THE IMPOSITION OF TAX ON CRYPTOCURRENCIES
BY
MS. PUNNARAT PIRISOMBOON
A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS IN BUSINESS LAWS (ENGLISH PROGRAM) FACULTY OF LAW THAMMASAT UNIVERSITY ACADEMIC YEAR 2018 COPYRIGHT OF THAMMASAT UNIVERSITY
Ref. code: 25615901040377MXO
THE IMPOSITION OF TAX ON CRYPTOCURRENCIES
BY
MISS PUNNARAT PIRISOMBOON
A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS IN BUSINESS LAWS (ENFLISH PROGRAM) FACALTY OF LAW THAMMASAT UNIVERSITY ACADEMIC YEAR 2018 COPYRIGHT OF THAMMASAT UNIVERSITY
Ref. code: 25615901040377MXO THAMMASAT UNIVERSITY FACULTY OF LAW
THESIS
BY
MISS PUNNARAT PIRISOMBOON
ENTITLED
THE IMPOSITION OF TAX ON CRYPTOCURRENCIES
was approved as partial fulfillment of the requirements for the degree of Master of Laws
on August 13, 2019
Chairman (Pro�or Saowanee Asawaroj, Ph.DI
Member and Advisor [E_f'I'->"-''--'-----
(Associate�ssor Pinai Nanakorn, Ph.D.) Member n�c;;2- (A,, ista nt Profess o h u n chae msa i, Ph.D.) � Member (Panumas Sittivaekin, Ph.D) Dean U-� ( Professor Udom Rathamarit, Docteur en droit.) (1)
Thesis Title THE IMPOSITION OF TAX ON CRYPTOCURRENCIES Author Miss Punnarat Pirisomboon Degree Master of Laws Major Field/Faculty/University Business Laws (English Program) Faculty of Law Thammasat University ThesisAdvisor Associate Professor Pinai Nanakorn, Ph.D. Academic Years 2018
ABSTRACT
In Thailand, the growth of cryptocurrencies has been increasing annually. Tax is one of the issues which are concerned by government since users always receive some benefit from holding, using and transferring cryptocurrencies. To impose personal income tax on cryptocurrencies, the Emergency Decree amending the Revenue Code (No.19) B.E. 2561 was promulgated. This Decree adds (h) and (i) to Section 40 (4), thus taxpayers who acquire any gains derived from transferring cryptocurrencies shall have tax responsibilities. However, there are still some problems which are obstacle for imposition of income tax on cryptocurrencies. As Section 40 (4) (i) only focus on imposing tax from cryptocurrency transferring as investment, Thai government provides only one result which is not proper to other gains which derived from other objective. Moreover, the substance of this Decree is only briefly described. It lacks necessary information such as how to value cryptocurrencies in Thai baht, how to find basis for calculating gain or loss, mining problem, and which information should be kept. It is difficult for taxpayers to comply with the law without the explanation. Furthermore, the existent of peer-to-peer market which is a major problem for tax authorities to trace and investigate the transactions. Therefore, to collect revenue from cryptocurrency transactions effectively, Section 40 (4) (i) should be amended. It is inappropriate to cover every cryptocurrency transaction because different types of income result in different tax deduction rates
Ref. code: 25615901040377MXO (2) which can alter the amount of taxable income. Having suitable measure creates effective tax system; taxpayers do not have prejudice against tax payment. In addition, Thai Revenue Department shall release a tax notice, or guidance to explain the detail of imposing cryptocurrencies such as to address the fair market value in Thai baht to cryptocurrency valuation, to identify which approved reputable cryptocurrency exchanges that taxpayers could apply the exchange rate, to prepare a clear explanation for mining activity, and to describe which information is necessary to be recorded, and Thai Revenue Department shall also find measures to support trading cryptocurrency in tax system.
Keywords: cryptocurrencies, virtual currencies, imposition of tax, personal income tax
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ACKNOWLEDGEMENTS
First and foremost, I would like to express sincere gratitude to Associate Professor Dr. Pinai Nanakorn , in capacities of thesis supervisor who always sacrifice his time to advise, inspire and support me kindly. For all his precious advises, encouragement, assistance and faith which he always gives, they are so much meaningful. I will remember and apply all of them not only for my further study but also for my career and life. I am thankful and grateful forever. To the committee, Professor Saowanee Assawaroj, Assistant Professor Dr. Kittiwat Chunchaemsai, and Dr. Panumas Sittivaekin, I am appreciative, each of members gave the straight and valuable comments, including best supports which are essential to me on this thesis.
I must express my very profound gratitude to my parents, who are my inspiration for working hard and having discipline, I wish I could become a person like them. Thank you for supporting and trusting me all the times even when I lost and lacked confidence, they always believe in and cheer me up. I would say they are a big component of every success. For my younger sister and brother, I am very glad for having you both of you. I will make all of you proud.
To Bank, in him, I have found the love of my life and the closest and truest friend. Sometimes, he knows me better than myself, he has taught me to think bigger, having good plans, keeping going, and pushed me to become the best version of mine. Thank you for being such a patient, kind, incredible and calm partner.
Toey and Top, we are a great team. It is not a coincidence that we have many things in common. You are one of the best things of my study year, I cannot describe how amazing you are. Thank you for being there for me, I will always be there for you.
Miss Punnarat Pirisomboon
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TABLE OF CONTENTS
Page ABSTRACT (1)
ACKNOWLEDGEMENTS (3)
LIST OF TABLES (6)
LIST OF FIGURES (7)
CHAPTER 1 INTRODUCTION 1
Background and Problems 1 Hypothesis 4 Objectives of Study 4 1.4 Scope of Study 4 1.5 Methodology 5 1.6 Expected Results 5
CHAPTER 2 GENERAL PRINCIPLES IN RELATION TO CRYPTOCURRENCIES 6 AND INCOME TAX
2.1 Introduction to cryptocurrency 6 2.2 Examples of cryptocurrencies 8 2.3 The actors in cryptocurrencies activities 15 2.4 The principle of tax law 15 2.5 Introduction of personal income tax 21
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CHAPTER 3 LEGAL TREATMENT OF TAX ON CRYPTOCURRENCIES 26 UNDER FOREIGN LAWS
3.1 The Organisation for Economic Co-operation and Development 26 (OECD) 26 3.2 Australia 28 3.3 Canada 35 3.4 The United States 40
CHAPTER 4 LEGAL TREATMENT OF TAX ON CRYPTOCURRENCIES 50 UNDER THAI LAWS
4.1 Cryptocurrency situation in Thailand 50 4.2 Personal income tax under Revenue Code 56 4.3 The problems of imposition of tax on cryptocurrencies 65
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS 79
5.1 Conclusions 79 5.2 Recommendations 80
REFERENCE 85
APPENDICES 91
BIOGRAPHY 115
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LIST OF TABLES
Tables Page 2.1 Table of cryptocurrencies on December 21, 2018 7
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LIST OF FIGURES
Figures Page 2.2.1 Bitcoin Transaction 10
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CHAPTER 1 INTRODUCTION
Background and Problems
The report of global digital in 2018 from “We Are Social and HootSuite” stated that there are 4.021 billion people around the world who are using internet, up to 7 percent year-on-year.1 One of the main reasons why the number of internet users increase annually is that the internet access is easier than how it was, back in the past. There are many devices which can be used to log in, such as computers, laptops and smartphones. Thus, users can access the internet anytime they want. Moreover, since the cost is not expensive, anyone can access it. The rapid increase in the popularity of internet using has caused many new activities, products and services related to the internet network. The most successful digital product is cryptocurrencies, especially Bitcoin, which has been the most popular and valuable currency since 2009. However, nowadays there are several of cryptocurrencies and each of them has their capabilities depending on the purposes for which they are developed such as Ethereum, which its function can create smart contract to help designing the programs for automatic transaction with specified conditions,2 or Litecoin which is faster than Bitcoin.3 The cryptocurrencies have been primarily used for product and service barter because one of its strong characteristics is a user nondisclosure, which is better than electronic transactions such as transferring money through bank accounts or using credit cards. A lot of major retailers and services providers accept cryptocurrencies. For example, Expedia, a reputable online agencies, allows users to pay for their bookings
1 Kemp, Simon. “Digital in 2018: World's Internet Users Pass the 4 Billion Mark.” We Are Social, 30 Jan. 2018, wearesocial.com/blog /2018/01/global-digital-report-2018. Accessed on May 5, 2018. 2 “Ethereum Project.” Ethereum Project, www.ethereum.org/. Accessed on April 30, 2018. 3 Fernando, Jason. “Bitcoin Vs. Litecoin: What's The Difference?” Investopedia, Investopedia, 15 Feb. 2018, www.investopedia.com /articles/investing/042015/bitcoin-vs-litecoin-whats-difference.asp.
Ref. code: 25615901040377MXO 2 with Bitcoin 4and Microsoft also allow users to use Bitcoin to deposit funds to purchase games, movie, and applications available in Window and Xbox stores.5 Then, cryptocurrencies have been used as a medium for international money transfer because they are faster than ordinary ones since fees are lowers and the transaction can be completed via computers, laptops and smartphones. Moreover, recently, users have applied cryptocurrencies for their investment, holding them for speculation. They also have been developed to be funding tools by making Initial Coin Offering (ICO). Some fundraisers have issued digital tokens or new cryptocurrencies by which holders can change into other popular currencies later, instead of securities. Even though the market of cryptocurrencies is huge and immensely valued, cryptocurrencies are still not treated as a legal tender.6 However, the governments do have concerns regarding all of cryptocurrencies transactions especially concerns over tax issues because mining, trading, and exchanging cryptocurrencies usually make some benefits to users which raise the question about their tax consequences and challenge the Revenue Departments around the world to find ways to impose tax, record information, and inspect irregular transactions. The Internal Revenue Service (IRS) of the United States was the primitive agency which realized fiscal issue, it released the tax notice 2014-21 explaining how to impose virtual currencies tax. This notice stated that virtual currencies were treated as property, that is, if users have income from receiving or mining virtual currencies, they must pay tax. This notice also stated the information report and penalties to educate users about duties and circumstances of virtual currencies.7 For Thailand, the growth of cryptocurrencies has been increased. There are around seventy retail shops in Bangkok, Chaing Mai and Pattaya which accept cryptocurrencies. The trading market has raised fund approximately 300 million baht
4 “20 Things You Can Spend Your Cryptocurrency On.” THE CRYPTOBASE, 7 Mar. 2018, thecryptobase.io/20-things-to-buy-with- cryptocurrency/. 5 Moreau, Elise. “These Popular Websites Let You Pay for Stuff with Bitcoins.” Lifewire, 2018, www.lifewire.com/big-sites-that-accept- bitcoin-payments-3485965. Accessed on May 5, 2018. 6 European Parliament. “Virtual Currencies Challenges Following Their Introduction.” European Parliament, Mar. 2016, www.europarl. europa.eu/RegData/etudes/BRIE/2016/579110/EPRS_BRI (2016)579110_EN.pdf. Accessed on May 3, 2018. 7 Internal Revenue Service. Notice 2014-21. 2014, www.irs.gov/pub/irs-drop/n-14-21.pdf. Accessed on May 5, 2018.
Ref. code: 25615901040377MXO 3 per day. As a result, investors in this market increased from hundreds in 2013 to ten thousands in 2017.8 Since March 2013, Bank of Thailand (BOT) has issued a notice on the risk of cryptocurrencies notifying that they are not considered as money and valueless.9 Moreover, in February 2018, BOT asked banks registered in Thailand and oversea, credit foncier companies and finance companies to not involve with cryptocurrencies transactions10 because Thailand has no specific regulations to regulate cryptocurrencies. However on 13 May, 2018, Thailand issued an Emergency Decree on the Digital Asset Business B.E. 2561 to inform people who want to do business related to digital assets and the Emergency Decree amending the Revenue Code (No.19) B.E. 2561 to impose personal income tax on holding or transferring digital or cryptocurrencies. In general, section 39 of the Revenue Code states assessable income means income which is taxable and divided into many categories in section 40. If a taxpayer has income which is defined by the law, such income is subject to tax. Recently the Emergency Decree amended the Revenue Code by adding (h) and (i) in section 40(4). Thus, taxpayers who receive gains derived from transferring cryptocurrencies shall have tax responsibilities. Even if the Revenue Code regulated that income from digital assets is subject to tax as other assessable income according to section 40 (4) (h) and (i), there still are some problems in practice because the substance of this Emergency Decree is only briefly described. There is no any formal notice from the Revenue Department explaining this circumstance which may make taxpayers unaware that income from transferring cryptocurrencies is subject to tax, not only in the case of investment but also in the case of using them for obtaining goods or services such as using Bitcoin to
8 Bank of Thailand. Financial Stability Report 2017. 2017, www.bot.or.th/English/FinancialInstitutions/Publications/FSR_Doc/FSR2017e.pdf. Accessed on May 5, 2018. 9 Bank of Thailand. ขอ้ มูลเกี่ยวกบั Bitcoin และหน่วยขอ้ มูลอิเลก็ ทรอนิกส์อื่นๆที่มีลกั ษณะใกลเ้ คียง, 18 Mar. 2015, www.bot.or.th/Thai/PressAndSpeeches /Press/News2557/n0857t.pdf. Accessed on April 30, 2018. 10 Bank of Thailand. “ขอความร่วมมือสถาบนั การเงินไมใ่ ห้ทา ธุรกรรมที่เกี่ยวขอ้ งกบั คริปโตเคอเรนซี (Cryptocurrency).” ธนาคารแห่งประเทศไทย, 12 Feb. 2018, www.bot.or.th/app/FIPCS/Thai/PFIPCS_summary.aspx?packId=25610039. Accessed on May 8, 2018.
Ref. code: 25615901040377MXO 4 buy coffee, or even if they are aware of such legal requirements, there are uncertainties as to on how to value cryptocurrencies, and how to calculate gain or loss. Moreover, there is no tax treatment for mining cryptocurrencies, how and when to calculate income from such activity, and no clear rules on information record. All of these issues are important for the Thai Revenue Department to study and provide formal guidance such as regulations, revenue ruling, or revenue notices to taxpayers in order to educate them understand and realize their tax responsibilities. If the Revenue Department still ignores these issues, Thailand will miss an opportunity to impose effective cryptocurrencies tax, and lose taxpayers’ trustworthiness as well as financial stability.
Hypothesis
There are provisions regarding personal income tax on cryptocurrencies in Thai Revenue Code. However, such provisions remain deficient in practice. Therefore, the existing law should be reviewed or amended.
Objectives of Study
The present study is understand with the following objectives 1.3.1 To study meaning of cryptocurrencies 1.3.2 To study characters of Bitcoin, Ether, and Litecoin 1.3.3 To study foreign tax notices regarding cryptocurrencies. 1.3.4 To study the imposition of personal income tax on income from cryptocurrencies in Thailand. 1.3.5 To study problems of personal income tax imposition related to cryptocurrencies in Thailand.
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1.4 Scope of Study
This thesis focuses on provisions regarding cryptocurrencies tax, especially personal income tax in the Thai Revenue Code, the notice from the Revenue Department and the Securities and Exchange Commission, including foreign tax guidance on personal income tax; notice 2014-21 of the United States, and legal treatment of tax on cryptocurrencies in Australia.
1.5 Methodology
The research methodology of this study is Documentary Research. The writer conducts this study with all types of documents; law journals, articles, books, textbooks, websites, including academic seminars. Then all relevant information will be analyzed with in an attempt to suggest appropriate solutions.
1.6 Expected Results
1.6.1 To understand the meaning of cryptocurrencies. 1.6.2 To understand characters of Bitcoin and Ether and Litecoin 1.6.3 To understand foreign tax notices regarding cryptocurrencies. 1.6.4 To understand the imposition of personal income tax on income from cryptocurrencies in Thailand. 1.6.5 To propose recommendations of personal income tax imposition related to cryptocurrencies in Thailand.
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CHAPTER 2 GENERAL PRINCIPLES IN RELATION TO CRYPTOCURRENCIES AND INCOME TAX
The purposes of this chapter are to introduce the definition of cryptocurrency, to examine outstanding cryptocurrencies such as Bitcoin, Ether, and Litecoin and describe briefly what they are, and how they work. To understand the characteristics of persons in cryptocurrency market. In addition to review the principles of the imposition of tax, the concepts of being good tax and general personal income tax.
