germany

Germany’s finance ministry has determined that it will not tax bitcoin payments, allowing cryptocurrency users to make everyday transactions without the hassle of reporting and paying capital gains realized at the time of disposal.

Germany Won’t Tax Bitcoin Payments, Finance Ministry Says

The regulatory guidance, published Tuesday by the Bundesministerium der Finanzen, indicates that the country will treat bitcoin and other cryptocurrencies as equivalent to legal tender in cases when it as used as a means of payment, e.g. for the proverbial cup of coffee.

That said, cryptocurrency users must pay a value-added tax (VAT) when exchanging their coins or tokens for fiat currency at cryptocurrency exchanges, a provision designed to ensure that cryptoasset investments are treated accordingly.

To some extent, though, this provision merely shifts the cryptocurrency payment tax burden from the customer to the merchant, as most merchants convert cryptocurrencies into fiat at the point of sale. However, cryptocurrency payment processors can likely update their systems to make it simple for merchants to report these transactions.

Notably, the guidance — which was based on a 2015 European Court of Justice ruling — said that cryptocurrency miners operating in Germany will not be taxed on block rewards since the service is voluntary. Nevertheless, due to the document’s other provisions, they will incur VAT fees when they convert the rewards into fiat currency.

Similar US Legislation Fails to Muster Support

In the US, the Congressional Blockchain Caucus has drafted legislation that would have had a similar impact on legitimizing cryptocurrencies as a medium of exchange.

At present, the Internal Revenue Service (IRS) considers cryptocurrency to be “property” for tax purposes, meaning that US cryptocurrency users are legally required to maintain a detailed log of all transactions, as well as the profit or loss realized as the result of each payment. Unsurprisingly, most users do not comply with these stringent requirements.

The Cryptocurrency Tax Fairness Act, introduced last year, would have eliminated reporting requirements on transactions worth less than $600. However, a bid to add the bill as an amendment to tax reform legislation failed to garner enough support to advance.

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Cryptocurrency

A prominent German politician has made the argument that Europe needs to ‘lead the way’ in regulating the cryptocurrency market.

Following a European Commission roundtable discussion on digital currencies today, Markus Ferber, vice-chair of the European Parliament’s Monetary Affairs Committee, said that ‘we need a quick EU-wide regulatory response,’ reports the Financial News.

His comments come at a time when global regulators have been issuing warnings about the potential dangers linked to the cryptocurrency market. Early last month, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) issued warnings to investors regarding the risks of digital currencies and initial coin offerings (ICOs) and that they may not be able to recover any money lost. In December, the CFTC also proposed regulations aimed at curbing unlicensed bitcoin futures in the country.

Ferber added:

Right now, retail investors are losing money as they are not aware of the dangers of virtual currencies. In order to make sure that retail investors do not fall prey to market manipulation and fraud, virtual currencies should be regulated as other financial instruments.

In his opinion, Europe should lead the way and regulate the industry.

Ferber’s calls come as Valdis Dombrovskis, the EU’s financial chief, said today that if the risks associated with digital currencies are not addressed it will regulate the market. Speaking at a roundtable meeting attended by the European Central Bank (ECB), Dombrovskis stated:

This is a global phenomenon and it’s important there is an international follow-up at the global level. We do not exclude the possibility to move ahead (by regulating cryptocurrencies) at the EU level if we see, for example, risks emerging but no clear international response emerging.

Also in attendance were industry bodies and the Financial Stability Board, which writes and coordinates regulation for the G20 economies, reports the Guardian. In March, G20 finance ministers and central bankers will meet, with the topic of digital currencies on the agenda.

It’s believed that the regulation of cryptocurrencies will help to tackle money laundering and counter-terrorism, as they are brought into line with financial legislation.

Earlier this month, Daniele Nouy, the ECB’s chief supervisor, expressed the view that regulating the cryptocurrency market wasn’t a priority for the central bank. Whereas, Mario Draghi, chief of the ECB, has said in the past that the impact for the crypto market was ‘limited’ and that it didn’t pose a threat to the ECB. Notably, Draghi thinks that in the future European banks could hold positions in bitcoin.

Featured image from Shutterstock.

bitcoin mining

The amount of electricity consumed by bitcoin mining has been grabbing headlines and incurring the ire of environmentalists throughout the nascent technology’s ascendance into the mainstream consciousness. Now, a Silicon Valley legislator says he has found a solution — taxing it.

US Rep. Ro Khanna, a Democrat who represents California’s 17th congressional district, told Business Insider that he believes cryptocurrency miners should have to pay a surtax to account for the environmental impact of their electricity consumption.

“You could have environmental regulations of what could be used or a tax on the use of the mines that are going into the bitcoin, so that if they have externalities that they’re causing the environment, that they have to pay a tax on that,” he said.

The tax, he said, “would provide a disincentive” for people to begin mining. “Just like carbon, you need to have a price on carbon,” he added. “That mining that’s being used for bitcoin, they need to be paying a price on it.”

Of course, as long as the US is regulating cryptocurrency, Khanna says there is no reason legislators should stop at bitcoin mining.

