U.K. Government Said to Explore New Cryptocurrency Tax Guidance (1)

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By Ben Stupples

The U.K. government is privately exploring new guidance around the taxation of cryptocurrencies such as Bitcoin, Ripple, and Ethereum, according to a person with knowledge of the matter.

Officials have met with tax practitioners to discuss the U.K.’s treatment of cryptocurrencies, the person said, asking not to be identified as the information is private. The government is especially looking at the taxation of how businesses raise capital in the U.K. for a new cryptocurrency.

The eye-popping rise in value of cryptocurrencies like bitcoin—increasing from 1 cent to $16,000 per bitcoin between 2010 and 2017—has forced governments worldwide to take a range of action.

In 2018 alone, countries including Ireland, Poland, Israel, and South Africa have issued new guidance around cryptocurrencies. The Group of 20 finance ministers, meanwhile, have categorized cryptocurrency as an asset, rather than a virtual currency. Cryptocurrency raises risks around tax evasion and money laundering, according to a summary of topics discussed at the G-20 ministers’ last meeting in March.

Initial Coin Offering

Known as initial coin offerings, raising capital for new forms of cryptocurrency poses a particular problem around corporate tax, said Ben Brown, a London-based partner at global law firm DLA Piper.

Here, “there is a conceptual difficulty with ICO tokens in particular, in that they are a new form of instrument which can carry a variety of different terms,” Brown told Bloomberg Tax. “They may have debt or equity-like features, or have terms which are not typically found in more traditional types of security.”

In turn, “this often makes it difficult to categorise them under the U.K. tax code,” he added.

Existing Guidance

Her Majesty’s Revenue and Customs, the U.K. tax authority, first published guidance on cryptocurrency in March 2014. Two years later, it included similar guidance in manuals on capital gains and value-added tax.

“Depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable,” says the March 2016 capital gains manual on cryptocurrency transaction.

“HMRC will continue to monitor the current and developing uses of cryptocurrencies and the block-chain technology that underpins them,” it adds. “Guidance may need to be amended to reflect these developments or changes in the regulatory environment in which cryptocurrencies operate.”

HMRC reviews existing guidance to ensure it stays relevant and reflects the U.K. tax authority’s understanding of the relevant issue, a spokesman told Bloomberg Tax in a May 31 email.

“HMRC will consider further updates to the existing guidance as and when required,” he said.

Crypto Taskforce

While HMRC explores new cryptocurrency guidance, U.K. regulatory bodies are collaborating on the issue.

In April, the U.K. launched a taskforce to explore the possible benefits and challenges of cryptocurrencies for the country’s financial sector. Made up of Treasury, Financial Conduct Authority and Bank of England officials, the taskforce met for the first time this month and plans to publish a report later this year.

The taxation of the cryptocurrencies, meanwhile, forms part of an inquiry launched in February on digital currencies by the U.K. Treasury select committee. Nicky Morgan, the committee’s chair, has stressed the need for a balance between regulating while still encouraging innovation.

“There are still a number of unanswered questions around the U.K. tax treatment of ICO’s, and the tax treatment is likely to be highly fact dependent,” Brown told Bloomberg Tax.

“Among other things, potential U.K. ICO issuers should consider carefully whether any tax could arise in respect of the issuance proceeds, the stamp tax treatment of the tokens, and withholding tax and deductibility issues in relation to any income paid on the tokens,” he added.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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