2.1 Introduction to cryptocurrency
The word ‘cryptocurrency’ is the combination of two words; cryptography and currency, it means the currency which uses cryptography for security, according to the meaning of Oxford dictionary cryptocurrency is a digital currency in which techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.11 Moreover, many agencies try to define the meaning of cryptocurrency such as “virtual Currency as a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.”12 “Digital currencies, and especially those which have an embedded decentralised payment mechanism based on the use of a distributed ledger, there are an innovation that could have a range of impacts on various aspects of financial markets and the wider economy.”13
11 Oxford Dictionaries | English. (n.d.). cryptocurrency | Definition of cryptocurrency in English by Oxford Dictionaries. [online] Available at: https://en.oxforddictionaries.com/definition/cryptocurrency. Accessed on September 8, 2018. 12 European Center Bank. Virtual Currency Schemes. Oct. 2102, www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf. Accessed on December 7, 2018. 13 Bank For International Settlements. Digital Currencies. Nov. 2015, www.bis.org/cpmi/publ/d137.pdf. Accessed December 8,, 2018.
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“Virtual Currencies are digital representations of value, issued by private developers and denominated in their own unit of account. They can be obtained, stored, accessed, and transacted electronically, and can be used for a variety of purposes.”14 According to international organizations, cryptocurrency is an unregulated digital or virtual currency, designed to work as a medium of exchange which apply cryptography, a method to store and transmit data in special form so the only person who can read need to have a secret key, to secure financial transactions, create new units, and verify the transfer of values. Cryptocurrency does not exist in physical form but it is used and accepted among the specific community.15
Name Symbol Market Cap Price Volume(24h)
1 Bitcoin BTC $70,553,555,042 $4,046.72 17,434,750
2 XRP XRP $15,080,383,574 $0.369958 40,762,365,544 *
3 Ethereum ETH $11,892,701,819 $114.43 103,927,887
4 Bitcoin Cash BCH $3,282,306,273 $187.31 17,522,975
5 Stellar XLM $2,430,878,745 $0.126871 19,160,191,069 *
6 EOS EOS $2,419,644,085 $2.67 906,245,118 *
7 Bitcoin SV BSV $1,933,117,567 $110.32 17,522,223
8 Litecoin LTC $1,905,449,813 $31.93 59,667,638
9 Tether USDT $1,889,934,498 $1.02 1,856,421,736 *
10 TRON TRX $1,376,479,932 $0.020660 66,625,206,178 Table of cryptocurrencies on December 21, 201816
14 INTERNATIONAL MONETARY FUND. Virtual Currencies and Beyond: Initial Considerations. Jan. 2016, www.imf.org/external/pubs/ft /sdn/2016/sdn1603.pdf. Accessed on December 8, 2018. 15 OECD. How to Deal with Bitcoin and Other Cryptocurrencies in the System of National Accounts? 5 Nov. 2018, www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=COM%2FSDD%2FDAF(2018)1&docLanguage=En&fbclid=IwAR16LqiaEL 0SWQTVESKfhzjxkndTNtLwvXUyd8VOtO8TnOlRuXKHBBfQKDQ. Accessed on December 8, 2018. 16 “All Cryptocurrencies.” CoinMarketCap, coinmarketcap.com/all/views/all/. Accessed on December 21, 2018.
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On 20 March 2018, there are currently 1,568 different cryptocurrencies available,17 and new cryptocurrencies can be created at any time. However in this chapter provides an overview of the most prominent cryptocurrencies such as Bitcoin, Ether, and Litecoin.
2.2 Examples of cryptocurrencies
2.2.1 Bitcoin Bitcoin18 is the first and most widespread cryptocurrency. The increase in value causes higher demand. The value of Bitcoin has grown to 958.32% from January to December 2017, its price was almost hit 20,000 USD per coin in December, despite its fall from the peak to current 879 USD per coin in March 2018, Bitcoin holds the biggest market share of approximately of 43.72%,19 the demand of this cryptocurrency still continues and there are billions of dollar in Bitcoin market trade daily. In 2009, Satoshi Nakamoto20 who is a person or a group of people created Bitcoin and set the amount of Bitcoin in the world at only 21 million Bitcoins in total. There is estimation that the last Bitcoin will be released before 2140.21 The reasons behind innovation of Bitcoin were being alternate currency which the Bitcoin users can control the system which is peer-to-peer network22 by
17 “Global Cryptocurrency Exchange Trends, Report & Statistics March 2018.” HiveEx, www.hiveex.com/hiveex-cryptocurrency-report. Accessed 2 Oct. 2018.
18 A type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Oxford Dictionaries | English. (n.d.). bitcoin | Definition of bitcoin in US English by Oxford Dictionaries. [online] Available at: https://en.oxforddictionaries.com/definition/us/bitcoin. Accessed 2 Sep. 2018. 19 See Supra note 16. 20 Coindesk. “Who Is Satoshi Nakamoto? The Creator of Bitcoin Remains Elusive.” CoinDesk, CoinDesk, 19 Feb. 2016, www.coindesk.com/information/who-is-satoshi-nakamoto/. Accessed on September 8, 2018. 21 Volastro, Anthony. “CNBC Explains: How to Mine Bitcoins on Your Own.” CNBC, CNBC, 24 Jan. 2014, www.cnbc.com/2014/01/23/cnbc- explains-how-to-mine-bitcoins-on-your-own.html. Accessed on September 8, 2018. 22 A peer to peer network is decentralized, data in network is stored across the various computers constituting the network. Moreover this network allow user contract each other directly.
Ref. code: 25615901040377MXO 9 themselves without going through a financial institution,23 free from the risk of fiat money24 such as inflation, reduce the time and cost of transactions. The value of Bitcoin derives from the system of demand and supply. Bitcoin is digital files or ledger which contains names and balances,25 its network allows users to send and receive Bitcoins by changing this file, for sending and receiving Bitcoin, the users always have digital wallet which is an electronic file to store Bitcoin and the history of transactions, it can be kept on desktop, smartphone, or an online wallet service and receive the key pair; a public key and private key are set in the form of long letters and numbers, when the users make transaction, public key would be used to identify themselves and their bitcoins, while using private key to create a signature to authorize a transaction.26 When the Bitcoin users would like to use Bitcoin in a transaction, purchase, sell, or transfer, they must specify their public key, the amount of Bitcoin in which will be sent and identify the recipients’ public key as their address, the senders will use their private key and the detail of transaction to create a signature which are changed into a special cryptographic function or hash, a random sequence of letters and numbers to keep the Bitcoin users’ identities secret, it cannot be copied or reused in the future because of the unique to each transaction. Then the transaction will be broadcasted, participants in this system can see and have opportunity to verify the transaction, when the recipients acknowledge receipt of the Bitcoin, they will use their private keys to confirm the receiving of Bitcoin in their digital wallets.
23 Nakamoto, S. (2009). [online] Bitcoin.org. Available at: https://bitcoin.org/bitcoin.pdf. Accessed on September 2, 2018. 24 Fiat money is defined as a currency that a government has declared to be legal tender, but it is not backed by, or redeemable for, a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made. Radcliffe, Brent. “Fiat Money.” Investopedia, Investopedia, 4 Aug. 2018, www.investopedia.com /terms/f/fiatmoney.asp. Accessed on September 8, 2018. 25 Driscoll, Scott. “How Bitcoin Works in 5 Minutes.” How Bitcoin Works Under the Hood, 13 Apr. 2014, www.imponderablethings.com /2014/04/how-bitcoin-works-in-5-minutes.html. Accessed on September 10, 2018. 26 “How Does Bitcoin Work?” FAQ - Bitcoin, bitcoin.org/en/how-it-works. Accessed on September 17, 2018.
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Bitcoin Transaction27 Sends personal bitcoin address Bitcoin Owner Bitcoin Recipient
Bitcoin is Sent and Verified
Enters Key Pair and Recipient’s Bitcoin Address Acknowledges Receipt and Receives the Key Pair Having Bitcoins, users can mine them, also buy them directly from another user, exchanges, or in peer to peer marketplaces.28 Mining is the process of verifying and adding Bitcoin transaction records to the blockchain since Bitcoin system is maintained by every participant, when a transaction is created, it will be turned into a block, and become part of blockchain29 when it is verified by the potential individuals, called miners who volunteer to verify the transaction such as to check the signature, to approve it is created by the account owner and applied to specific transaction, to prevent double Bitcoin spending30 for Bitcoin community. To verify the transaction, miners use the computer power to calculate and uncover mathematical algorithms, hash, and the miner who is the first to find a solution will acquire a number of Bitcoin as a reward for each correct hash uncovered.31 As Bitcoin mining uses complicated program to solve the mathematical formula, has high computer performance, includes computer specialist, the cost of this activity is quite expensive, it might not be worthy enough, thus the people who are interested, have options to hire some miners to mine Bitcoin for them instead.
27 Elizabeth E. Lambert, The Internal Revenue Service and Bitcoin: A Taxation Relationship, 31.1 Va. Tax Rev. 88. 28 Id. 29 Acheson, Noelle. “How Bitcoin Mining Works.” CoinDesk, CoinDesk, 31 Jan. 2018, www.coindesk.com/information/how-bitcoin-mining- works/. Accessed on March 8, 2018. 30 Double spending is the risk that a digital currency will be spent twice. This problem is unique to digital currencies because digital currencies can be reproduced, the holder can make a copy of the digital token and send it to a merchant or another party while retaining the original. Staff, Investopedia. “Double-Spending.” Investopedia, Investopedia, 5 July 2018, www.investopedia.com/terms /d/doublespending.asp. 31 See supra note 27.
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At the beginning, Bitcoin was used in crime community such as Silk Road, the website create to provide the illegal things such as illicit drugs, guns because one of the characters of Bitcoin is anonymous, the users can seal their real information. However many online retailers have begun to see the value of Bitcoin use. For example, in 2014, Overstock.com was the first retailer to accept Bitcoin as the means of payment32, Dell, Expedia and other retailers affirm payment in the form of Bitcoin latter. Furthermore the restaurants33 and nonprofit entities such as the Massachusetts Institute of Technology,34 Simon Fraser University,35 Canadian university, have allowed Bitcoin into be used for their transactions. Because of Bitcoin’s decentralized nature, it reduces the costs for the sellers who accept Bitcoin. Generally when buyers purchase goods or services and use their credit or debit card, the processing fees are charged to seller at around 2% to 5% for the transaction, in addition sellers can be charged with fees for chargebacks in credit card transactions. While sellers are charged with small costs and do not face chargeback problem if they accept Bitcoin, they receive the benefits. Consequently, the number of retailers tends to glow increasingly. 2.2.2 Ether After the success of the first cryptocurrency, Bitcoin, in 2014, the creators; Vitalik Buterin and Dr. Gavin Wood applied the concept of cryptocurrency and blockchain to create Ethereum which is decentralized platform to operate smart- contracts.36 For development of network, Buterin and Wood established the Ethereum Foundation to handle the legal and financial issues relating to the presale of Ether which required the use of other cryptocurrencies to purchase Ether. At the
32 “Overstock.com Now Accepts All Major Alt-Coins Including Bitcoin Cash through Integration with ShapeShift.” Proxy Materials - Overstock.com, 8 Aug. 2017, investors.overstock.com/mobile.view?c=131091&v=203&d=1&id=2292540. Accessed on September 15, 2018. 33 “About Bitcoin Restaurants.” Find Restaurants That Accept Bitcoin in the United States | Bitcoin Restaurants, bitcoinrestaurants.net/. Accessed on May 5, 2018. 34 “MIT Bookstore Accepts Bitcoin Payments as Campus Interest Grows.” CoinDesk, CoinDesk, 25 Sept. 2014, www.coindesk.com/mit- bookstore-accepts-bitcoin/. Accessed on May 5, 2018. 35 “Simon Fraser UniversityEngaging the World.” Wellness Quiz - Health & Counselling - Simon Fraser University, www.sfu.ca/university- communications/media-releases/2015/digital-currency-on-campus-buy-bitcoin-and-books-at-sfu.html. Accessed on May 5, 2018. 36 Build Unstoppable Applications, ETHEREUM, https://www.ethereum.org. Accessed on October 14, 2018.
Ref. code: 25615901040377MXO 12 time, the event was successful, as the foundation received net 31,591 Bitcoins, worth over $18 million, in exchange for over 60 million Ether.37 After the presale, Buterin and Wood founded ETH DEF, an organization to manage further development of Ethereum, the first version known as Ethereum Frontier was released in 2015, Ethereum Homestead as second version in 2016 and third version called Ethereum Metropolis in 2017. Ether or ETH38 is the virtual medium of exchange used on Ethereum platform, and it is one of the dominant currencies which is traded on cryptocurrency exchanges. Generally, apart from mining, users can obtain Ether by purchasing with fiat money or Bitcoin in exchanges and trade it for Ether later.39 Mining of Ether is decentralized process related to confirming the Ether transactions, a new block is a result from mining process which is added into the blockchain. When bundling the transaction into a block, the miners take information from two blocks and turn it into a mathematical formula, called hash.40 Each hash has properties found in the previous block which allows the new block to connect within the blockchain, this process needs the high performance computer, the costs of mining including the hardware and electricity are quite expensive, thus once the block is inserted into the blockchain, some Ethers are rewarded to the miners. For Ethereum Metropolis version, however, requires miners to use their Ether as collateral in verifying transactions, in addition the users who lack funds and skills can reach the validation process, it affects the increasing the blockchain’s decentralization.
37 “History of Ethereum.” What Is Ethereum? - Ethereum Homestead 0.1 Documentation, ethdocs.org/en/latest/introduction/history-of- ethereum.html. Accessed on October 14, 2018. 38 “Exchange Cryptothe Fastest Way.” Instant Cryptocurrency Exchange Platform | Best Cryptocurrency Exchange Rates at Changelly.com | Changelly, changelly.com/. Accessed on October 14, 2018. 39 Bovaird, Charles. “What Investors Should Know Before Trading Ether.” CoinDesk, CoinDesk, 9 May 2016, www.coindesk.com/what-to- know-trading-ethereum. Accessed on October 14, 2018. 40 Acheson, Noelle. “How Bitcoin Mining Works.” CoinDesk, CoinDesk, 20 Aug. 2013, www.coindesk.com/information/how-bitcoin-mining- works. Accessed on October 14, 2018.
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Ethereum is outstanding than other cryptocurrencies because of its function which is smart contract. It is computer program code that facilitates, implements, and enforces agreements using blockchain technology.41 Smart contracts are created by the programmers who use the smart contract development tools and programming code which set the rules for the contract, the obligation of parties, and the benefits and consequences for many circumstances. When the term of the contract is or is not satisfied, the smart contracts would automatically be executed or enforced. For instance, when the price reaches a specified price, the things which provided in the contract are traded immediately. 2.2.3 Litecoin Litecoin or LTC is one of the most popular cryptocurrencies, the third- largest cryptocurrency on the market.42 It was created in October 2011 by Charles Lee, MIT graduate and former Google engineer. The amount number of Litecoin was set at 84 million Litecoins in total because the creator had a concern regarding inflation problem. Now the system of this cryptocurrency has been maintained by the Litecoin Core team on GitHub. Litecoin is decentralized open source technology which has peer-to- peer system, so it is similar to other cryptocurrencies that governments or financial institution such as banks or credit companies cannot be involved in this system. One of the outstanding features from Litecoin is online payment system that allows users to transfer their currency to others like Paypal or bank’s online network at high speeds, faster than ordinary and Bitcoin transferring43 at low cost of
41 Palmer, Daniel. “How Do Ethereum Smart Contracts Work?” CoinDesk, CoinDesk, 30 Mar. 2017, www.coindesk.com/information /ethereum-smart-contracts-work. Accessed on October 14, 2018. 42 McFarlane, Greg. “What Is Litecoin, and How Does It Work?” Investopedia, Investopedia, 5 Oct. 2018, www.investopedia.com/articles/ investing/040515/what-litecoin-and-how-does-it-work.asp. Accessed on December 1, 2018. 43 The confirmation of Bitcoin transaction spent around 9 minutes, while Litcoin transaction is confirmed within 2.5 minutes. Pellizzari, Giogia. “Bitcoin vs Litecoin: In Depth Comparison.” UNHASHED, 17 June 2018, unhashed.com/coin-comparison/bitcoin-vs-litecoin. Accessed on December 1, 2018.
