What is the current state of crypto tax reporting?


Despite the rising usage of cryptocurrency, regulations are still quite bare and confusing. Principal to this is crypto tax reporting, which some countries are setting rules for, before even clarifying taxation laws.

This came from a new webinar hosted by Regnology, a software provider of regulatory reporting framework. The panel was chaired by Regnology product manager Eva-Maria Than and was joined by Regnology product advisor Fabio Schiess, eToro head of tax compliance and operations Yitzhak Zahavy and Dune Consultants managing director Jessalyn Dean. Watch the full discussion here.

The panellists discussed the current issues surrounding crypto assets tax reporting and how the industry can turn the challenges into opportunities.

Kicking off the discussion, Eva-Maria Than asked the panel what are the biggest regulations that companies should be aware of in 2023 regarding digital assets and tax reporting.

Dean was the first to respond to this, providing an explanation of how crypto tax differs from crypto tax reporting. The former relates to how a country handles the taxation of digital assets and the latter is simply the mechanism that helps firms ensure they are meeting their tax obligations.

Despite reporting being intrinsically linked to the crypto tax laws, some countries are not making things entirely clear. Dean said, “There are some countries, and this is controversial, that are implementing tax reporting rules before they’ve given clarity on the substantive taxation law. Now, this is not great for the taxpayers to know that their information is being reported without a lot of clarity on how to actually pay the tax.”

Another area that Dean was keen to outline was around which kinds of transactions can be reported on. She stated “We like to distinguish between the holding of crypto and asset balance at a point in time versus income reporting. Maybe the receipt of a one-time payment, versus sales of crypto or digital assets more generally, versus the movements of crypto and digital assets. A movement could be a sale, but it could be a purchase, transfer, an exchange, etc.”

With this backdrop, Dean stated that there are not many definitive tax reporting rules around digital assets, but the rules currently in the market are typically around the income function. For example, if someone receives an airdrop or reward from staking, these are seen as a newly acquired piece of income and could be subject to 1099 rules about this type of reporting. Similarly, there are some domestic legislations around the sale of crypto, but the implementation has been slow, particularly in the US.

Zahavy echoed Dean’s comments about the current regulatory landscape – there is little guidance currently, but it is growing in the next few years. As a major, global investment platform eToro must juggle a multitude of differing requirements. For example, the rules around cryptos differ in Switzerland, Hong Kong, the US, UK, Japan, New Zealand and more. On top of this, eToro offers a large variety of crypto coins, with some of these potentially beholding to varying reporting requirements.

One area that eToro is particularly thinking about is staking. Zahvay said, “Staking is a big issue and how it is viewed by different countries in different jurisdictions as related to if it is income, if it is the reward income, do you have to track the cost basis, the challenges of transferring the coins and maintaining a cost basis.”

The final panellist to comment on the subject of the current crypto tax reporting landscape was Schiess. In a similar vein to the other speakers, Schiess outlined a market where regulations were not as widespread as they could be, but they are increasing in size. He stated that over the past few years more and more countries have outlined how private individuals should be taxed for their crypto assets. Additionally, more countries are issuing guidance on how the sale of crypto should be taxed, related to capital gains, losses and incomes.

An area of crypto tax reporting that is set to grow quite quickly is that around the income aspect, such as staking and airdrops. Schiess believes that while they are currently not well defined, as DeFi adoption rises there will be a need for clarifications, as well as new rules and the adoption of regulations that are used for other asset types. Going even further, Schiess sees some countries making complex and specific rules related exclusively to cryptocurrency.

Schiess added, “I’d like to mention a development we see in Austria. Besides significant changes for 2023, there will no longer be a speculation period, there will be a tax free exchange from one crypto asset currency to another. They will also force crypto exchanges located in Austria to withhold capital gains tax as of 2024 and transfer this money directly to the Tax Office. This, of course, brings a new dimension into the crypto SEC reporting, and it will be interesting to see whether there are other countries to follow this approach.”

To get more insights from the panel, watch the full webinar here.

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