With a market cap of nearly $3 trillion during the most recent bull market, cryptocurrencies are becoming more important and impossible to ignore. At the same time, compliance supervision systems for cryptocurrencies are gradually emerging in various countries. Of course, the regulatory directions of these compliance policies are not the same. Among them, tax policies also attract more attention.

The establishment of TaxDAO is an unpredetermined thing, because in the industry, people pay great attention to the development of the industry and cryptocurrency. When some cases related to finance and taxation occur, great interest is aroused. In the process, we constantly collide and communicate with some like-minded partners. The idea of TaxDAO emerged relatively clearly.

By establishing TaxDAO, we hope to help the community better comply with and face tax compliance and tax issues. We also hope to help the community out of a relatively clear path of tax compliance through our professional ability, so as to bridge the gap between tax regulation and the industry. If we can promote the process of relevant legislation to a certain extent, Gathering information and needs and speaking up may be a more meaningful and valuable thing for the industry.

Besides organizational autonomy, we hope to use DAO as an open platform to gather more professionals and practitioners who are interested in "cryptocurrency industry & tax", jointly help the industry to smooth out the compliance path, and conduct some basic research and construction at the relatively early stage of the current tax regulation of the industry to help the future compliance development of the industry.

What do you think of the tax-and-cryptocurrency space

1. Challenges and opportunities coexist

The rise and development of cryptocurrency has brought great challenges to the traditional tax collection and management. There is not only a lack of relevant laws and regulations at the level of tax law, but also a lack of grasp at the level of tax collection and management. Tax administration in the field of cryptocurrency is a minority and hot topic, and a series of issues such as whether the object of taxation, the judgment of tax obligation, the process of tax collection, the acquisition of transaction information and international tax regulation will become major difficulties in the future. Opportunities lie behind challenges. For tax authorities and taxpayers, how to have an insight into future development forms in advance, make preparations in advance, and improve tax compliance will benefit both the present and the future.

2. Uncertainty goes hand in hand with certainty

Under the current regulatory situation, uncertainty exists as to whether cryptocurrency can be subject to taxation, how the circulation link of cryptocurrency determines tax liability, and how tax authorities obtain the transaction information of cryptocurrency. This is also for cryptocurrency owners. Traders and related parties bring great uncertainty, how to levy taxes in the future, whether it will be retroactive to the past, how to regulate enterprises and individuals in the industry and many other practical issues are to be clarified. Major economies in the world have gradually made clear the taxation of cryptocurrency. Although China does not have supporting regulations on collection and administration at this stage, the tax administration of cryptocurrency and transaction activities will be gradually improved and optimized under the background of the gradual strengthening of international tax administration and individual anti-tax avoidance, which is also the certainty of the future.

3. Both cognition and action

Various academic researches and theoretical discussions are in full swing. Relevant tax policies and collection and management regulations are still in a semi-vacuum. Relevant personnel in the industry should have new cognition and ideological preparation for tax treatment, timely optimize their own tax treatment before the specific regulatory system is perfected and determined, and understand the spirit of relevant documents. Only by making preparations in advance can we protect our legitimate rights and interests under the background of tax collection and administration in the future industry.

What are some of the core cryptocurrency areas that you're looking at right now?

We currently observe that crypto assets have several tax implications

1. Production or issuance of cryptocurrencies

The company obtains cryptocurrency through mining, how to collect tax, and whether the corresponding input cost can be deducted. In some energy-hungry countries or regions in Europe, the production of cryptocurrency requires a large amount of energy, leading to the local tax bureau to levy profits tax on the profits generated by the mining activities of enterprises. For energy giants such as Russia, mining is currently taxed only as income from ordinary business operations. For the United States, there is no unified tax regulation at the federal level, and the states adopt laws and regulations based on local conditions. Some energy-hungry states impose corporate and property taxes on firms at the production line. But in states with a surplus of energy, local tax bureaus will issue a series of tax exemptions to boost the industry.