Ref. code: 25615901040377MXO 14 transaction fee regardless the size of transaction, for example, it costs 1/1000 of a Litecoin to process a transaction, while Paypal is 3% fee.44 Litecoin can be purchased from cryptocurrency exchanges such as Coinbase by using fiat money or other cryptocurrencies, however the users who have potential and resources enough such as ungodly processing power, courtesy of specialized hardware can mine Litecoin by themselves. For Litecoin transaction, it seems like other cryptocurrency, users can transfer their coins from their wallet to the recipient’s wallet by using private and public keys similar to Bitcoin transaction, users can use the recipients’ public key as their address and impose the amount of Litecoin and wait the miners to verify this transaction. Since Litecoin is cryptocurrency, cryptographic technique is used to secure network, so mining is an activity to check and verify Litecoin transaction. For this cryptocurrency, miners need to solve complicated cryptocurrency puzzles and the first who gets the solution will receive 25 Litecoins as a reward. In the past the amount of reward was 50 Litcoins per block but every 4 years or 840,000 blocks, the reward will decrease by half until 84 million of Litecoins are fully produced. For first period of Litecoin creating, it was difficult for creator to develop the reputation of it because Bitcoin has dominated the market since 2009 and Litecoin was a new cryptocurrency. Finally it has become increasingly popular as a payment option and now there are many online retailers which accept Litecoin as means of payment. For example, spending Litecoin on eGifter, a New York based gift giving site, or paying for IT services to Ellenet, the Australian firm, making a donation to Sean’s Outpost, the homeless outreach center, buying mining hardware from KnCMiner or a car on Benz and Beamer.45
44 See Supra Note 40. 45 Kalpan, Andreas. “Business That Accept Litecoin 2018: What Can I Buy With Litecoin? - Fri Nov 30.” Smartereum, 30 Nov. 2018, smartereum.com/10904/business-that-accept-litecoin-2018-what-can-i-buy-with-litecoin-fri-nov-30. Accessed on December 1, 2018.
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2.3 The actors in cryptocurrencies activities
The more cryptocurrencies created, the morethey attract people into crypto market. Since each person has own characteristics and activities, this sector describes only the important group of people in relation to the cryptocurrency market: Cryptocurrency users can be both individuals and legal persons who receive coins and use as means of payments such as purchase goods and service, or hold them as investment. There are many ways to acquire coins, if users have money or other cryptocurrencies, they can buy them from exchanges or directly from other users. In the case users have potential and technology with sufficient high performance, they can mine by themselves. If users do a business and accept cryptocurrencies as means of payment, they also receive coins as well. Moreover users can get cryptocurrency in form of gift or donation. Miners are volunteers to maintain cryptocurrency systems by verifying transaction, solving a cryptographic puzzle. The first person who finds the way will receive coins as reward. Wallet providers are entities that provide digital wallets for users who use digital wallet to hold, and store the coins. Cryptocurrency exchanges are persons or entities who provide services to users such as to provide exchange rate, sell or buy coins. They allows users to use cash, credit card, or other cryptocurrencies to make payment. Some of the dominant exchanges, Coinbase, Bitfinex. The exchanges will receive fees in return. Trading platforms are market places that allow users to directly trade with each other, they do not involve, or investigate in the transactions. For example, LocalBitcoin, a well-known platforms for Bitcoin.
2.4 The principle of taxation law
In general, the law which affects people’s rights and liberties is prohibited unless it does not violate the constitution law of such country.
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Tax is a compulsory contribution from the citizens of a country, which came from persons and legal persons and from both of private and public laws, to the government. There is no give and take relationship in case of tax payment that means taxpayers do not receive any direct services in return. The purposes of taxation are to produce income to government for paying debt, providing for common defense and general welfare of the country.46 To create the equity in society, all citizens must pay tax, even the amount of tax of each persons is different because of the ability to pay, but governments give equally benefit to people regardless the amount of tax which they paid. In addition to intervention in economy, government can regulate and control economic activity by using tax as a means. For example, government can decrease tax for internal entrepreneurs, and set tax wall to restrict importation. In this case internal entrepreneurs will produce more profits, it encourages the employment, and finally the economy of country extends. Even taxation is the main source of governments’ revenue but the imposition of tax affects the benefits, limits the rights of people, and assigns the duty on people because the people have to sacrifice some of their property to governments. Thus imposing tax on any people or activities, there must be legal measures which allow governments to collect tax expressly for making people give their consent to pay and governments have a legitimacy to exercise their power that effects the people’s rights. In many countries, there is a basic constitutional principle stating that any act of taxation must have a legal basis which means that no tax can be levied except under authority of a law. There are many countries which developed this concept in their constitution directly such as Canadian Constitution article 91 (3) while in other countries such as Thailand, this principle might not be written obviously but it derives from other constitutional rules. Even Thai constitution does not state the legal basis for taxation directly but there are two other constitutional provision related to the legal basis for taxation: the personal freedom which cannot be restricted except by
46 Article 1 Section 8 of the U.S. Constitution, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”
Ref. code: 25615901040377MXO 17 law, and the enactment of law which restrict the right or liberties of a person, including tax collection, shall be in accordance with the conditions provided by the constitution, or shall not be contrary to the rule of law. Besides concern to constitution, governments need to consider the following essential fundamental principles before enacting any tax laws. (1) The Principle of Consent After the revolution in many western countries such as the Glorious Revolution in England, or the American Revolution, there were some effects in fiscal system, the imposing tax became under the rule of law and principle of consent. The governments can collect or use tax with the consent of the congress which is selected by the people for working as their representatives and their consents are considered as the consent of the people. Moreover, the governments have duty to assure the people by designing the taxation system which is effective enough, the imposition and expenditure of tax is accountable and transparent. (2) The Principle of Equality This principle is one of the fundamental rights of human dignity, any countries which have the democracy system always have this concept in the constitution. The meaning of equality is that every individuals receive the equal treatment regardless their status from the law which is used completely and impartially, and in the same circumstances people should be treated equally, discrimination is forbidden unless it is written in the constitution law which are mostly for public interest reasons. The equality of tax law means tax law is general and treated equally, the differences of ethnicity, religion, or race cannot be regarded to impose tax variously. Every people have to bear the public expenditure by paying tax equally, however, the amount of taxable income can be different depends on the economic ability of the individual. In addition, tax exemption, deduction or other benefits should be general and reasonable. (3) The Principle of Legality This principle refers to the administrative acts have to be legitimate, in the case of such acts may effect to the right, liberties or any benefit of people, there must be
Ref. code: 25615901040377MXO 18 the law which is legislated clearly to authorize the state officers and they can act within the imposed limit by the law. In taxation sense, approving imposition on tax, imposing tax are the administrative acts, thus tax officers need to follow tax law which is legitimated by the legislature and its contents are not contradict to the constitution law, to act within the limit. (4) The Principle of Proportionality The Principle of Proportionality, there was a quote to explain the meaning of proportionality concept saying “you must not use a steam hummer to crack a nut, if a nutcracker would do”47 This concept relates to the relationship between the goals to be attained and the means used by legislator. The German Court has developed this concept with three elements; suitability, necessity, and proportionality in the strict sense.48 It means that the measures imposed should be suitable for achieving the desired objective, it should not be disproportionate to the objective and the government should select the less restrictive means if it results in equally effective. When this concept is used in tax sense, it limits the power of government. Tax measures should be suitable which are not beyond achieving and not excessive, the governments should balance the means to receive interests and the effects on individual freedom. For being good tax, government should consider other theory such as Adam Smith’s theory apart from essential fundamental principles which were mentioned above. Adam Smith, Scottish economist, devoted most part of his famous book, the Wealth of Nations49, discussing on the four maxims which consisted of equity, certainty, convenience, and economy. The book was published in 1766 but nowadays these concepts are still applicable for tax imposing.
47 R v Goldstein (1993) 1 WLR 151, 155. 48 The principle of proportionality and the concept of margin of appreciation in human rights law. (2013). [PDF] Basic Law Bulletin Issue 15. Available at: https://www.doj.gov.hk/eng/public/basiclaw/basic15_2.pdf. Accessed 8 Sep. 2018. 49 Smith, Adam, et al. The Wealth of Nations: Adam Smith. Bantam Classic, 2003.
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According to equity, generally, a person who has income must pay tax to the government, the amount which he/she has to pay depends on the proportion of income he/she received. Thus for equal tax imposing, the government must focus on the ability of the person which is significant and has many distinguished comments. However the economists can divide the equity of imposing tax into two main principles. First, principle of absolute equity, the reason behind this principle is that expenses of the government should be spread to every taxpayer at the equal amount. Consequently, every taxpayers has to pay tax at the same proportion, regardless of such individual’s ability to pay. Secondly, principle of relative equity, it can be divided into 2 principles; the benefit principle, and the ability to pay principle. For the benefit principle, the more a person receives the public services, the more such person has to pay tax to the government, and on the other hand, if he/she receives a less benefit, the amount of tax which he/she has to pay should be in smaller portion, and the person who never receives the public service, should not pay the tax. In practice, however, this principle cannot apply efficiently because some of public services are not provided directly to people. They cannot be calculated in numbers such as the security and maintain the society, or in the case that the government can calculate the price but it may be unequal to some group of people, for example, if the government increases the educational fees for the public schools, the poor people may not be able to study as much as the from another class of the society. While, the ability to pay principle, is considered by property, income, wealth, and expenses of individual to impose tax. To quote Adam Smith, “the tax which each individual is bound to pay ought to be certain and not arbitrary50” Certainty is one of the principles of good tax system, for this principle, imposing tax must be clear, certain, and reasonable, the government
50 Smith, A. (2007). An Inquiry into the Nature and Causes of the Wealth of Nations. [ebook] MetaLibri Digital Library, p.648. Available at: https://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf. Accessed 2 Oct. 2018.
Ref. code: 25615901040377MXO 20 should focus on the certainty of taxpayer which person has duty to pay tax, the amount to be taxed, it is useful for both the taxpayers and tax agencies because taxpayers will be aware of their responsibilities and can adjust their income and expenditure before the financial year comes, meanwhile, tax agencies can collect tax without interpretation and reduce the expense for tax calculation because tax agencies can predict roughly the total amount obtained revenue in advance. Moreover the certainty of tax evasion is necessary as well, the government should regulate which actions of tax evasion are illegal, or tax avoidance which is still lawful, the boundary which tax officers can reject such means of tax evasion or avoidance. For convenient, he stated that “Every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it”51 from his statement, the taxation should concern the conveniences of taxpayers by specifying the appropriate time when the taxpayers have income, or places that are easy to communicate to pay tax. In the present of tax payment, the Revenue Department served taxpayers by providing the places and information such as the tax form which is easily understood and used extensively, and the ways of payment, they can pay online, by cash, or cheques. Economy, To support this principle, he mentioned that “ Every tax is to be so contrived as both to take out and keep of the pockets of the people as little as possible over and above what it brings into the public treasury of the state 52” the amount of expenses which the government paid for all the taxation should be least, and the government should have measures to limit the expenses not only for the government but also for taxpayers because any expenses such as travelling expenses or other trouble excluded from the amount of taxable income are the taxpayers’ burdens which can be obstacle for effective taxation. More than 200 years ago. Adam Smith mentioned his four maxims principles which have been applied throughout the years, however, the financiers gradually
51 Id. 52 Id.
Ref. code: 25615901040377MXO 21 developed and increased new principles which should be applied in taxation and can deal with the latter changes appropriately. For instance, the acceptability, enforceability, productivity, and flexibility. The tax which is accepted by people must have the systems to collect tax equally. The belief and trust which people have on the state also has effect on the taxation, it means that if the state has potential to make people believe or trust, such as the more the state can show the benefit which people will receive in the future, the more they accept to pay tax. However, for enforceability, the tax which is imposed must have the realistic and enforceable imposing system in practice, in the case of some tax that has good reason to collect in theory but the system of collection is too difficult in practice, such tax enforcement does not match the principle of good tax imposing. Due to tax is one of the public revenues, the character of productive tax has wide base and tax base can expend by leaps and bounds following the growth of economic, the government gets a lot of money from such tax, regardless of the increase on tax rate. Moreover, when the economic activity changes, or government aims change, tax should be adjusted to such changes. For instance, when economic of the state is growing up, more people will be employed, incomes will rise and people spend more, the government can use tax as a tool to manage the state’s economy, a rise in tax revenue, without any change in the rates, can reduce the rise in aggregate demand and prevent inflationary pressure building up. Therefore tax should be elastic enough to meet the immediate needs of the present and the growing needs in the future.53
53 Principles of Taxations. (n.d.). [ebook] GS Score. Available at: https://iasscore.in/pdf/samplenotes/principles%20of%20taxation.pdf. Accessed 29 Sep. 2018.
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2.5 Introduction of personal income tax
Income tax is one of taxes which most countries impose, it is levied on net income (i.e. from employment, business investment) realized by the taxpayer over an annual tax period.54 There are two theories for personal income tax; schedular and global. A schedular income tax is a model which separate taxes imposed on different categories of income.55 It means gross income and deductible expenses, whether with limited deductions or no deductions are considered separately for each type of income, the rate of tax and the procedures of assessment, reporting or tax collection may be applied differently depending on the category of income. However this system have some disadvantages, due to many types of income and each category has its own procedure, it is difficult to administer who have to pay administrative resources to classify the problem among each of income. For example, income from employment and income from business, self-employment, and income from different sources will be taxed differently, the Revenue officers have duty to characterize and explain how they are different to taxpayers. Such process leads to more burden on the government. In addition, the progressive taxation is difficult or impossible to impose in this system because there are many types of income and the progressive rate may be applied to some categories that only affects other taxpayer’s equality who get different type of income, as well as personal tax relief which cannot be effective because it must be applied only by category of income or divided among various categories of income.56
54 oecd-ilibrary.org. (2014). Fundamental principles of taxation. [online] Available at: https://www.oecd-ilibrary.org/docserver/ 9789264218789-5-en.pdf?expires=1538489912&id=id&accname=guest&checksum=985E92AE43679764E8B48A66D209671F [Accessed 2 Oct. 2018]. 55 Burns, Lee, and Richard Krever. Individual Income Tax. www.imf.org/external/pubs/nft/1998/tlaw/eng/ch14.pdf?fbclid=IwAR2bI6oP2Ly TXvX_OVVpFQppSDwdWbytwMqX49x_FNQLU5P78IQ4nOzzRWA. Accessed 30 Nov. 2018. 56 Id.
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While global income tax is a model which has a single tax for imposition, in this system, all income despite its nature only has single net gain which is subject to tax.57 Even a global system seems to be more preferable, in practice many countries apply both of models. For personal income tax, there are four essential concepts; (1) taxable person, (2) tax period, (3) taxable income, and (4) tax payable. First, taxable person, in the case of taxation law, it specifies the different consequences such as the duty to provide information to tax officers, to file a tax return, to pay tax, and to withhold the payment to different persons. Thus it is necessary to know tax unit which affects the taxable income that is calculated and other obligations The example of important tax units are individuals, and married couples or families. Since couples or families are considered as tax unit, it affects taxable income calculation because income and deductions of all person will be included together in one tax unit. In the case of married couple which is considered as tax unit, the marital status will determine in accordance with civil law rules, so if the couples do not abide by civil law, they are not treated as tax unit for tax purposes. Nowadays, many countries which are members of OECD accept married persons by creating compulsory or optional separate tax unit with some special conditions depending on the state’ s policy, however, several countries have applied separate taxation of persons, regardless marital status. Second, taxable period, normally tax period is specified at 12 months to be parallel with the government’s budgetary year or the calendar year. However in special circumstances, some taxpayers may use accounting period to file tax. Third, taxable income, it means that the gross income which is the total of amount derived by the person subtract the total deductions for the period.58 This
57 Id. 58 For example, AUS ITAA (1997) section 4-15(1), “taxable income = assessable income – deductions”; USA IRC section 63 (a), “taxable income defined as gross income minus deductions.”
Ref. code: 25615901040377MXO 24 concept can be defined as the income tax base which has three elements for its definition: gross income, exempt income, and deductions. Gross Income, the income which the person derived and such income exclude the amount of exemption. For example, USA IRC section 61(a) refers to gross income that all income from whatever source derived. While exempt income is not concluded in gross income as mentioned above, it will not be calculated for taxable income. There are many types of exempt income which have their own purposes. For example the amount of income can be exempted because of compassion reasons such as welfare payments, scholarships or some the entities in relate to the religions, charities. In addition the amount of income from official employment or foreign- source of a foreign diplomatic officer, consular officer, extend to family members should be exempted due to the Vienna Convention on Diplomatic Relations. Moreover exempt income can be used for political or administrative reasons such as to be an incentive for some activities, for example, if government would like to encourage retirement saving, it may consider to exempt the income of a retirement fund. Deduction is the allowance amount which permits taxpayers to deduct some expenses from gross income. For example, the amount deduction for capital allowances such as depreciation, and tax incentive such as charitable donations. Fourth, tax payable, it involves with tax rate and tax offset. For income tax rate scale, progressive rate and flat rate are important tools which are used by the government to create effective taxation system. For example, government can impose a broad marginal rate which most of taxpayers will fall under. Progressive rate structure is accepted as an effective rate of tax, because this system concerns on the ability to pay of taxpayers. The more income taxpayers receive, the more they have to pay tax. While flat rate structure will be adapted in many cases, for example, in the case of withholding taxes on special types of income, such as income from capital. This structure is much more simple and fair than a progressive rate structure.
