Source: Observatorioblockchain / Alfredo Collosa
Currently, the world of crypto assets does not enjoy uniform tax treatment in different countries. However, it is becoming more and more necessary to define global frameworks for the taxation of the different business models that may derive from Web3, also called the tokenized economy.
Obviously, it is not an easy task, due to the absence of centralized control over crypto assets. To which must be added the pseudoanonymity or the difficulties in obtaining information on operations and valuations. That is, the difficulties in classifying them as financial instruments or intangible assets. And, of course, the rapid and constant development of the underlying technology (blockchain).
Argentina, a new class of financial asset
In Argentina , they have recently begun to specify the taxation of certain operations. Through Opinion 2/2022 issued by the AFIP, the legal nature that can be granted to cryptocurrencies and their consequent treatment within the framework of the tax on personal assets was analyzed. Known as Argentine Wealth Tax.
It was said that cryptocurrencies can be characterized as a new financial asset class. Non-traditional and based on blockchain technology, which deals with an electronic entry that incorporates the right to a certain amount of money, which can be typified as securities.
They participate in the main characteristics of securities, since they are securities incorporated into a book-entry registry: the blockchain. They are homogeneous and fungible goods. Their issuance or grouping is carried out in series and they may be susceptible to generalized and impersonal traffic in the financial markets. Thus, in Argentina it was concluded that cryptocurrencies make up an asset covered by the Personal Property Tax law in force in the country.
Chile, without VAT
In the case of Chile , a statement was requested from the National Directorate on the taxation that affects the income obtained in the purchase and sale of cryptocurrencies. Both at the level of Income Tax and Value Added Tax (VAT). Through Official Letter No. 963, of 05.14.2018, it was concluded that the income obtained from the sale of any virtual or digital asset must be declared in the Annual Income Tax Return. The acquisition value can be deducted as a direct cost. It was also indicated that said sale does not carry VAT, since it falls on intangible assets.
In Colombia , through Concept 314 (2018) and Official Letter 232 (2021), the DIAN recognized crypto assets as assets that can be valued and generate income for those who own them. From the patrimonial point of view, crypto assets correspond to intangible assets that can be valued. They are part of the heritage and can lead to obtaining an income. They must also be declared in the SIMPLE (regime for small taxpayers) as part of their gross assets and in addition to declaring the income derived from the operations in which said cryptocurrencies are involved.
Taxation of crypto assets Spain
On the taxation of crypto assets in Spain , the General Directorate of Taxes (DGT) ruled in a binding consultation that it is appropriate to tax 21% VAT on operations carried out by Spanish businessmen, professionals and/or artists who create and sell NFTs. The query was raised by a person who is dedicated to the online sale of illustrations transformed with Photoshop. The object of the sale is not the illustrations themselves, but the NFTs. That is, non-fungible tokens that grant the purchaser rights to use, but in
no case the underlying rights to ownership of the work. The taxpayer consulted the Treasury about the VAT taxation of the services it provides.
Regarding the process of creating NFTs, the Treasury points out that it seems that once the corresponding digital file (image or video, for example) has been generated, it would be uploaded to a platform, in which, through blockchain technology, generation of the NFT takes place. In this way, there seem to be two digital assets with their own entity. On the one hand, the underlying digital file and, on the other, the non-fungible token or NFT that would represent the digital property of the underlying digital file.
VAT taxable NFTs
It should be noted that what is going to be transmitted, through the corresponding online platforms, is the NFT itself and not the underlying digital file, answers the Treasury. The General Directorate of Taxes concluded that any transmission of NFT
must be classified as provision of services. Specifically, as services provided electronically and, therefore, taxed with VAT.
According to this criterion, the transmitter of an NFT established in Spain should charge VAT at the rate of 21% depending on the rules of location of operations. In another binding consultation, the possibility of deducting from income tax the
loss due to fraudulent operations with cryptocurrencies was analyzed. The consultant states that in 2021 he made an investment in cryptocurrencies through a platform that turned out to be a fraud and lost said investment. In April 2021, he filed the corresponding complaint with the National Police. He was told that in the consulted case it does not seem that any of the
circumstances set forth in article 14.2.k) of the LIRPF. In particular, in relation to the circumstance contained in number 3 of the aforementioned article. Even if a year has elapsed, it cannot be considered that the presentation of the complaint constitutes the beginning of a judicial procedure that has as its object the execution of the credit.
As we can see, the Web3 or «token economy» poses multiple challenges to countries. In addition to tax, regulatory or money laundering matters. For this reason, civil, commercial, corporate, personal data protection legislation, among other issues, would have to be adapted to the new business models that involve crypto assets.
The current situation generates the need to seek a coherent, comprehensive and global approach to the regulation and supervision of cryptocurrencies, including the tax issue. It is vital that each country has clear guidance and an
applicable legislative framework, providing guidance on how crypto assets fit into the existing tax framework. That is, the existence of a comprehensive guide that addresses the main taxable events and forms of income associated with them.
Inevitably, there will be issues to define on the subject of international taxation. For example, in terms of
transfer prices, how will an intra-group operation involving NFTs or other types of crypto assets be valued? Likewise, in terms of the application of agreements, to avoid double taxation, it would be necessary to analyze the tax treatment of all operations with crypto assets between residents of different countries.
Learn about new business models
These new business models that rely on blockchain must be carefully evaluated. Who and where the value is created, the technological developments, the possible synergies between the parties, the cost structure, the control of the operations, or the rights that arise between the parties are some of the aspects that must be supported by the documentation /
reliable proof .
It is worth highlighting the good practices of jurisdictions or countries that have already advanced in the matter, providing certainty and certainty to all the parties involved. They can serve as a guide for jurisdictions that are still analyzing the issue. It is clear that the Tax Administrations must work with the regulatory framework of their country and determine in each specific case if there are taxable events that are subject to taxation. However, they can contribute a lot in the proposal of necessary regulatory changes to grant certainty to the subject, consumer protection and improve their control strategy.
To determine taxation, it is key to have an in-depth understanding of the new business models of all cryptoactives, not just cryptocurrencies. Also of the NFT, DeFi, DAO, security token, utility token and other cryptographic tokens. In this sense, public-private collaboration is very important, including advice from experts and study centers in the field. For example, through the use of instruments such as sandboxes, which are a tool that mitigates
this uncertainty in a controlled environment in which companies can test their services under the watchful eye of the supervisor.
In short, in the face of global developments such as those we are experiencing, the path of cooperation, collaboration and multilateralism between countries is more appropriate than unilateral measures.