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By Joe Kirwin
Virtual currencies could become a new “virtual tax haven,” posing a major risk for governments, according to a report released amid an EU finance ministers meeting on the topic.
The European Parliament report warned virtual currency poses a “direct challenge” to national sovereignty “as they may undermine the tax base even while their users enjoy the benefits provided with tax revenues.”
“The tax implications of virtual currencies should be recognized as having potentially systemic importance,” the report said. The report was released Sept. 7.
The report hits at what is a top-priority issue for the EU. EU finance ministers are meeting Sept. 7 and 8 in Vienna to consider if the bloc should create a regulatory framework for virtual currency in order to prevent tax evasion and money laundering. The meetings will also center on the proposed tax on digital companies, a temporary measure that has drawn significant debate in recent months.
EU member nations remain divided about the need for regulation of cryptocurrency, according to an EU diplomat present at the Sept. 7 meeting.
“Some member states, especially the Baltic nations are very keen on establishing a regulatory framework for crypto-assets because there is a lot of money in those countries involved with them,” an EU diplomat told Bloomberg Tax. “But there are other countries led by Italy that insist no regulation is currently necessary.”
Brussels-based think tank Bruegel wrote a separate report at the request of EU finance ministers, which was presented at the Sept. 7 meeting,
Companies may use proceeds for initial coin offerings (ICOs), when they first release digital tokens, to avoid taxation, the report said. When it comes to companies issuing securities tokens, normal taxation rules could apply, the report said.
“More complicated is the taxation of utility tokens which, at the time of issuance, are exchanged for cash and oblige the company to spend resources in order to be eventually able to deliver the services. This requires some clarification on the necessary tax accountability,” the report said.
There are also issues related to taxing gains from cryptocurrency, the report said.
There were 6 billion euros ($6.9 billion) in ICOs in 2017. The European Commission expects the amount to grow considerably in 2018.
European Commission Vice President for the Euro and Social Dialogue Valdis Drombovskis, speaking at a Sept. 7 press conference, said the EU would wait for the results of the conclusions from the Financial Stability Board on the possible need for regulations of crypto-assets, as it was asked to do by the Group of 20 countries.
Drombovskis warned that if the EU decides there is a need for regulation and the G-20 doesn’t agree, then the EU “should move ahead on its own.”
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