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Therefore, it is the duty of government to apply appropriately tax rate structure because each of structures affects the behavior of taxpayers such as if government applies flat rate to individuals, they may feel less incentive to pay tax, or in the case that government impose the progressive rate for legal persons less than the maximum marginal rate for individuals, the owner may split his or her income to entities that he or she own. Tax offsets is one of subtractions which involves in the calculation of tax payable. It is a subtracted amount from tax payable after the calculation of taxable income. Normally tax offsets are known as many technical terms such as tax credits, tax rebates and deduction. In conclusion, after the creation of Bitcoin, the market of cryptocurrencies is larger, many new cryptocurrencies are rising, and the amount of people who are interested in this market also increase at the same time because cryptocurrencies are not only used as a means of payments for goods and services but could also be held as investment. A lot of cryptocurrency users receive some benefits such as money from holding and trading in cryptocurrencies. When persons have income, the question about tax results occurs, however the imposition of tax is not simple, even when taxation is the main source of government revenue but it affects benefits and limits the rights of people, thus to collect tax, governments need to be careful and follow all measures strictly. Before enacting any tax law, particularly the imposition of tax, governments do have concerns regarding all of essential fundamental principles such as principle of consent, equality, legality, or proportionality. Any tax law or measures should comply with all principles. Apart from fundamental principles, such implication of tax laws or measures issued by governments should be good tax, for example, if government would like to impose personal income tax from cryptocurrencies, government shall enact the laws or measures which are abide by equality, certainty, convenient, and economy too.
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CHAPTER 3 LEGAL TREATMENT OF TAX ON CRYPTOCURRENCIES UNDER FOREIGN LAWS
This chapter is related to legal tax treatment on cryptocurrencies by choosing three outstanding foreign tax treatments; first is Australian tax treatment because its content has been recently updated and has many new interesting issues which are never mentioned in other foreign tax treatment, what you should know about digital currency and digital currency from Canada, and another tax treatment is the Notice 2014-21 from the United States which is the first country to realize the tax consequences from virtual currencies transaction and release virtual currency tax notice. The purposes of this chapter are to inform and examine how to impose personal income tax from cryptocurrency transactions, such as investing, trading or mining in foreign countries, what is the status of cryptocurrency from the view of the tax authorities, and how to value or calculate gain or loss including how to record the necessary information for creating the appropriate concept to Thai further tax treatment in the future.
3.1 The Organisation for Economic Co-operation and Development (OECD)
The Organisation for Economic Co-operation and Development (OECD) is international organization which provide a space for debate about policy experiences of each member states on international level to create guidelines for best practices to improve economic and social well-being of people around the world.59 Now there are 36 member countries such as Australia, Canada, the United States, France, Germany, Japan, et cetera.60
59 “About the OECD.” Estadísticas - OECD, www.oecd.org/about/. Accessed on December 8, 2018. 60 “Members and Partners.” Estadísticas - OECD, www.oecd.org/about/membersandpartners/. Accessed on December 8, 2018.
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In the view of OECD, cryptocurrencies are considered as an asset. 61 Due to the definition of assets from the System of National Accounts (SNA), the internationally agreed standard set of recommendations on how to combine measures of economic activity,62 states in 2008 1.46.63 Cryptocurrencies are electronic data units which are owned by users, the owners who have private key of the account have their ownership over the coins, they can use, or dispose them as they want. The owners who possess coins acquire some economic benefit from holding them. The value of the cryptocurrencies depends on the demand of them in crypto market. Thus, according to this section cryptocurrencies are considered as one of the assets. Moreover, OECD classifies the assets into two types; financial and non-financial assets. An asset is recognized as financial when there is a claim on another institutional unit.64 In general, cryptocurrencies are issued by inventors, and there is no liability or obligation between inventors and users, therefore they are not financial assets. However, if cryptocurrencies are issued by central banks or government, they have a corresponding liability and should be regarded as financial assets. For example the government of Venezuela issued Petro, a cryptocurrency, in 2018. Even this type of issuance is not common practice but it inspires many central banks or government to study the possibility of doing so.65 In addition, OECD affirms that even some cryptocurrencies can be used as traditional currencies but they are not because there are three criteria to consider whether is money; medium of exchange, store of value, and unit of account. Although cryptocurrencies are more accepted from businesses as means of payment but they are still rejected from general people. The volatility of cryptocurrencies are still high
61 See supra note 14. 62 “System of National Accounts.” United Nations, United Nations, unstats.un.org/unsd/nationalaccount/sna.asp. Accessed on December 8, 2018. 63 Assets as defined in the SNA are entities that must be owned by some unit, or units, and from which economic benefits are derived by their owner(s) by holding or using them over a period of time. 64 See supra note 14. 65 Id.
Ref. code: 25615901040377MXO 28 compares to fiat currencies because the valuation of cryptocurrencies only clings to the demand of the market. Hence, from the OECD view, cryptocurrencies are treated as asset, they are not traditional currencies Since the cryptocurrencies became widespread usage among specific people, many countries have attempted to control, investigate and impose tax. Some promulgated specific law on specific purpose, while some implemented the treatment or notice to explain how to apply the exist laws with cryptocurrencies. For taxing on cryptocurrencies, Australia, Canada, and the United States are used as example countries to have tax treatment or tax notice to describe taxpayers how to apply their exist law to pay tax on cryptocurrency transactions.
3.2 Australia
The development of creation, trading and using cryptocurrency is rapid, thus Australian Taxation Office (ATO) decided to release the tax treatment of cryptocurrency (treatment) which was recently updated in June 2018.66 In this treatment, ATO stated that the meaning of cryptocurrency is a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain, for example; Bitcoin, the most popular cryptocurrency, and other cryptocurrencies which has the same characteristic as Bitcoin is also included.67 3.2.1 The status of cryptocurrency From the view of ATO, it affirmed that cryptocurrency is not Australian currency nor foreign currency because the Currency Act stated that Australian currency is dollar68 and it is the only legal currency that can be used and make payment69 in
66 Last modified 29 June 2018. Australian Taxation Office. “Tax Treatment of Crypto-Currencies in Australia - Specifically Bitcoin.” Australian Taxation Office, Australian Taxation Office, 29 June 2018, www.ato.gov.au/General/Gen/Tax-treatment-of-crypto- currencies-in-Australia---specifically-bitcoin/. Accessed on August 14, 2018. 67 Id. 68 Section 8 Monetary unit and denominations of money (1) the monetary unit, or unit of currency, of Australia is the dollar. 69 Section 11 Payments to be made in currency under this Act (1) Every payment that is made shall, unless it is made according to the currency of some country other than Australia, be made according to the currency of Australia provided for by this Act.
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Australia. The characteristic of currency is State recognition and adoption of a monetary unit under the laws of the country as the monetary unit and means of discharging monetary obligations for all transactions and payments that country.70 Therefore when defining foreign currency71, parliament used the term of currency in the same sense which is used in the Currency Act and to consistent with the Act, this concept is applied and divided into two types for the purpose of the Income Tax Assessment Act 1997 (ITAA 1997); Australian currency, and foreign currency which is every currency that is recognized and adopted by the laws of any sovereign State as the monetary unit and means of discharging monetary obligations in a sovereign State. The characteristic of Bitcoin and other cryptocurrencies does not match such concept because it is not Australian currency, and it is not monetary unit recognized and adopted by the law of any other sovereign State as the means discharging monetary obligations for all transactions and payments in a sovereign State, it is not considered neither as currency nor foreign currency under Australian laws.72 Under this treatment, cryptocurrency is treated as property and as an asset for capital gains tax (CGT) purposes, however tax consequence of each transaction is different depend on its holding. 3.2.2 Transactions with cryptocurrency Capital Gain Tax asset (CGT) is any kind of property, or a legal or equitable right which is not property.73 In Yanner v. Eaton,74 the High Court stated that the property refers not to a thing but to a description of legal relationship with things. It means that there is a power which is recognized in law exercised over the thing. However, a proprietary right is difficult to verify, in Australia there is the Ainsworth test which has been applied to identify a proprietary right, this test refers to a right that is definable, identifiable and
70 TD 2014/25 - Income Tax: Is Bitcoin a 'Foreign Currency' for the Purposes of Division 775 of the Income Tax Assessment Act 1997?” Home - ATO Legal Database, 2014, law.ato.gov.au/atolaw/view.htm?DocID=TXD/TD201425/NAT/ATO/00001. Accessed on July 18, 2018. 71 Section 995-1. Foreign currency means a currency other than Australian currency. 72 72 See supra note 41. 73 Section 108-5(1) of the ITAA 1977. 74 (1999) 201 CLR 351 at 365-7 [17]-[19].
Ref. code: 25615901040377MXO 30 capable of assumption by third parties, and permanent or stable to some degree.75 Moreover, the court also focuses on other factors such as excludability,76 commercial value,77 and enforceability of the right against third parties.78 In the case of Bitcoin, it is an object or thing which has a value expressed as digital information, the person who holds Bitcoin has rights over one or more Bitcoin in his wallet to trade or use it for payment. Moreover, Bitcoin is treated as a valuable transferable item, there are many active markets to trade Bitcoin between the sellers and buyers, and for excludability, Bitcoin holder has private key to make any transaction, the process occur within only Bitcoin software because every transaction need to be verified by other Bitcoin user. Therefore Bitcoin holding rights have completely elements of Ainsworth test, it is CGT asset follow section 108-5(1). The person who holds Bitcoin is considered to hold a CGT asset and when he/she dispose his/her cryptocurrency, the gain or loss occurred will be considered as capital gain or loss. A CGT event79 occurs when having the disposal of any cryptocurrency such as selling or giving out as gift, trade or exchange, converting cryptocurrency for real currency, or usage cryptocurrency to get some goods or services, the cryptocurrency can be valued in Australian dollars from the reputable online exchange at the time of transaction, the gain from disposing cryptocurrency is either taxing by some or all of the gain or disregarding depend on the type of holding, while capital loss can be deducted from the capital gain made in the same financial year or a future year. However, the gain or loss from disposing cryptocurrency can be considered as ordinary assessable income also, such as disposing cryptocurrency as part of business, it depends on the particular facts and circumstances of taxpayer.
75 National Provincial Bank Ltd v. Ainsworth [1965] AC 1175 at 1247-8, approved in, for example, R v. Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342. 76 Whether it is possible to exclude others from the right in question. 77 Whether something is treated in commerce as a valuable proprietary right. 78 See, for example, Wily v. St Partnership Banking Ltd (1999) 84 FCR 423 at 426. 79 Section 104-10 (1). 104-10 Disposal of a CGT asset: CGT event A1 (1) CGT event A1 happens if you *dispose of a *CGT asset.
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(1) Holding cryptocurrency as an investment The characteristic of investment are; an investor’s buying and holding of investment instruments such as stocks, funds, bonds for years or decades to build wealth, the profits will be increased by compounding, or reinvesting any profits and dividends into additional share of stock, an investor concentrates on the market fundamentals such as price or earnings ratios or management forecasts when the market fluctuate, moreover he/she expects that the price would rebound or the loss could be recovered.80 If a taxpayer holds cryptocurrency as investment and the money or the market value of any property received at the time of disposal or entitled to be received, are more than the cost base81, the money paid or the market value of any other property which taxpayer gave in respect of acquiring the Bitcoin will be included in the cost base, and capital gain would occur and be subject to tax. This treatment stated directly that taxpayer cannot apply personal use asset exemption for holding and disposing cryptocurrency as investment but following the discount method of calculating the capital gain, if a taxpayer holds the property, Bitcoin or other cryptocurrency for at least 12 months, he/she has a right to get CGT discount.82 In the case that the cryptocurrency cost base is more than the capital proceeds83, it is a capital loss which can be deducted only from capital gains made in the same years or a later years, however, it cannot be reduced from other income.
80 “What Is the Difference between Investing and Trading?” Investopedia, Investopedia, 21 July 2017,www.investopedia.com/ask/answers /12/difference-investing-trading.asp. Accessed on August 17, 2018. 81 Section 110-25 (2). 110-25 General rules about cost base (2) The first element is the total of: (a) the money you paid, or are required to pay, in respect of *acquiring it; and (b) the *market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). 82 Australian Taxation Office. “The Discount Method of Calculating Your Capital Gain.” Australian Taxation Office, Australian Taxation Office, 29 June 2018, www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/The- discount-method-of-calculating-your-capital-gain/. Accessed on July 22, 2018. 83 Section 116-20. General rules about capital proceeds (1) The capital proceeds from a *CGT event are the total of: (a) the money you have received, or are entitled to receive, in respect of the event happening; and (b) the *market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event).
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For example, A is an investor who is interested in cryptocurrency’s field and believes the price will increase very soon, so he decided to purchase three Bitcoins at $5,000 per coin, after 3 months, the price of Bitcoin hits 15,000 per coin, he cashed out his Bitcoin and converted them to Australian dollars, his investment of $15,000 has risen to $45,000, a capital gain of $30,000 is subject to CGT (2) Holding cryptocurrency as personal asset Generally, since 20 September 1985, all acquired assets are subject to capital gain tax,84 however there are exemptions, meaning that taxpayer can exclude some capital gain from his/her assessable income. Personal asset is one of the exemptions. The assets which used or kept mainly for personal use and enjoyment85 are personal use asset such as boats, furniture, electrical goods including an option or a right to acquire a personal use asset. Capital gain from disposing personal asset which is acquired by less than $10,000 will be disregarded for CGT purposes. Holding cryptocurrency as personal asset, taxpayer must obtain less than $10,000 and keep or use for goods or services as personal use or consumption such as booking hotel online, the capital gain which arise from disposal of cryptocurrency is regardless. If cryptocurrency is acquired, kept or used relating to investment, making profit or in the course of carrying on a business, taxpayer cannot apply this exemption. The capital loss for personal asset is different from others because it cannot deducted from the capital gain on other personal assets. For example, the concert provided the discount ticket price for cryptocurrency payment, A wants to attend this concert, he pays $250 for purchasing cryptocurrency from an exchange and uses it to get the ticket at the same day. From this case, A get cryptocurrency at the price is less than $10,000 and uses for personal purpose, so he holds his cryptocurrency as personal asset, if he the fair market value
84 Australian Taxation Office. “CGT Assets and Exemptions.” Australian Taxation Office, Australian Taxation Office, 15 Aug. 2018, www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/. Accessed on August 30,2018. 85 Id.
Ref. code: 25615901040377MXO 33 of the ticket is much more than the cost base of his cryptocurrency, he gets capital gain but his gain is not subject to capital gain tax because it is personal asset which falls under the exemption. But if A acquires cryptocurrency and intends to sell it when the price is higher, he has been holding it for six months and decided to use for purchasing goods and services. This holding is not personal asset because he has the intention to acquire and hold for some profits. It is an investment, the exemption cannot be applied. (3) Holding cryptocurrency for business Generally, the property or money received from ordinary course of business will be assessed as an ordinary income. The gains or profits in this case can be claimed as expenses deduction. However there are conditions to recognize as carrying on a business. The important conditions are; to carry on the activity for commercial reason and in a commercially viable way, do the activity in a business-like manner such as preparing business plan, accounting records and market business name or product, have an intention to make profit or believe to make profit.86 The business commences are important pieces of information if the business is being set up or prepared to set up, it cannot be assessed as carry on a business, money or other property received before are not assessable income, and cannot claim for deduction until the business being carry out. In the case of cryptocurrency business, this treatment exams the cryptocurrency traders, mining business, or exchanges business as cryptocurrency business. It means that any gains are from the proceeds of these activities are classified as ordinary income, and the cost of acquiring cryptocurrency can be claimed for a deduction. Receiving cryptocurrency for the goods or services which provided as part of the business, receiver who is business owner has to include the value of the
86 Department of Industry. “Business or Hobby?” How to Set Goals and Objectives for Your Business, c=AU;o=Australian Government;Ou=Department of Industry, Innovation and Science, 14 Aug. 2018, www.business.gov.au/planning/new-businesses/a- business-or-a-hobby. Accessed on August 18, 2018.