“I think more broadly we need much more regulation, whether it’s against fraud, whether it’s against environmental harms, whether it’s against the use of bitcoin to foster terrorism,” Khanna said. “We need to have much more regulation there and we need to see all the regulations that have come from last hundreds of years for the banks.”

Regulators themselves, however, do not seem to share Khanna’s appetite for adopting a broad framework of cryptocurrency regulations.

As BlockExplorer reported, the chairs of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) recently testified before a US Senate committee that although they believe increased federal regulation of cryptocurrencies may be warranted in some cases, these regulations should be “carefully tailored,” not sweeping rules that fundamentally change the industry.

Notably, Khanna is not the first politician to call for a tax on cryptocurrency mining. After a recent report predicted that more electricity will be used this year in Iceland to fuel cryptocurrency mining operations than to power homes, an Icelandic politician proposed taxing their profits above and beyond the usual rate.

Featured Image from Pexels

United States Department Of Treasury

The US Treasury discussed the need for regulation around both fiat and cryptocurrencies in a press release on Tuesday.

The undersecretary of the U.S. Treasury’s Office of Terrorism and Financial Intelligence stated:

“Kleptocrats and criminals are also attempting to find new ways around our controls to exploit the financial system.”

Sigal Mandleker referenced the use of cryptocurrencies for this purpose. This press release is a continuation of the discussions regarding money laundering laws that BlockExplorer looked at earlier this year, though this press release seems to indicate a stronger intent than previously seen.

In Mandleker’s address to the Securities Industry and Financial Markets Association Anti-Money Laundering and Financial Crimes Conference:

“The lack of AML/CFT regulation of virtual currency providers worldwide greatly exacerbates virtual currency’s illicit financing risks. Currently, we are one of the only major countries in the world, along with Japan and Australia, that regulate these activities for AML/CFT purposes. But we need many more countries to follow suit, and have made this a priority in our international outreach.”

Regulation enforcement

The press release stressed the importance of a financial institution’s compliance with regulations and discussed its ongoing aggressive enforcement of regulation on the cryptocurrency market. The document specifically referred to a $110M USD fine against BTC-e (At the time of writing BTC-e’s domain has been seized by the US Treasury) a non-US based trading platform that had been trading with parties within US borders. The US Treasury’s reasoning for this (and other) fines and seizures is that the cryptocurrency trading platform was used for illegal purposes such as money laundering or theft.

What does this mean for cryptocurrencies going forward?

The US Treasury seems extremely committed to its attempt to regulate cryptocurrencies. The last half of the press release contains recommendations for compliance with regulators. Whether or not this aggressive attempt at regulation is good or bad for cryptocurrencies remains to be seen. One could imagine a world where simply owning cryptocurrency is viewed as illegal or where every single transaction must be tracked. And as discussed in BlockExplorer’s previous article, it can be extremely difficult to completely regulate cryptocurrencies, especially as there are some cryptocurrencies dedicated to high levels of anonymity and privacy.

In February 2018, U.S. House Rep. Jared Polis (D-CO) announced that he had petitioned the House Committee on Ethics to require Members of Congress to disclose cryptocurrency holdings exceeding  $1,000. Polis argues that cryptocurrencies should be treated by the Ethics Committee much like other financial assets and reminds them that, “Financial disclosures are critical to maintaining public trust in elected officials and the integrity of Congress.”

Polis’ Case for Crypto-disclosure in Congress

Polis points out that several U.S. agencies have already started to regulate cryptocurrencies in some instances; the Internal Revenue Service (IRS) has deemed virtual currencies subject to income tax rules and the Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) both regard cryptocurrencies as commodities. A hearing was held in early February by the Committee on Banking, Housing and Urban Affairs to explore the oversight role of these agencies regarding digital money, especially in relation to initial coin offerings (ICOs).

“The increasing use of cryptocurrency as an alternative to traditional payments and investments necessitates Congress take appropriate action to maintain transparency and deter potential conflicts of interest … ” Polis writes. He mentions that Members of Congress and covered employees are already required to report asset holdings of certain amounts, including commodities holdings of more than $1,000. Also, the Stop Trading on Congressional Knowledge (STOCK) Act requires them to share in real time the purchase, sale or exchange of bonds, stocks, commodities futures or other securities exceeding $ 1,000. Thus, he concludes, Members should follow the same principle with cryptocurrencies and disclose holdings over $1,000.

Polis Is a Proponent of Cryptocurrencies

Polis asks the Committee for additional guidance and suggests they work with the CFTC, SEC, and IRS toward this goal. In the past, he has shown his support for crypto-normalization by accepting bitcoin donations for his campaigns. Also, in 2017, he introduced a bill called the Cryptocurrency Tax Fairness Act of 2017, which would allow consumers to make purchases with cryptocurrency up to $600, “without burdensome reporting requirements.” He is a member of the Congressional Blockchain Caucus.

As previously reported by Block Explorer, many Ukrainian officials have disclosed their ownership of bitcoin in the past two years — 57 have declared over 21,000 bitcoin. The Ukraine government and national bank are also in the midst of forming cryptocurrency regulations.

Featured image from Rep. Polis’ press kit at polis.house.gov.