2. Cryptocurrency transactions

In terms of transactions, jurisdictions differ in their understanding of taxation, but overall the practice of taxing cryptocurrencies as property is the most common. The US law passed in 2014 has made it clear that cryptocurrencies should be treated as property, and the corresponding appreciation and income should be taxed as property, regardless of its monetary attribute. The income corresponding to cryptocurrency obtained by the legal entity through mining shall be taxed as income tax, and the corresponding costs, including electricity charges, equipment and movable property expenses, shall be deducted accordingly. In the case of cryptocurrency trading, the corresponding increment is a capital gain and is taxed as such. Major European economies, such as Germany, the UK and France, basically consider the proceeds of cryptocurrency transactions to be property transfer income and subject to corresponding income tax or value-added tax.

3. The payment link of cryptocurrency

The tax treatment of the payment link mainly depends on whether the tax collection behavior has the legal support. Take Russia as an example, some countries or regions believe that cryptocurrency can be converted into local or foreign currency and has the property of currency, so the payment function is the embodiment of the property of currency, without tax liability. Some countries have a vague definition of the currency attribute of cryptocurrency. Take Germany for example, it is clear that cryptocurrency is not legal tender, but it is allowed for individuals to use cryptocurrency as a means of payment, which is also a reflection of the currency attribute. Similarly, there is no tax to be paid in this link. The US Tax Bureau makes a relatively conservative judgment on the tax liability of this link. It regards the payment of taxpayers using cryptocurrency as the composition of two parts of barter transaction, that is, the difference between the cryptocurrency payer and the commodity or service obtained shall be taxed. The acquirer of cryptocurrency shall convert the acquired cryptocurrency into legal tender and pay taxes.

4. Holding of cryptocurrencies

The determination of tax liability in the link of cryptocurrency holding not only puts forward higher requirements on the tax law system of tax jurisdictions, but also brings great challenges to the collection and management ability of the tax bureau (the acquisition of holding information). Due to its strong ability to obtain taxpayer information, the US tax Bureau can carry out corresponding collection and administration work to a certain extent during the holding stage of cryptocurrency. Generally, the gains gained from a short holding period (such as within 12 months) are regarded as short-term capital gains, and a higher income tax is levied. Gains on long-term held investments (held for more than 12 months) are considered capital gains and are subject to capital gains tax, which is relatively low.

There are many Chinese entrepreneurs in Hong Kong and Singapore. How are they taxed as institutions?

Currently, if an institutional investor conducts cryptocurrency-related business in Singapore, he or she may have to pay up to 17% income tax on the profits made, and goods and services tax on cryptocurrency transactions will be temporarily exempted. Cryptocurrency-related business in Hong Kong may be subject to a profits tax of up to 16.5% on profits generated in Hong Kong.

On April 17, 2020, Singapore issued the "Guidance on the Taxation of Cryptocurrency Income Tax", which classified cryptocurrency into payment tokens, functional tokens and security tokens. It also provides detailed regulations on whether and how to tax the income generated by the acquisition, holding period and disposal of different types of cryptocurrencies in different ways (such as goods trading, purchase, airdrop, mining, etc.).

The Inland Revenue Department of Hong Kong promulgated the Interpretation and Enforcement Guidelines No. 39 (Amendment) of the Inland Revenue Ordinance on 27 March 2020. The Ordinance stipulates that the tax treatment of digital asset transactions depends on the nature and purpose of the digital asset concerned. The Hong Kong Inland Revenue Department will consider the interests attached to the digital assets. The exact tax treatment depends on the nature of the asset, not its form.

It should be noted that currently, Singapore and Hong Kong do not tax the capital gains arising from the issuance, holding or disposal of cryptocurrencies. However, dividends, interest and other income derived from Singapore and Hong Kong are distributed to investors holding securities tokens, and the distributing institution shall withhold the withholding income tax.