Ref. code: 25615901040377MXO 34 cryptocurrency in Australian dollar as part of business ordinary income, while using cryptocurrency for purchasing business items, such expenses can be deducted based on the market value of the item required. 3.2.3 Record keeping For cryptocurrency transactions, as the ATO released the updated guidance for this problem, that is called Let’s talk which assigned users both of individual and business operators involved with cryptocurrency transactions to keep necessary information as records; for example the date of transactions, the value of cryptocurrency in Australian dollars at the time of the transaction but the source of information have to be reputable online exchange service providers, and what the transaction was for and who the other party was, their cryptocurrency address and etc. 3.2.4 Others (1) Exchanging cryptocurrency for another cryptocurrency When receiving property instead of cash in transaction, the market value in Australia dollar of received of property are considered. User exchanges one cryptocurrency for another cryptocurrency, meaning that a user disposes of one capital gain tax asset and acquires another capital gain tax asset, he/she must compare the CGT cost base of cryptocurrency item disposed of with the market value of new cryptocurrency item obtained for all exchange transactions. (2) Cryptocurrency lost or stolen Private key for cryptocurrency cannot be replaced, user can claim a capital lost if he lost his private key, it cannot be replaced, or his cryptocurrency is stolen but he must provide followed the evidence; the date of acquiring and losing private key, public wallet address linked to the private key, the cryptocurrency wallet balance when the private key lost, and others. (3) Chain splits and hard forks ATO explained how to impose cryptocurrency tax in the case that the holder receives new coins or tokens for free by chain splits for example, when Bitcoin Cash was distributed to Bitcoin holders on a 1:1 Ratio.
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If the holder holds cryptocurrency for investment, and the holder gets new coin because of a chain split, as long as he does not dispose it, he is not considered have made capital gain or earned regular income. However when receiving any new cryptocurrency, the cost base is zero, so at the time of disposal, the amount of price is total capital gain. For instance, if A acquired ten Bitcoin Cash during August 2017 hard fork and sold those coins in July 2018, when one BCH was worth around AU$1,000, the total capital gain will be AU$10,000.
3.3 Canada
Financial Consumer Agency of Canada provided the definition of digital currencies as virtual or electronic money which have decentralized or peer to peer network as their based system, cryptocurrencies such as Bitcoin are considered types of digital currency.87 Not only providing definition but also allowing the usage of digital currencies such as to buy goods and services on the internet and in stores or to buy and sell digital currencies on digital exchanges, and to found digital exchanges,88 giving information related to automated exchangers89 and tips for using digital currencies, for example how to protect the wallet or what information should be known before making a purchase. Even digital currencies can be used as payment method, digital currencies are still not a legal tender. According to the Currency Act, legal tender90 only covers coins
87 Financial Consumer Agency of Canada. “Digital Currency.” Canada.ca, Innovation, Science and Economic Development Canada, 19 Jan. 2018, www.canada.ca/en/financial-consumer-agency/services/payment/digital-currency.html. Accessed on December 4, 2018. 88 Id. 89 Automated exchangers are commonly referred to as Bitcoin ATMs, Financial Consumer Agency of Canada. “Digital Currency.” Canada.ca, Innovation, Science and Economic Development Canada, 19 Jan. 2018, www.canada.ca/en/financial-consumer- agency/services/payment/digital-currency.html. Accessed on December 4, 2018. 90 Section 8 (1) of Currency Act R.S.C., 1985, c. C-52 “Subject to this section, a tender of payment of money is a legal tender if it is made (a) in coins that are current under section 7; and (b) in notes that are current under section 7.1.”
Ref. code: 25615901040377MXO 36 issued under the Royal Canadian Mint Act91 and bank notes issued by the Bank of Canada under the Bank of Canada Act.92 Moreover the risks of using digital currencies are informed, for example the users may have less protection compares to the ordinary payment methods such as debit or credit cards, there is no protection from the government, users must take care of their wallet by themselves, taking high risk from fraud and digital currencies investment because the value of them extremely vary. In the sense of taxation, this information stated that all Canada’s tax laws and rules also apply to digital currency transactions, including those made with cryptocurrencies. In 2014 Canada Revenue Agency (CRA) published a guidance article, ‘what you should know about digital currency’,93 providing information related to taxation on digital currencies. From this guidance, digital currencies are not characterized as legal tender in Canada, thus when they are used to buy or sell goods and services, the rules of barter transaction will be applied. In addition if they are bought or sold for fait currency or used for investment, they are treated as commodity.94 3.3.1 Transactions with digital currency (1) Trade in digital currencies Since digital currency can be bought or sold, the gain or loss resulted from transactions is subject to be taxed. However, taxpayers may have different tax treatment depending on the types of income; ordinary income or capital income. In Canada, when capital gains occur, taxpayers can include only half of gains to their income and taxed at the applicable personal marginal rate, in addition capital loss are allowed to offset capital gains and can be deducted as tax deduction
91 Section 7 (1) of Currency Act R.S.C., 1985, c. C-52 “ A coin is current for the amount of its denomination in the currency of Canada if it was issued under the authority of (a) the Royal Canadian Mint Act;” 92Section 7.1 of Currency Act R.S.C., 1985, 2018, c. 12, s. 228. “A note is current for the amount of its denomination in the currency of Canada if it was issued under the authority of the Bank of Canada Act.” 93 Canada Revenue Agency. “What You Should Know about Digital Currency.” Canada.ca, Innovation, Science and Economic Development Canada, 3 Dec. 2014, www.canada.ca/en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2013/what-you-should- know-about-digital-currency.html. 94 Id.
Ref. code: 25615901040377MXO 37 in some cases.95 Whereas, any gains which are considered as ordinary income, taxpayers must include all of such gains to their income, but they can deduct any expenses involving the activity. Normally such gains are arisen from businesses such as trading or dealing.96 Nevertheless to make it clearer, CRA provided information to help taxpayers determining whether they have ordinary income or capital income by considering the course of conduct and intention. If taxpayers dispose their properties which can produce gains and such transactions are of the same kind and carried on in the same way as those of a trade or dealer in properties. The proceeds of disposing will be normally considered to be income from business.97 Moreover there are other factors to indicate such income which should be realized as income from business, for example, the period of ownership, such properties should be held for short period, knowledge of the market, taxpayers have some knowledge or experience in the market, or such dispose transactions are part of ordinary business etc. However, the intention of taxpayer should also be considered, the intention can be assumed most of the times when taxpayers acquire their investment, if they would like to sell the property to make more benefits at the first suitable opportunity than continuing hold it.98 Thus the income from disposing the property should be considered as ordinary income from business. The only method which is allowed for valuation for property trading in Canada is Adjust Cost Basis (ACB). Thus, to calculate any gains or loss, taxpayers need to subtract ACB of the disposed property from the Fair Market Value (FMV) of acquired property. In the case of digital currency, taxpayers who are involved in the business of trading in Bitcoin or other cryptocurrencies, any gain and loss from such
95 For example, advisor fees, interest expense etc. 96 Trader means a taxpayer who participates in the promotion or underwriting of a particular issue of shares, bonds or other securities or taxpayer who holds himself out to the public as a dealer in shares, bonds or other securities. 97 Canada Revenue Agency. “IT479R ARCHIVED - Transactions in Securities.” Canada.ca, Innovation, Science and Economic Development Canada, 1 Jan. 1995, www.canada.ca/en/revenue-agency/services/forms-publications/publications/it479r.html. Accessed on December 5, 2018. 98 Id.
Ref. code: 25615901040377MXO 38 disposition should be treated as income, if they do not engage in such business, for example, the taxpayers get digital currency for long term growth or apply for personal purpose, such gain and loss are considered as capital. (2) Payments in digital currencies As mentioned above, digital currencies can be used to pay goods and services but they are not legal tender according to Canada Currency Act, thus the rules of barter transactions will be applied. Bartering is effective when any two persons agree to exchange of goods or services by using arm’s length principle, both of parties use the value of whatever is received equivalent to the value of whatever is given up in exchange, instead of money. For goods or service bartering, the value of goods or service must be brought into taxpayer’s income if they are provided in the course of earning income, or related to a business or profession.99 A taxpayer will not be taxable if he or she is an employee or gives occasional help to a friend or neighbor in exchange for something.100 For instance, in the case of paying for hotel room booking with digital currency is barter transaction, the value of the room booked by digital currency must be included in the seller’s income. In this case there are two parties which have different tax consequences; for the sellers or service providers who accept digital currency, they must include the value of goods or services that they sold or provide in their income in Canadian dollars. Moreover if such sellers or service providers have registered Goods and Services Tax/ harmonized sales tax, GST/HST, they have obligation to charge their customers and remit such money to CRA.
99 Canada Revenue Agency. “ARCHIVED - Barter Transactions.” Canada.ca, Innovation, Science and Economic Development Canada, 6 Sept. 2002, www.canada.ca/en/revenue-agency/services/forms-publications/publications/it490/archived-barter-transactions.html. Accessed on December 5, 2018. 100 Id.
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For example, the seller, who has registered GST/HST, sell a cup of coffee and accept Bitcoin as means of payment, normally the price per cup is $10 and charge 13% on top of it, in exchange for Bitcoin. This seller need to include $10 in his income and $1.3 as sales tax payable on his or her financial statement, and send such amount to CRA when he or she file GST/HST return.101 Paying for purchases in digital currencies creates a taxable event. The buyers need to calculate any gains or loss by using ACB of used digital currency to deduct FMV of the goods or services received. However, the type of the gains or loss depends on the circumstances. For example, A acquired one Bitcoin when the price was at $100, and uses it to purchase new laptop worth $1,000, A receives $900 as his gain and such amount is reported and subject to tax. (3) Mining digital currencies CRA sees mining digital currencies as being either a business or a personal hobby and have its own tax treatment. If the taxpayers mine in a commercial and business-like manner such as for selling mined coins to buyers, the value of digital mined coins would be include in miner’s income, however, a miner can claim deduction which related to mining activities expenses such as electricity cost, cost of other equipment. Conversely, the mining of digital currencies can be treated as a hobby and not subject to income tax,102 if a miner has no intention to make a profit. 3.3.2 Report information Canadians resident have obligation to report worldwide income not only income from domestic but also income from foreign sources. It is considered illegal if they do not comply.
101 Baranov, Boris. “Bitcoin Tax in Canada - Your Questions Answered by a CPA.” Baranov CPA, Baranov CPA Https://Baranovcpa.ca/Wp- Content/Uploads/2018/01/Pexels-Photo-375889-e1517196826113.Jpeg, 28 Aug. 2018, baranovcpa.ca/bitcoin-tax-canada. Accessed on December 5, 2018. 102 “Cryptocurrencies and Tax: Five Things Every Canadian Needs to Know.” Wildeboer Dellelce, 12 Dec. 2017, www.wildlaw.ca/resource- centre/legal-updates/2017/cryptocurrencies-and-tax-five-things-every-canadian-needs-to-know/. Accessed on December 5, 2018.
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3.4 The United States
In March 2014, the Internal Revenue Service (IRS) issued the notice 2014-21 stated information to the virtual currency’s users in the form of 16 important questions and answers, while other questions were later addressed in future guidance, the main messages of this notice included the meaning of virtual currency and others and how to apply the general tax law to the transactions using virtual currency. Under this notice, the meaning of many words were provided such as virtual currency means a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.103 In some cases it has equivalent value in real currency or acts like substitute for real currency, is called as convertible virtual currency.104 Bitcoin is one of convertible virtual currencies, it can be traded among users and exchanged to real currency. IRS realized virtual currency especially convertible virtual currency is used for paying goods or service, or holding for investment in real world economy, such transactions caused the tax consequences the persons who involved will bear tax liability. 3.4.1 The status of virtual currency The service stated that Bitcoin or other convertible virtual currencies are considered as property, so the tax principle of property will be applied to transactions using virtual currency. It is not treated foreign currency, so the gain or loss of foreign currency is not determined.105
103 Internal Revenue Service. Notice 2014-21. Mar. 2014, www.irs.gov/pub/irs-drop/n-14-21.pdfAccessed on April 22, 2018. 104 The Financial Crimes Enforcement Network. Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies. 18 Mar. 2013, www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf. Accessed on April 22, 2018. 105 Id.
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3.4.2 Transaction relating virtual currency (1) The recipient of payment in convertible currencies Bartering is an exchange of property or services, even if there are no money changes hands but such income is taxable by calculating the fair market value of property or services which person received.106 For example, the lawyer represent the case for his client, in this contract, his client agrees to give some shares from his company to the lawyer. Thus the lawyer must compute the fair market value of the shares to his gross income. Because the treatment of virtual currency is same as the property, when a recipient who receives virtual currency as payment for goods or service, it is bartering, so he/she must include the payment in his gross income by calculating its value from the fair market value, the price which the property would change hands between the buyer and the seller when they have reasonable knowledge of all the important information with their own best benefit and free from pressure or forces to buy or sell,107 in U.S. dollar at the date of receipt. However if virtual currency is listed on an exchange, the exchange rate can be used as fair market value.108 Normally gain or loss will be realized when the property is sold or exchanged. In the case of gain, the amount realized, the received money with the fair market value of all property which is sold or exchanged is more than the adjustment basis, or original cost. On the other hand, if the adjustment basis of the property is more than the amount realized, it is considered loss. For example, the taxpayer has taxable gain if the fair market value of the property received in exchange for virtual currency exceeds the value of virtual currency, but if the value of virtual currency is more than the fair market value of the received property, it is taxable loss.
106 Internal Revenue Service. Publication 525, Taxable and Nontaxable Income. 16 Jan. 2018, www.irs.gov/pub/irs-pdf/p525.pdf. Accessed on April 22, 2018. 107 Internal Revenue Service. Publication 544, Sales and Other Dispositions of Assets. 13 Mar. 2018, www.irs.gov/pub/irs-pdf/p544.pdf. Accessed on April 22, 2018. 108 See supra note 102.
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The gain or loss of virtual currency can be considered as capital or ordinary gain or loss, depending on the way of its holding. If user holds it as capital asset, the gain or loss from capital asset will be treated as capital gain or loss, but if the user holds it as things which are not capital asset, its gain or loss will be determined as ordinary gain or loss. Capital gain comes from selling or exchanging capital asset, the things which used for personal purposes or investment such as stocks, bonds, gems and jewelry, a house for living including selling or exchanging the property which is held more than one year and used in trade or business as the transaction stipulated in section 1231.109 While noncapital asset is the property which is not a capital asset and held for sale to customer in a trade or business. For example, stock in trade or other property, such gain or loss from selling or exchanging noncapital asset will be realized as ordinary gain or loss. The result of differences between ordinary and capital gain and loss are tax rate and the loss deduction. (2) Mining The service stated that the miner who mines completely virtual currency has a duty to include fair market value of virtual currency at the date of receipt as his gross income. In the case of mining virtual currency in a trade or business, the miner mines it for himself who is not working as an employee. It is a self-employment, so the net-earning from self-employment activity is subject to self-employment tax which withhold from person who works for himself and has net-earning in amount of $400 or more.110
109 See supra note 62. 110 Internal Revenue Service. Publication 334, Tax Guide for Small Business. 29 Jan. 2018, www.irs.gov/pub/irs-pdf/p334.pdf. Accessed on April 28, 2018.
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Yet, taxpayer may be confused whether the activity is a business or hobby. The service provided the guideline111 to clarify that the activity which is considered as business must have the owner’s expectation to earn a profit, in this guideline the service exemplify some questions for determining it is business such as a person wants to improve profitability by changing the methods of operation, he or she has intention to make a profit by putting his time and effort, or the main income of him or her comes from the activity. If such activity is business, the taxpayer can deduct the ordinary expenses, the common expenses in trade or business and necessary expenses which are appropriate for conducting a trade or business. However if the purpose of activity is not making a profit, when an amount of expenses are more than the income, loss is produced and generally such loss cannot be deducted, but the hobby activity deduction is limited and classified in only three categories. 3.4.3 Reporting information The service expected the taxpayer value any receipt of virtual currency, keep records of every transaction and back up withholding as any other payment in property.112 For withholding, as with other payments in property, the payors must report, backup withholding and require the taxpayer identification number (TIN) from the payee. In the case that the TIN is not obtained before the payment or the payors get notification from the service, the payors must back up withhold from the payment.113 For the third party, a third party settlement organization (TPSO) contracts the unrelated merchants to settle payment between the merchants and their customers, TPSO has duty to report payments if the number of transaction which is settled for the merchants exceeds 200 and the gross amount of the payment
111 Internal Revenue Service. “Business or Hobby? Answer Has Implications for Deductions.” Internal Revenue Service, 18 Apr. 2007, www.irs.gov/newsroom/business-or-hobby-answer-has-implications-for-deductions. Accessed on April 28, 2018. 112 See supra note 25. 113 See supra note 102.
