtual currencies.
More generally, the guidance could also usefully indicate how other forms of crypto assets (including financial or asset tokens and utility or consumption tokens) should be treated for tax purposes.
It will surely be useful to review and adapt the guidance frequently.
The basis for the tax treatment adopted could be communicated.
Consider whether the tax treatment of virtual currencies should be consistent with the tax treatment of other assets or even consistent with the broader regulatory framework.
Consider how to facilitate better tax compliance.
Possibility of providing simplified tax treatment for occasional cases or small traders.
Legislators may wish to consider how the fiscal treatment of virtual currencies could be aligned with other policy objectives.
The report also reviewed a number of emerging developments in the field of virtual currencies that have not yet been widely considered by tax policy makers, such as:
The tax treatment of new assets received when a hard fork occurs has only been addressed by a few countries.
Stable currencies and central bank (CBDC) digital currencies represent new forms of currencies.
Other new types and features of tokens are also emerging.
To conclude, it is important to highlight the importance that this recent report brings to begin to understand the functioning of these virtual currencies and their underlying technology, thus allowing us to have a clearer picture of the tax challenges posed by these new and very useful instruments, which we know are undoubtedly the currency of the digitalized future, but also to begin to know the position that some countries are taking. In the next step, it would be desirable to move towards a necessary coordinated or consensual tax treatment at the international level, although the experience of the taxation of the digital economy shows that this is not an easy task.
Finally, it is very encouraging that within the plans of the OECD there is the possibility of incorporating crypto-assets within the financial assets, included in the Common Reporting Standard from 2021, which will allow transparency in their ownership.
 OECD (2020), Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues, OECD, Paris. www.oecd.org/tax/tax-policy/taxing-virtual-currencies-an-overview-of-tax-treatments-and-emerging-tax-policyissues.htm.
 Examples: for the purchase of goods and services, Storj, Basic Attetion Token.
 Examples: such as financial assets or securities, Spice, tZero and BCAP.
 Blockchain technology is just one type of DLT. Although blockchain is a sequence of blocks, DLT does not require such a chain. DLT is simply a type of database distributed across multiple sites, regions, or participants. They use different consensus mechanisms to validate any new operation or transaction that occurs on the network which can be mathematical equations (a proof of work system), participation systems (a proof of stake system), etc.
 In blockchain, a “hard fork” is what happens when a chain of blocks diverges on two potential paths forward. There is a change in the code of a cryptocurrency that makes the new version incompatible with previous versions.
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