If there was any question to the notoriety that cryptocurrencies have generated, one need not look any further than a recent story that was published in Japanese news outlet Jiji.com. The G20 is meeting soon in Buenos Aires, Argentina, and apparently taxing cryptos will be on the agenda.
Jiji.com reports that the G20 has drafted a document that calls for, “a taxation system for cross-border electronic payment services.” The details of the system are still very much unknown, and implementing any global taxation system would be a daunting task.
As Jiji.com is a Japanese-based news outlet, they focused on how these laws could affect Japanese businesses and individuals. At the moment, companies who do, “not have a factory or other base in Japan,” are immune from local taxation. Clearly, the initiative proposed by the G20 would likely change that.
G20 Taxing Cryptos?
There are numerous hurdles to overcome if cryptos are going to be taxed, or even regulated to any great degree. Today there are numerous above-the-board crypto exchanges, but they generally cater to a clientele that is looking to invest or speculate.
Cryptos are a nearly perfect way to launder money, and there is absolutely nothing stopping them from being used to do so. Of course, this is basically the case for the established system as well.
The Goldman-Sachs Implicated, 1MDB scandal, took place with the cooperation of US banking executives, who are subject to a strict regulatory environment. The US regulations that exist to prevent fraud and money laundering did nothing to stop it, which put the role of banking regulation into serious question.
A tax on cryptos or an international regulatory framework is likely going to be extremely complex, and much like international laws, very difficult to enforce. The rising tensions between major nations is also cause for concern, especially when it comes to laws that would require a high degree of cooperation to be effective.
People Already Pay Taxes
People all over the world are already paying taxes on just about everything, cryptos included. One young crypto investor found out how complex the existing tax laws can be, and is on the hook for around $400,000 USD.
A young man in the USA was initially lucky and bought around 125,000 ETH at $50 USD in 2017. His good luck continued, and by the end of his run, the assets he bought ad sold netted him a profit of almost $1 million USD.
According to Coinbase (and the IRS), “Gains on digital currency sales and exchanges are taxable in the US. For reference, here are the IRS guidelines for reporting digital asset gains. We understand taxes for digital currency can be complicated, so we updated our tax tools to make reporting easier.”
We all know what happened next. The bottom fell out of the market, and like many traders, the young man in question keep on going. As it stands today, his digital assets are worth around $125,000, and he owes the US government a lot more than that.
This is just one example of how government regulations can create nightmare scenarios, and there are few safeguards in place to help people stay on the right side of a very murky body of law. International crypto taxes would likely be even more difficult to understand, or even enforce.
The Competitive Question
There is another issue that regulators that want to tax cryptos will almost certainly face.
As the last few decades have shown, there are no shortage of tax loopholes out there. If there was a movement towards greater international taxation, it would likely be met with even more ingenious ways of avoiding taxes.
The Panama Papers showed that many of the highest people in governments are using tax-avoidance techniques which seem simple when compared to what is possible when cryptos enter the equation.
An asset that is designed to be anonymous will be taxed and regulated isn’t going to be straightforward at all, any attempt to do so will probably cost a tremendous amount of money, and be moderately effective, at best.