Ref. code: 25615901040377MXO 44 exceeds $20,000. The virtual currency transaction is included, its value is the fair market value which is calculated in U.S. dollars on the date of payment. 3.4.4 Others (1) Penalty This notice stated that the taxpayer may be subject to penalty for failure to comply with tax laws such as underpayments or failure to file, however if taxpayers have reasonable cause for such mistake, the penalty may be relieved. To conclude, Australia, Canada and the United States apply the current laws to comply with the cryptocurrencies transactions, they do not promulgate any new measures. However, the declaration of practical guidance which is issued makes taxpayers realize how the rules apply to their situation. Issue Australia Canada The United States
1. Implemented Tax Treatment of What you should Notice 2014-21 Notice cryptocurrency know about digital currency 2. Named cryptocurrency Digital currency Virtual currency
3. Definition A digital asset in A virtual or A digital which encryption electronic money representation of techniques are used which has value that functions to regulate the decentralized or as a medium of generation of peer to peer network exchange, a unit of additional units and as its based system. account, and/or a verify transactions on store of value. a blockchain. 4. Status Cryptocurrencies are Digital currencies are Virtual currencies are treated as property, considered as considered as they are not commodity, they are property, they are not a legal tender not foreign currency.
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Australian dollar, nor foreign currency. 5. Valued Valued in Australian Not specified Valued in U.S. dollar dollar from the by using fair market reputable online value at the date of exchange at the time receipt. of transaction. 6. Transactions with cryptocurrencies 6.1 Investment - Any gains or loss - Any gains or loss - Any gains or loss derive from derive from derive from investment are investment are investment are considered as capital considered as capital considered as capital gain or loss. gain or loss. gain or loss. - Capital loss can be - Capital loss can be - Capital loss can be deducted from deducted from deducted from capital gains capital gains capital gains - If taxpayers hold - If taxpayers hold cryptocurrency for at cryptocurrency more least 12 months, than 1 year, the rate they can claim for of capital gain discount method. decrease. 6.2 Personal Capital gains are Not specified Not specified Assets disregarded, if the value of acquired asset is less than $ 10,000 and taxpayer hold such asset for personal use. However capital in
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this case cannot be deducted.
6.3 Trading Money or any Any gains from The property held property from disposing digital for trading, or trading is recognized currencies are business is non- as ordinary income. ordinary income capital asset, the income from arranging non-capital asset is considered ordinary income. 6.4 Mining In tax treatment, In the case of mining This notice divided mining is considered with business tax consequence as one of purposes, taxpayer from mining virtual cryptocurrency has duty to report currency into two business, so the income in this year types; a) mining coins income from as ordinary income. as business, the business will be income is ordinary ordinary income. income but taxpayer can deduct any related expenses, and b) mining coins as hobby. Taxpayer needs to include fair market value of virtual currency at the date of receipt in his income.
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6.5 Receipt of Not specified According to the The recipient of cryptocurrency principle of bartering, virtual currency must taxpayer who receive include the payment digital currency must in his gross income include the amount by calculating its of provided goods or value from the fair services in Canadian market value in U.S. Dollar to taxpayer’s dollar at the date of income. receipt.
7. Record A method providing Not specified The notice provides keeping the information the duty on taxpayer which taxpayer who to keep record, involves with report and back up cryptocurrency withholding but does should keep such as not specify which the date of information should transaction, the be kept. value of coin in Australian dollar, the purpose of transaction, and who the other party was. 8. Other This treatment Not specified Taxpayers will be imposes the other subject to penalty issues such as for failure to comply exchanging with tax laws. cryptocurrency for other cryptocurrency, or
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coins lost or stolen, et cetera.
As guidance summarized above, Australia, Canada and the U.S. call electronic data unit in different names, which are cryptocurrency, digital currency, and virtual currency respectively. However, there are many things in common such as the status of cryptocurrency, they specifically impose that cryptocurrency is neither legal tender nor foreign currency, it is regarded as property; thus the rules of property will apply to cryptocurrency transaction. All of tax treatments which are mentioned above classified the activity of cryptocurrency transactions, such as investing, trading and mining. Each transaction leads to different tax consequences which mean that whether any gains or loss from cryptocurrency will be recognized as ordinary or capital gains or loss, it depends on how taxpayers hold and what their intentions are. Moreover, there are some details which are different in each country such as Australian Tax Treatment which provides a petty exemption for disposing of cryptocurrency as personal use. It is more flexible than the Notice 2014-21 of the U.S. Or in the case of reporting information, both of Canada and the United States impose the duty to keep and report data on any taxpayer, who is involved in cryptocurrency, but they do not specify what kind of information should be recorded, they differ from Australian Tax Treatment which demonstrate what necessary information should be kept. Nevertheless, for mining issue, Notice 2014-21 imposes how to tax on mining cryptocurrency obviously. This notice states how and when to calculate income from mining and categorizes such mining for profit activity or a hobby which lead to different tax results. Therefore, to create tax imposition of cryptocurrency in Thailand, Thai Revenue Department could study and compare with the laws and tax treatments from foreign countries where cryptocurrency is recognized as property, then choose some of many
Ref. code: 25615901040377MXO 49 good distinctive issues from their tax treatment and apply appropriately to current situation in Thailand.
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CHAPTER 4 LEGAL TREATMENT OF TAX ON CRYPTOCURRENCIES UNDER THAI LAWS
The substances of this chapter can be divided in to three sectors. First is cryptocurrencies situation in Thailand, this sector will inform the development of views from Bank of Thailand related to cryptocurrencies from year 2014 to 2018. Second is the laws related to cryptocurrencies and the imposition of income tax on cryptocurrencies in Thailand, to explain the general laws such as Thai constitution law, and describe personal income tax under the Revenue Code. The last sector is the problems upon the imposition of income tax on cryptocurrencies, to acknowledge the current problems which are the obstacle for imposition personal income tax in Thailand.
4.1 Cryptocurrency situation in Thailand
A lot of people mentioned the usage of electronic data unit such as Bitcoin, Ether and Litecoin as the medium of buying goods and services including transferring such as electronic data unit to other users. There are shops where cryptocurrencies are accepted such as the noodle restaurant in Bangkok, Lim Lao Ngow, where stated that even this restaurant has run business more than 80 years but it never let the new technology be ahead, thus this restaurant has accepted Bitcoin as means of payment, or the exchanges, such as coin.co.th, bitcoin.co.th, where people can buy, sell, or exchange them to real currencies, some people start to hold them for speculation. On 18 March, 2014, The Bank of Thailand issued the notification114 which provided the information regarding bitcoin and other electronic data unit of the same particulars. It was the first notice and the first time ever that cryptocurrencies were referred by Thai state agency.
114 See supra note 8.
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From this notice, BOT affirmed that Bitcoin and other electronic data units are not money which can be used to pay debt. The electronic data unit itself, is valueless because the value alter accordingly to demand of the people who want to sell and buy which is the reason why the value of electronic data unit change dramatically and that it could become valueless when no one there is no demand. This notification also stated the risk of holding Bitcoin and other electronic data units by exemplifying the Japanese company case which was the biggest Bitcoin exchange in Japan.115 This company was filed for bankruptcy because they were hacked into the customers’ electronic unit data. The company had to close itself eventually. This decision affected Bitcoin’s prices and people who engaged in transactions with the company or held Bitcoin. They lost the huge amount of money. Therefore BOT recommended people to be careful, or study thoroughly about holding or using electronic data units because they are not considered as money which could be paid for debt, the value of them change rapidly, there are some risks to be robbed and the users may not be protected from the laws. Then BOT expressed concerns on the transactions relating to cryptocurrencies especially ones which the issuer cannot by identified directly, or ones that have no assets to guarantee the value, or underlying asset. Thus BOT released the other notification116 on 12 February 2018 to request financial institutions such as Banks which registered within the country including international, credit foncier companies and finance companies to not create or involve in cryptocurrencies transactions such as investment or trade cryptocurrency for their own financial institutions or their customers’ benefits, provide services for exchanging cryptocurrencies, or platform, the medium which customers can make cryptocurrencies transactions with each other, allow customers to use credit cards for buying cryptocurrencies, support or give some recommendations about the investment or exchanging cryptocurrency to customers.
115 Norry, Andrew. “The History of the Mt Gox Hack: Bitcoin's Biggest Heist.” Blockonomi, 2 July 2018, blockonomi.com/mt-gox-hack/. Accessed on August 1, 2018. 116 See supra note 9.
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In addition BOT asked financial institutions to run the KYC (Know Your Customer) and CDD (Customer Due Diligence) strictly. From the notifications, it is affirmed that the status of cryptocurrencies is not money. Moreover, according to the Currency Act B.E. 2501, the currency shall consist of coins which are minted and put in circulation by the Ministry of Finance,117 and notes118that are printed, managed and issued under the law governing the Bank of Thailand.119 In addition, section 26120 and 30121 stated that issued currency must have assets such as gold, foreign currencies or securities as currency reserve to maintain financial stability. Due to the forms of cryptocurrencies which are electronic data units, they are neither coins nor notes which are tangible nor produced or issued by the Ministry of Finance or Bank of Thailand. Releasing some cryptocurrencies applies the process of mining which does not exist to keeping some assets for currency reserve. Besides cryptocurrencies are held or accepted in some groups of people only. Thus they are not considered as currency under the Currency Act B.E. 2501. According to the Exchange Control Act B.E. 2485 provides the definition of currency means legal tender in Thailand,122 from the Currency Act, however, cryptocurrencies are not currency and cannot be used to pay debt in Thailand. While foreign currency is legal tender in any country, other than Thailand, including foreign exchange which is bank balance, bill of exchange, cheque, promissory
117 Section 10 paragraph 1 and 2 of the Currency Act B.E. 2501, “The Ministry of Finance shall mint and put coins into circulation. Each type and denomination of the coins in circulation under the first paragraph shall mint only one size and not the same size, types and denominations of other coins except in the case of minting and putting in circulation of the commemorative coins or coins used instead of the withdrawn coins.” 118 Section 6 of the Currency Act B.E. 2501. 119 Section 14 paragraph 1 of the Currency Act B.E. 2501, “The Bank of Thailand shall continue to have the power to print, manage and issue the notes of the Government under the law governing the Bank of Thailand.” 120 Section 26 of the Currency Act, “For the purpose of maintaining the stability of the currency, the Bank of Thailand shall maintain a currency reserve, hereinafter to be called the “Currency Reserve.” 121 Section 30 of the Currency Act, “Section 30.18 The following assets shall be lawful components of the Currency Reserve: (1) gold, (2) foreign currencies which are convertible currencies or any other currencies prescribed by a Ministerial Regulation, which must be in the form of deposit with a bank outside the Kingdom or with an international financial institution, (3) foreign securities payable in foreign currencies as stated in (2).” 122 Section 3 of the Exchange Control Act B.E. 2485.
Ref. code: 25615901040377MXO 53 note, telegraphic transfer, mail transfer, or money order payable in foreign currency.123 But in this era, there are no countries that treat cryptocurrencies as their currency or foreign currency. Thus cryptocurrencies are still not considered as foreign currency according to the Exchange Control Act B.E. 2485. Due to the meaning of electronic money, defined by the Royal Decree Regulating on Electronic Payment Services B.E. 2551, electronic money also consists of an electronic card issued by the provider for its user. The user needs to pay money in advance to the provider for the payment of goods, services or other fees and the amount of the prepaid cash has been recorded.124However, this definition does not cover cryptocurrencies because the users do not pay in advance for the providers. For cryptocurrencies transactions, users can directly send their cryptocurrencies to others by themselves without any cards. Therefore cryptocurrencies do not comply with the definition of electronic money according to Royal Decree Regulating on Electronic Payment Services B.E. 2551. As cryptocurrencies are not treated as currency, neither Thai currency, foreign currency nor electronic money, the Bank of Thailand cannot create any rules or conditions to force cryptocurrencies’ users. However cryptocurrencies may be treated as property. According to the Securities and Exchanges Act B.E. 2535, section 4 provides the meaning of securities which can be divided into ten types; (1) treasury bills; (2) bonds; (3) bills; (4) shares; (5) debentures; (6) investment units which are instruments or evidence representing the rights to the property of a mutual fund; (7) certificates representing the rights to purchase shares; (8) certificates representing the rights to purchase debentures; (9) certificates representing the rights to purchase investment units; (10) any other instruments as specified by the SEC. Since there are only ten types of securities under Thai law, the characteristics of cryptocurrencies are excluded from section 4 (1) to (9). However, in the future, if the Securities of Exchange Commission (SEC) considers cryptocurrencies as instrument
123 Id.. 124 Section 3 of the Royal Decree Regulating on Electronic Payment Services B.E. 2551.
Ref. code: 25615901040377MXO 54 which can be traded for investment, SEC can provide cryptocurrencies as one of securities according to section 4 (10), such decision will affect cryptocurrencies businesses which will be controlled by SEC. Under) Section 137 and Section 138 of the Civil and Commercial Code (CCC) things that are corporeal object and property means things including incorporeal objects which may have a value and may be appropriated. The meaning of incorporeal objects is objects without physical existence such as a copyright, trademark right, right of ownership. The definition of value is broader than price, the valued objects are always demanded by people because they are not plentiful and are not easy to find. Even if the owner does not sell or exchange, it still has a value. However the value of things can change depends on time, and place, for example, if some objects are widespread in one area, the value of it may be lower than the other areas which lack of these objects, or if such objects are accessible and valuable now, they can be valueless in future when people are not be interested. The owners may not hold or grasp the property all the time but they would show their possession over the property by exercising their appropriation. For example, the incorporeal objects which have value and were appropriated, the Supreme Court decision 1438/2519, stocks which were seized by a plaintiff, have value and be appropriated. Stares mean the right of being shareholder, so they are property which have value according to Section 1117 and 1128 (3) and has a market price which can be higher or lower than their worth. Cryptocurrencies are electronic data unit which has no substance, they are not things according to Section 137, However they always have their own value, such value can change dramatically depend on the demand of the cryptocurrencies’ market since cryptocurrencies are rare items and they exist in limited amount. Even if they are incorporeal objects, the owners of cryptocurrencies can hold them by keeping the cryptocurrencies in their wallet, they decide by themselves to allocate, use as the means of payment, or transfer all or part of them to other people. Hence,
Ref. code: 25615901040377MXO 55 cryptocurrencies can be treated as property following the Civil and Commercial Code section 138. The Civil and Commercial Code allow people to make a transaction which can create, modify, transfer, preserve or extinguish rights125 by themselves, if the purpose of transaction is not prohibited by laws or impossible by nature, or contrary to public order or good morals.126 People can create conditions which are different from law as far as such conditions do not relate to public order or good morals. The status of cryptocurrencies is not illegal. They are property which can be purchased and sold under the Civil and Commercial Code, thus the purpose of transaction is possible, and not contrary to public order or good morals. Moreover, there are no laws to impose the form of cryptocurrency s’ transactions, therefore purchasing, selling or transferring of cryptocurrencies is allowed under this law. However in 2018, the status of cryptocurrencies is more precise because there are two Emergency Decrees related to cryptocurrency that were promulgated; the Emergency Decree on the Digital Asset Business B.E. 2561 and the Emergency Decree amending Revenue Code (No.19) B.E. 2561. Thai government realized how important it is to have the specific law to control the cryptocurrency, which is not only used for buying goods or services, traded or exchanged to real currency but also used as funding tools which may have effects the financial stability, economy and people. The Emergency Decree on Digital Business B.E.2561 is the newest law to governance and control the digital asset businesses or activities, and support the new technology for sustainable developing economic which is good results to businessmen and people who have information enough to make decision and protect them from deception. Moreover, this Emergency Decree defines the meaning of cryptocurrency as electronic data unit which is built on system or electronic network for using as a
125 Section 149 of the Civil and Commercial Code, “Juristic act are means any act which performs lawfully and voluntarily. The immediate purpose of which is to establish between persons juristic relations, to create, modify, transfer, preserve or extinguish rights. 126 Section 150 of the Civil and Commercial Code, “An act is void if its object is expressly prohibited by law or is impossible, or is contrary to public order or good morals.
