PwC has revealed that the increasing interest in cryptocurrency assets from tax authorities shows that cryptocurrencies are now taken seriously
The accounting firm giant, PricewaterhouseCoopers (PwC), published its Annual Global Crypto Tax Report 2020 yesterday, revealing some insightful data about tax in the cryptocurrency sector.
The report states that since the US, Sweden and the UK rolled out substantive tax guidance on cryptocurrencies, an increasing number of countries have followed suit.
PwC compared how comprehensive the tax guidance is for each country; Liechtenstein came out on top. The PwC Crypto Tax Index measures whether a country or a region has issued guidance in 20 different areas related to cryptocurrency taxation. After Liechtenstein, Malta, Australia, Switzerland and Singapore also have substantial cryptocurrency tax guidance, with all scoring higher on the list than the US, the UK, Canada, Japan and others.
The guidance issued by most countries so far has been focused on how to apply the existing laws or policies to cryptocurrency transactions instead of passing new legislation. Most tax regulators focus on the capital gains obtained from buying and selling cryptocurrency assets, taxation of mining income and value-added tax (VAT) on trading payment tokens. Only a few jurisdictions pay attention to taxing airdrops, hardforks, staking income and cryptocurrency funds.
Certain areas still not covered by tax guidance
However, the report revealed that nearly all the jurisdictions are yet to provide guidance on certain areas of the cryptocurrency sector. At the moment, no jurisdiction has provided clear tax guidance on cryptocurrency borrowing, lending and decentralised finance (DeFi). They also haven’t looked at non-fungible/tokenised tokens and applying VAT on staking income.
Peter Brewin, a tax partner at PwC in Hong Kong, stated that although there is a lack of regulation, the situation is changing rapidly: “Tax authorities and policymakers are still learning about how much of the industry works. We expect the rate of change in the tax landscape to be as fast as it is for the crypto industry over the coming years,” he added.
PwC stated that for the moment, most jurisdictions view cryptocurrencies as a form of property. This means that spending cryptocurrencies to acquire goods and services results in tax charges. PwC sees this model as limiting and will continue to hinder the mass adoption of many crypto assets as payment methods. The situation could change if technology solutions can be found to ease the administrative burden for users, PwC added.