Last year, China's tax authorities began to impose taxes on some of the largest households and miners. What do you think of this phenomenon

First, the modernization of the means of collection and management. At present, tax authorities have a relatively sufficient grasp of taxpayer data information, and it is easier to obtain tax-related data of enterprises or individuals in the industry with higher risks through data comparison through the risk assessment system. On the other hand, international tax collection and administration cooperation is also increasingly strengthened. Overseas tax-related data information of domestic enterprises and individuals is exchanged back to China through information exchange or technical means such as CRS and CBCR, which further improves the risk assessment data and significantly improves the regulatory ability of tax authorities for enterprises or individuals in the industry.

Second, limited reference from international experience. At present, the tax authorities of major economies such as the United States, the United Kingdom and Japan have optimized the collection and management of cryptocurrencies, including the imposition of income tax on the circulation and appreciation of cryptocurrencies. Although the legal basis for directly taxing cryptocurrency in China is not complete and clear, it is understandable for tax authorities to levy taxes on the interests of enterprises and individuals in the cryptocurrency value chain in accordance with the general provisions and legislative spirit of the enterprise income Tax law and individual income Tax law.

The third is the inevitability behind the accident. There are many factors behind the tax on large households and miners. Although the current basis for the tax needs to be further refined, the cryptocurrency transactions themselves have an economic externality. Combined with the idea that profits should be kept in the place where economic activity takes place and value creation is taxed first, tax authorities have an economic incentive and drive to tax large households and absenteeism. Relevant people in the industry should make industry insight and supervision study and judgment in advance, and prepare their thoughts and behaviors to cope with the ever-changing tax administration in the future.

What are the tax suggestions for Chinese cryptocurrency startups and individuals?

A lot of entrepreneurial opportunities have emerged in Web3, among which the Chinese occupy a very important position. In general, when an organization or an individual conducts an entrepreneurial project in any region, it is necessary to pay attention to tax compliance or the trend of tax regulation. The characteristics of the industry determine that many web3 practitioners operate their own business across regions.

Tax compliance is not far from every Web3 practitioner, and if you plan early enough, efficient tax arrangements will help your business thrive. Here I give a few general suggestions for your reference:

1. Positioning expectations: Understand your organization's or your own views on taxes and the state of expectations;

2. Current environment: Understand the current status and latest developments of cryptocurrency regulation in your business distribution region;

3. Active planning: rationally arrange your assets, team, technology and business in different regions, which not only needs to meet the tax compliance of each region, but also needs to try to use some active tax exemption policies;

4. Reverse check: Constantly review the status of your business and how it relates to tax regulation, and manage it continuously.

The above suggestions may seem empty, but in reality, entrepreneurs will think about the above issues at different stages. If conditions permit, it is suggested that cryptocurrency entrepreneurs can communicate with relevant professionals on the above points as soon as possible, I believe that everyone will gain something from this process.

It is also rumored that there is a tax on USDT wages in China. How do you see this phenomenon

So far, it's a low-probability practice. For the time being, there is considerable uncertainty in determining whether the payer has a tax liability when the payer uses USDT to pay wages, or whether the recipient of USDT wages has a tax liability when it accepts them. The latter is legally able to tax wages and salaries under the Individual Income Tax Act on receiving wages (regardless of the form, obtaining financial benefits of the nature of remuneration). However, when USDT is used to pay wages, commodity attributes and currency attributes of USDT will have an impact on taxation. If USDT is used as a currency to pay wages, the taxation basis of this link needs to be further improved. If USDT is paid as wages as a non-monetary asset, the process is equivalent to barter and is subject to tax justification under current tax legislation.

Even though the above steps may be taxed in various places in the collection and administration process, this kind of tax behavior is not representative and extendable at the current stage, and it cannot be inferred that domestic tax authorities will demonstrate the legality and rationality of tax on cryptocurrency at the top-level design level, because the principle of legal and legal taxation of tax objects is beyond doubt. We should not break the bottom line of "no action without legal authorization". We should view this kind of local taxation behavior rationally and objectively. It still takes time for the process from point to line to plane. However, as relevant personnel in the industry, we can prepare in advance and recognize in advance, reorganize our tax-related behaviors, improve the compliance of transaction links as far as possible, plan ahead and plan as early as possible.