Ref. code: 25615901040377MXO 56 medium for exchanging goods or services or other rights, or other cryptocurrencies. Including other electronic data unit which the board of commission specify.127 It affirms that cryptocurrency is treated as digital asset,128 and the securities from the Securities and Stock Exchange Act is not considered as cryptocurrency or token digital.129 In the case of imposing personal income tax, the income from holding or trading or exchanging cryptocurrency or digital token is assessable income to calculate for taxing, before the release of the Emergency Decree, Thai state agencies had not provided the specific law so Thai Revenue department collect personal income tax ineffectively. From this reason, the Emergency Decree states exactly that a dividend or other benefit from holding token digital or transferring cryptocurrency which is the gain is assessable income and subject to withholding tax.
4.2 Personal income tax under Revenue Code
For the democratic country, any acts of the state will follow the rule of law principle. It means that because there are legislated laws which give authorities to the state officers, they can act which may affect to the rights or liberties of person. Taxation itself is resulted from the compulsory of governments, it restricts rights or liberties and imposes duty on a person to pay money to government. According to Thai constitutional law, citizen can perform any act that is not prohibited or restricted by the Constitution or other laws, and shall be protected by the Constitution.130 The restriction of rights and liberties of person shall be in
127 Section 3 of the Royal Degree on the Digital Asset Business B.E. 2561 128 Id. 129 Section 5 of the Royal Degree on the Digital Asset Business B.E. 2561 130 Section 25 of Thai constitution law “As regards the rights and liberties of the Thai people, in addition to the rights and liberties as guaranteed specifically by the provisions of the Constitution, a person shall enjoy the rights and liberties to perform any act which is not prohibited or restricted by the Constitution or other laws, and shall be protected by the Constitution, insofar as the exercise of such rights or liberties does not affect or endanger the security of the State or public order or good morals, and does not violate the rights or liberties of other persons. ”
Ref. code: 25615901040377MXO 57 accordance with the constitutions provided by the Constitution.131 Moreover this Constitution states that paying tax is one of the duties of Thai citizen.132 Even Thai constitution does not mention the legal basis for taxation directly but there are other constitution rules which generate the power to make tax law. According to the combination of three provisions, government can enact further implementing tax law but the fundamental principles in relate to taxation need to be concerned as well, such as Principle of Consent, Principle of legality, Principle of Equality and Principle of Proportionality. The Revenue Code states the imposition of personal income tax which in relate to taxable person, tax base, tax rate, tax calculation and appeal. 4.2.1 Taxable person A person who have responsibility to pay personal income tax in Thailand is divided in 5 categories under Section 56, 57 and 57 bis; an individual, an ordinary partnership or a non-juristic body of persons, a deceased, an undivided estate, a Community Enterprise which is a non-registered ordinary partnership or a non-juristic body of persons registered and received a Certificate of a Registration from the Department of Agricultural Extension. However the relationship between the state and taxpayers will be considered for imposing personal income tax. The Revenue Code section 41133 stated
131Section 26 of Thai constitutional law “The enactment of a law resulting in the restriction of rights or liberties of a person shall be in accordance with the conditions provided by the Constitution. In the case where the Constitution does not provide the conditions thereon, such law shall not be contrary to the rule of law, shall not unreasonably impose burden on or restrict the rights or liberties of a person and shall not affect the human dignity of a person, and the justification and necessity for the restriction of the rights and liberties shall also be specified. The law under paragraph one shall be of general application, and shall not be intended to apply to any particular case or person. ”
132 Section 50 of Thai constitutional law “A person shall have the following duties: (9) to pay taxes and duties as prescribed by law; ” 133 Section 41 of the Revenue Code “A taxpayer who in the previous tax year derived assessable income under Section 40 from an employment, or from business carried on in Thailand, or from business of an employer residing in Thailand, or from a property situated in Thailand shall pay tax in accordance with the provisions of this Part, whether such income is paid within or outside Thailand.” “A resident of Thailand who in the previous tax year derived assessable income under Section 40 from an employment or from business carried on abroad or from a property situated abroad shall, upon bringing such assessable income into Thailand, pay tax in accordance with the provisions of this Part.”
Ref. code: 25615901040377MXO 58 that Thailand levied tax base on the residence and source of income not the nationality. The residence rule applies for an individual who has a residence in country, whom will be subject to personal income tax, regardless of the nationality of such individual, or where the income was earned. In the case of Thai Revenue Code, section 41 paragraph 3, if an individual spends time in Thailand 180 days or more, he is considered as a resident of Thailand, even if he is not Thai and has no Thai house registration, the document which shows how long the period individual spends time in Thailand is his/her passport. However if an individual is considered as a resident has assessable income from an employment, business or the property abroad and bring such income to Thailand, even if it is transferred via bank account or any methods which an individual can accept such income in Thailand, it is subject to tax under the remittance basis. Source rule, when an individual has income from any sources in the country, he has duty to pay tax in that country whether he is resident or not. Under paragraph 1 of section 41, an individual who has any income from a Thai sources such as employment, from the business carried on in Thailand or from business of employer residing in Thailand, or property in Thailand, no matter how long he/she stays in Thailand, he/she is subject to Thai personal income tax. 4.2.2 Tax base 4.2.2.1 Assessable income The legal meaning of assessable income is under section 39 which covers income in cash, and any property or benefits which could be divided into 8 categories under section 40, all of which are subject to tax. For example income from employment; wage, bonus, daily allowance is assessable income under section
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40(1)134, or income from liberal profession such as law, accountancy, architecture, engineering under section 40 (6).135 In the case of section 40 (4), the taxpayer receives this income from the investment such as stocks, bonds, debenture or others, which are also subject to tax. At present, after the Royal Decree of amending Revenue Code (No.19) B.E. 2561, there are 9 types of this income which is considered to be subject to tax. The types which are interesting are; section 40(4)(b) the income which comes from dividends, the share of profits or any gains from company or juristic partnership, 40(4)(g)136 capital gain from transferring partnership holding, the shares or other issued by company or other juristic person. In general, capital gain from transferring shares or bonds is subject to personal income tax as well as, withholding tax. However, if taxpayer transfers it to other person in the Thai stock exchanges, he/she does not bear the responsibility regarding personal income.137 40(4)(i) which was recently updated, stipulates the gains from transferring cryptocurrency is subject to income tax. 4.2.2.2 Tax deductions and allowances Usually, before calculating taxable income, taxpayers will deduct the expenses paid as cost for receiving income from assessable income. However the Revenue Code specified which income can be deducted as the expenses and how much is the deductions in Section 42 bis138 to 46139 as follows. There are two types of deduction; standard deduction and deduction for necessary and reasonable expenses.
134 Subsection 1 of Section 40 “Income derived from employment, whether in the form of salary, wage, per diem, bonus, bounty, gratuity, pension, house rent allowance, monetary value of rent-free residence provided by an employer, payment of debt liability of an employee made by an employer, or any money, property or benefit derived from employment.” 135 Subsection 6 of Section 40 “Income from liberal professions, namely, laws, arts of healing, engineering, architecture, accounting, fine arts or other liberal professions as prescribed by a Royal Decree;” 136 Subsection 4 of Section 40 “(g) gains derived from transfer of partnership holdings or shares, debentures, bonds, or bills or debt instruments issued by a company or juristic partnership or by any other juristic person.” 137 M.R.No.126 Clause 2 (30) 138 Paragraph 1 of Section 43 bis “For the assessable income under Section 40 (1) and (2), a standard deduction of 40 per cent shall be allowed as expense. However, the amount deducted shall not exceed 60,000 Baht in total.” 139 Section 46 “For the assessable income under Section 40(8), deduction of expenses shall be allowed in accordance with a Royal Decree.”
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The standard deduction is fixed rate despite the real expenses which could be much more or much less than the rate. For example in the case of income from employment, there is a fixed rate with limit, the taxpayer can deduct expenses by 50% but not exceeding 100,000 baht, or in the case of income from medical profession which is liberal profession, the expenses can deducted by 60% without limit. As for the necessary and reasonable expenses, the deduction is considered from the expenses which are actually paid. For example, the income from selling immovable property in the course of business according to section 40 (8), if taxpayers would like to deduct the expenses from assessable income, the deduction must be necessary and reasonable expenses. However there is no deduction for assessable income section 40(4) due to taxpayer receives such income without labor. Allowances or exemption, after deduction, the Revenue Code has some allowances to taxpayer for reducing tax burden, thus the taxpayer pays for less tax or has no duty in some cases. It differs from a deduction which is cost for receiving income while allowances are not only used for tax burden reducing but also used as a tool by the government to stimulate the economic by increasing allowances. When taxpayers have less taxable income, they will spend their money to consume goods or service which would help boosting up the economy. Normally allowances are stated in Section 47140 of the Revenue Code. For example, a single taxpayer has allowances in amount of 60,000 baht according to Section 47 (1) (a), for a long term equity fund, the amount which is actually paid for LTF can be allowance but not more than 15% of wage and such amount must not exceeding 500,00 baht.
140 Section 47 “For the assessable income under Section 40, after deduction of expenses under Section 42 bis - 46, the following allowances may be further deducted in order to relieve tax burden.”
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4.2.3 Tax rates The rates of Personal income tax are progressive rate and are effective from the 2017 tax year onwards
Net Income (Baht) Tax Rate 0-150,000 Exempt 150,001-300,000 5% 300,001-500,000 10% 500,001-750,000 15% 750,001-1,000,000 20% 1,000,001-2,000,000 25% 2,000,001-5,000,000 30% Over 5,000,000 35%
4.2.4 Tax calculation There are three types of calculation methods namely; self-assessment, withholding tax, and authoritative-assessment. 4.2.4.1 Self-assessment method In this method, Section 56141 of the Revenue Code regulated the person who is single or has a spouse and earns income which the amount is required by the law, has duty to calculate taxable income, file the form and pay the tax due at the time of filing, normally on or before the last day of March every year.
141 Section 56. “if such person- (1) has no spouse and has the assessable income of the preceding tax year exceeds 60,000 baht, (2) has no spouse and has the assessable income of the preceding tax year under only Section 40 (1) exceeds 120,000 baht, (3) has a spouse and the assessable income of the preceding tax year exceeds 120,000 baht, or (4) has a spouse and the assessable income of the preceding tax year under only Section 40 (1) exceeds 220,000 baht.”
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During January to June, if the person has income derived from the lease of property, liberal professions, contractual work and other businesses, commerce or industries and the amount of such income is much more than the amount required by law, such person must file the mid-year tax. Each husband or wife who receives income has options to file tax, he or she can file tax separately or jointly with their spouse.142 4.2.4.2 Withholding tax The law specified the persons who pay assessable income must deduct some income tax at source on each occasion of payment. This method is useful for the government because the private persons help collecting tax and decrease the burdens and expenses from the government. The payers always withhold tax before they pay so they can help the government to protect tax evasion as well. The government can receive income from this method. On the other hand, this method also help the citizens whose tax is deducted because they can pay tax little by little, and it is not difficult to afford it. However the payers can withhold tax in the cases which law regulated under Section 50, 69 bis, 69 ter, 70 and 3 Tredecim which gave the Director- General revenue the authority to issue other withholding tax orders in addition to the Revenue Code. Section 50143 specified that all persons, partnership, association or body of persons who pay assessable income under Section 40 have a duty to withhold income tax every time of payment, and the rates of withholding tax are stipulated in this section. For example, Section 50 (2) is the case of paying assessable income under Section 40 (3), and (4). The payers may deduct withholding tax at the income tax rate except; (a) to (f), such as (b); if the assessable income is under section
142 PricewaterhouseCoopers Legal&Tax consultants Limited. Thai Tex 2017/18 Booklet . www.pwc.com/th/en/publications/assets/thai- tax-2017-18-booklet-en.pdf. Accessed on September 4, 2018. 143 Section 50 “A person, partnership, company, association or body of persons paying assessable income under Section 40 shall withhold income tax at every time of payment in accordance with the following methods:”
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48 (3) (a)144 and (c), the payer must withhold tax by 15% of such income, or (e) which the assessable income is under Section 40 (4) (b), the rate of withholding tax is 10% of that income. Section 50 (2) (f) was recently updated by the Royal Degree on amending Revenue Code (N0.19) B.E. 2561, the assessable income which derived from holding digital assets or transferring cryptocurrency will be withhold tax at 15% of the cost of income. However this is not final tax, after filing tax form and calculating, taxpayers will pay more in the case that the amount of tax is much more than the amount of withholding tax, on the other hand, if the amount of withholding tax is much more than the amount of tax which has to be paid, taxpayer will get tax refund. Section 69 bis, 69 ter and 70 related to paying assessable income under Section 40 to a company or juristic partnership. If the payers are government, government enterprise, or other local government agency, Section 69 bis regulated that the rate of withholding tax is 1% of income, or in the case that a person, partnership, company, association or a body of persons pay assessable income under Section 40 (8) to the company or juristic partnership which sells the immovable property, such income will be withheld by 1% for taxing. The Ministerial Regulation No.144 (B.E. 2522), Issued under the Revenue Code Governing Income Tax by virtue of Section 3 Tredecim and Section 4 of the Revenue Code stated that the payers who pay assessable income according to section 40 need to withhold tax in accordance with this Regulation,145 then the Director- General of the Revenue Department issued Revenue Department Order No. Tor Por 4/2528 Regarding Instruction for Payers of Assessable Income under Section 40 of the Revenue Code to Withhold Income Tax by virtue of Section 3 Tredecim of the Revenue Code and the Ministerial Regulation No. 144 B.E. 2522 instructs payers of
144 Section 48 (3) (a) is Interest on a bond, interest on a deposit with a bank in Thailand, interest on a deposit with a cooperative, interest on a debenture, interest on a bill received from a company or juristic partnership or any other juristic person, interest received from a financial institution established under a specific law in Thailand for the purpose of providing a loan in order to promote agriculture, commerce or industry while (c) refers to Gains derived from transfer of a bond, debenture, bill or debt instrument issued by a company or juristic partnership or any other juristic person. 145 Revenue Department. MINISTERIAL REGULATION No. 144 (B.E. 2522) Issued under the Revenue Code. www.rd.go.th/publish/fileadmin /user_upload/kormor/eng/MR_144.pdf. Accessed on September 8, 2018.
Ref. code: 25615901040377MXO 64 assessable income under Section 40 of the Revenue Code who do not have a duty to withhold income tax pursuant to Part 2 of Chapter 3 of the Revenue Code to withhold income according to the rules, conditions and rates as following as this Order.146 For example, in the case of company, juristic partnership, or other juristic person, who pays advertising expense as assessable income to taxpayer who is levied on personal income or corporate income tax, the rate of withholding tax is 2% of income.147 In conclusion, the payers who pay assessable income have responsibility to withhold the tax if required by the Section 50, 69 bis, 69 ter, and 70 of the Revenue Code, but if the law did not regulate, then payers have to check the Revenue Departmental Order no. Tor Por 4/2528, and comply. 4.2.4.3 Authoritative-assessment There are 4 types of tax assessment which officers have authorized, if taxpayers file to the tax incorrectly or incompletely, the assessment officer will issue a taxpayer warrant to investigate under Section 19. In the case of Section 18, assessment without warrant, the officer must assess the information which is only shown in the file form, or special assessment under Section 49 if taxpayers did not file form for tax paying or that the amount of income filed is lower than the actual amount, tax authorities can ask the Director-General to have power to determine the amount of his/her net income, make an assessment and give a notice for the amount of tax payable to taxpayer, or Section 61 if there are some documents which have taxpayer’s name such as title deeds, lease contract, tax authorities, the tax assessment can be conducted on the person whose name is shown in such documents. 4.2.5 Appeal In the case that the taxpayer disagrees with the assessment from officers, he/she can appeal to the Board of Appeal within 30 days from the date of receiving the notice, the Board of Appeal will then issue a ruling. If the taxpayer does
146 Revenue Department. Revenue Departmental Order No. Tor Por 4/2528. www.rd.go.th/publish/fileadmin/user_upload/kormor /eng/RDR_4.pdf. Accessed on September 8, 2018. 147 Amended by MR. No. 229 (B.E. 2544) Valid: 27 June B.E.2544.
Ref. code: 25615901040377MXO 65 not agree with such ruling, he/she can appeal to the Tax Court within 30 days from the date of receiving the ruling. If the court render a judgement and if the taxpayer still disagrees with this judgment, he/she may appeal to the Special Appeal Court within 30 days, the judgment from this court is deemed as final. However if Supreme Court approve that the issue is important, taxpayer may appeal to the Supreme Court to consider such issue again.
4.3 The Problems of imposition of tax on cryptocurrency in Thailand
4.3.1 Tax laws analysis According to the principle of proportionality, imposing tax is one of the measures issued by government to limit the right of property and freedom of people. Thus the content and form of this measure shall be proportion to the objectives of government and shall comply with the principle of suitability, necessity, and proportionality strict sense. The purpose of this Emergency Decree is to collect income from holding and transferring cryptocurrency, so it specifies directly any benefits gained from holding or transferring cryptocurrency are considered as assessable income according to Section 40 (4) (i) and are subject to personal income tax. In general Section 40 (4) refers to income derives from investment but in the case of cryptocurrency, there are many transactions not only holding and transferring cryptocurrency as investment in which the gain from such activity is considered as capital gain but also holding and transferring cryptocurrency as business, such as mining, and trading in the normal course of business. For instance, according to the Emergency Decree on Digital Asset Businesses B.E. 2561, defines the meaning of digital asset businesses by dividing into 4 types148 and digital asset dealer is one of digital asset businesses.
148 Section 3 of the Emergency Decree on Digital Asset Businesses B.E. 2561, “digital asset business” means any of the following businesses: (1) digital asset exchange (2) digital asset broker (3) digital asset dealer (4) other businesses relating to digital assets as prescribed by the Minister under the recommendation of the SEC.”
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The dealer under this decree is a person who provides services or holds himself/herself out to the public as available to provide services with respect to the trading or exchange of digital assets for its account in the normal course of business.149 An individual who trade or exchange cryptocurrency as his business, when they are in high demands, he decides to sell the coins and receives some gains. It is similar to the case of miner who has intention to do business and transfer his mined coins to his customer. Usually the personal income from business should be recognized as income under Section 40 (8) but due to the Emergency Decree Amending the Revenue Code (No.19) B.E. 2561 which states the specific income for cryptocurrencies transferring which incurred the benefit is under Section 40 (4) (i) instead. As the principle of suitability, the imposed measures should be suitable for achieving the desired objective. In this case, Section 40 (4) (i) forces any gains from cryptocurrency transferring to be subject to tax as capital gain, it is not suitable enough for other taxpayers who are not related to cryptocurrency’ investment because they have more burden than normal situation. Taxpayers may feel uncomfortable to file the amount of income from transferring cryptocurrency and decide to evade tax. Such decision affects the aim of government which expects to effectively impose and receive the significant amount of revenue from cryptocurrency transferring. Moreover, the principle of necessity states that government shall not intervene in the right and freedom of people. If it has other measures which have similar results, government should select the less restrictive means. The Revenue Code provides many types of income according to Section 40 (1) to (8) and the income from business is imposed in Section 40 (8), the income under Section 40 (4) cannot be deducted whereas in Section 40 (8), usually taxpayer can select which type he/she prefers to deduct; standard deduction for 60% or deduction for necessary and reasonable expenses. Thus, government has options to treat income from transferring cryptocurrency as business differently. The taxpayers would have more benefit, and
149 Section 3 of the Emergency Decree on Digital Asset Businesses B.E. 2561.
Ref. code: 25615901040377MXO 67 government can still collect revenue from cryptocurrency transaction at the same time, since the results are equally valid, government shall select the less restrictive means that is Section 40 (8) instead of 40 (4) (i). The legal treatment of tax on cryptocurrencies under foreign laws such as Australian tax treatment of cryptocurrency classifies types of cryptocurrency transaction, and each transaction has own tax consequence. For example, an individual who held and disposed Bitcoin as investment and received some gains, tax consequences is contrary to any benefits received from trading or mining as business. Even if there are gains or loss derived from both situation but the types of gains or loss can be considered as either capital or ordinary gains or loss, it depends on the intention of taxpayers when holding, or disposing such cryptocurrencies. It is similar to Canadian treatment which imposes an income tax on digital currencies but there are completely different measures depending on the characteristics and purpose for holding and disposing. Different types of income result in different tax deduction rate which can alter the amount of taxable income. Thai government only stated and focused on imposing income tax from cryptocurrency transferring as investment without any concerns on the purpose, characteristic, or manner of transactions. It is quite unfair for the taxpayer who receives the gain as an income derived from business which can deduct expenses in general but such income is subject to tax under Section 40(4) instead, which impact to the taxpayer who undertakes more burden. 4.3.2 Tax policy analysis 4.3.2.1 The lack of necessary information To form a good system, certainty is an essential principle of taxation, especially in taxation system which allows taxpayers to assess their taxable income by themselves. The comprehension on tax is necessary because it affects taxpayers to make their assessment effectively and precisely. Thus the information in relation to taxation should be clear and specific with enough information, in particular, the amount to be taxed and how to calculate.
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Since cryptocurrencies are new technology which has a complex system, taxation on cryptocurrencies is not easy because many people do not understand how to pay tax, and how to calculate income from cryptocurrency transactions. Thus in other countries such as Australia, they have special tax treatment of cryptocurrencies from Australian Tax Organization, as well as IRS, the Internal Revenue Service from the United States, which issued notice 2014-21 in 2014 to provide information on to how to pay tax on virtual currencies. In the case of imposition of tax on cryptocurrencies in Thailand, since Emergency Decree is effective, Revenue Department has not released any information to taxpayers who is involved with cryptocurrency transactions, so it is difficult for taxpayers to comply with the law without any explanation from Revenue Department because there are still some vague issues such as how to value cryptocurrencies to adjust any gain or loss and calculating tax further. Some taxpayers who acquire or dispose of the cryptocurrency are not aware of their responsibilities and fail to calculate their income from cryptocurrency transactions. This may also create an opportunity for taxpayers to evade taxation as well. Then government cannot collect such revenue as effectively as planned. The lack of necessary information related to the imposition of tax on cryptocurrency which should be clarified and explained by the Revenue Department as soon as possible are; (1) the valuation of cryptocurrency, (2) basis issue, (3) mining cryptocurrency, and (4) reporting information (1) Value issue To calculate income from a transaction relating to cryptocurrency in foreign countries, taxpayers must convert the price of cryptocurrency to real currency. For instance, the United States using the fair market value of cryptocurrency at the time of receipt to convert its value into U.S dollars. It is similar to Australian Tax Treatment which declared that all taxpayers shall calculate the value of the cryptocurrency in Australian dollars at the time such transaction occurred. Moreover, as cryptocurrencies are not legal tender, they are accepted for trading by many cryptocurrency exchanges instead, but each exchanges
Ref. code: 25615901040377MXO 69 has its own rate which leads to tax calculation problem. This situation differs from fiat currencies which have standard exchange rates issued by the central banks of each country. Thus in Australian tax treatment allows users to value cryptocurrency in Australian dollar by applying exchanges rate from the reputable online exchange. It is quite similar to United States in which users could apply exchange rate as fair market value if such virtual currency is listed on an exchange. But Thai Revenue Code did not regulate exactly how the cryptocurrency should be valued. Though, the Emergency Decree on the Digital Asset Business B.E. 2561 Section 8 stated that in the case of calculating the price of digital assets in Thai baht, the basis and procedure which is declared by the Securities and Exchange Commission must be followed. However, since the date this Royal Decree has become effective, the Commission has not had any case in calculating the value of digital asset in Thai baht notice, so taxpayers in Thailand are lack of the information of how to convert cryptocurrency to Thai baht to calculate their income especially gain or loss further. For example, in the United States, B wants to buy a cup of coffee from ABC coffee shop which accept Bitcoin as means of payment, the fair market value of a cup of coffee is $5, the fair market value of mined 0.001 Bitcoin calculated in U.S. dollars at that time is $5.5, so if B pays his coffee by 0.001 Bitcoin, he losses from this transaction because the fair market value of property received is less than Bitcoin’s adjust basis and such loss is capital loss because he does not hold Bitcoin for business purpose. For ABC coffee shop’s aspect, when the owner receives Bitcoin as payments, the IRS treats this transaction as bartering. Moreover, since Bitcoin is listed as an exchange, the owner can apply the exchange rate at the rate of fair market value, so he/she must convert the value of Bitcoin to U.S. dollars and include such amount in his/her gross income. On the other hand, if the same situation occurs in Thailand where there is no declared notice on how to convert cryptocurrency to Thai baht, it would have the effect on gain or loss calculation.
Ref. code: 25615901040377MXO 70
When B uses cryptocurrency, he knows the fair market value of the received property but he does not know the value of his cryptocurrency in Thai baht at that time. Therefore he cannot realize whether he gets gain or loss, he may not include this income to his assessable income to pay tax. In the case of coffee shop, the owner who accepts Bitcoin does not know how to convert Bitcoin into Thai baht and where to find the exchange rate, so he would not include this income to his gross income to pay tax as well, the Revenue Department cannot collect the revenue from this case. (2) Basis issue Tracking basis of cryptocurrency is one of the important problems because the value of cryptocurrency depends on the demand and supply of its market, so the values have been extremely volatile. In the case that the taxpayers purchase different cryptocurrency, the track of cryptocurrency basis in each transaction is possible For instance, in the United States where the concept of the fair market value in U.S. dollar to calculate value of cryptocurrency applies, assuming that A, an individual buys 10 Bitcoins on day 1 when Bitcoin is worth $200 each, and 10 Ether coins for $100 per coin on day 2, and 15 Litecoins at $50 per coin. If A sells only 10 Bitcoins when the value of Bitcoin increase from $200 per each to $250 per each, for this transaction, he can realize the basis, sales price, and get $500 received gain which is subject to tax. However if A purchases only one cryptocurrency such as Bitcoin at different times, from different sources and at different price rates, how would he determine the basis when he sells or uses Bitcoin? For instance, day 1, A buys 10 Bitcoins when it is $75 dollars each, 10 Bitcoins on day 5 when it’s worth is $110 dollars each, and 10 more Bitcoins on day 20 when the value dropped to $100 per coin. If A decides to sell 7 Bitcoins on day 30 for $120 per coin, and applies $110 dollars per coin as his basis, his gain will be $70 but part of Bitcoins which are sold may come from the original price at $75, so the tax authorities may tax his gain either at $70 or $ 315.
Ref. code: 25615901040377MXO 71
On the other hand, the taxpayer may cheat on tax system by addressing a basis value at $110 and reporting gain at only $70. From this situation, it is extremely difficult for both tax authorities and taxpayers. The difficulty in determining the basis value of cryptocurrency affects the taxpayers when calculating gain or loss. It means that the taxpayers are unable to calculate their basis value of cryptocurrency, how they can determine accurately and whether they have accrued any gains. This issue has been questioned by the taxpayers for a long time but there were no answers form the tax organization, even if Australia, Canada, or the United States had created tax schemes for cryptocurrency, but neither country explains how to determine a basis of cryptocurrency. In Thailand, the use of Bitcoin and other cryptocurrency has grown both as an investment and means of payment. The markets which accept cryptocurrency are getting wider, every persons who acquire and dispose cryptocurrency face this problem unavoidably, so if Thai Revenue Department wants to impose revenue from cryptocurrency transactions effectively, it should be aware of this problem and prepare a clear approach to solve and address the issue in the cryptocurrency tax guideline or treatment. (3) Mining As mentioned above, mining is one of the means to get cryptocurrency. For example, a miner can mines Bitcoins by processing Bitcoin transactions and verifying them on the Blockchain. In Thailand, there are no regulations relating to the mining, neither the Revenue Code, the Emergency Decree on Digital Asset Business B.E. 2561 nor the Emergency Decree amending the Revenue Code (No.19) B.E. 2561. Thus taxpayers who mine cryptocurrency are lack of the tax consequences information, while tax authorities have not decided how to impose tax in the case of mining cryptocurrency yet, it is still vague. The Revenue Department should release the tax mining cryptocurrency treatment including these necessary issues.
Ref. code: 25615901040377MXO 72
The Revenue Department should answer how to value the cryptocurrency which is mined, when the value should be realized, and how to find the basis value of such mined cryptocurrency. For instance, A, Thai miner, uses his computer to mine cryptocurrency, Bitcoin, on day 1 he started to mine, and the mining process is successful on next day, he gets 1 Bitcoin. The problems in this situation are; A does not know how to convert his Bitcoin to Thai baht, so it is difficult to know his basis value to calculate gain or loss, and he is unaware of the exact time he should evaluate his Bitcoin, when he started to mine, or when he mined successfully. In United States, the Notice stated the miners must use the fair market value of the cryptocurrency to convert to U.S. dollars, and must declare the exact date and of receipt is the time to time of receipt to calculate value of such cryptocurrency. For tracking basis, in the case of the basis value of cryptocurrency by mining, the Notice stated that the basis value of mined cryptocurrency is determined by the fair market value, if A, the miner, mined 10 Bitcoins and the market price at the time was $1,000 per each, on the second day, he mined for 10 Bitcoins at the market rate was $1,500 per each, then next week he mined another 10 Bitcoins and the market rate was $2,000, then he decides to sell 10 Bitcoins next mount, this problem will occur again because the miner does not know what basis value to use for each coin. Moreover, in the case of imposition income on cryptocurrency in the case of mining, when an individual mines cryptocurrency successfully, he/she gets coin, the argued problem is whether mined cryptocurrency is considered as assessable income. There are two opinions; it will be assessable income since the date of receipt of mining and should be taxed, this contrasts with another view which says it is still not assessable income. However the Revenue Department has not yet affirmed this matter directly.
Ref. code: 25615901040377MXO 73
In the United States, Section 61 of the Internal Revenue Code defines gross income is all income derived from whatever source.150 Mining is one of activities which generates income to taxpayers who mine virtual currencies. In addition, according to the notice 2014-21, miners who successfully mine cryptocurrencies must include fair market value of such cryptocurrencies at the date of receipt to his/her gross income. The type of income generate from mining can be determined as either self-employment or hobby depends on the characteristic of mining. It is similar to Canadian Revenue Agency’s view which states that income from mining digital currencies will be computed to gross income and can either be a business or a personal hobby as well. From the view of the writer, the meaning of assessable income under Section 39 of the Revenue Code does not only state the money but also include a property and other benefits, in addition, the Emergency Decree of Digital Asset Businesses regulates that the status of cryptocurrency is considered as a digital asset according to the Section 3, thus the received cryptocurrency via mining, in which the miner acquires the property which its value can be calculated in Thai baht, is assessable income which subject to tax under the Revenue Code. For the types of assessable income, since mining cryptocurrency is an activity, which is not specified in Section 40 (1) to (7), so the coin which is property results from mining process is considered as income under Section 40 (8). It is not income as specified in section 40 (4) because its process does not produce any gains derived from transferring of cryptocurrency. Furthermore, personal Income tax applies cash basis which recognizes revenues and expenses at the time of receiving or paying out the cash. An assessable income under Section 39 which is money, or a property, or any benefits which has already been received has to be computed into gross income. In the case of miner who is already acquired cryptocurrency and realizes its value at the time of
150 Section 61 (a) of the Internal Revenue Code, “except as otherwise provided in this subtitle gross income means all income from whatever source derived.”
Ref. code: 25615901040377MXO 74 receipt, it belongs as his property, and is not a right of claim in the future. Thus the value of his cryptocurrency will be included to calculate his personal income tax. For transferring mined cryptocurrency, in the case of an individual who mines cryptocurrency for himself and decides to sell it later has different tax consequence from an individual who has his own business for mining and selling cryptocurrency to his customers. The money, or other benefit which are received from transferring cryptocurrency can be considered as assessable income as specified in Section 40 (4) (i). If an individual decides to use mined cryptocurrency as the means of payment to buy goods or services, or sell it to other buyer, and such transactions make the gain to the miner, 15% of the gain will be withhold. For instance, A, an individual who uses his computer to mine cryptocurrency, he gets Bitcoin which the value of the receipt date is 10,000 baht per coin, his cryptocurrency is assessable income according to section 40(8), then next mount, the value of Bitcoin increase from 10,000 baht to 15,000 baht, he decides sell it to B who is interested in an investment on cryptocurrency, from selling transaction, A receives 5,000 baht as his gain, it is benefit from transferring cryptocurrency according to Section 40 (4) (i), from section 50 his gain will be subject to 15% withholding tax. While if A mines cryptocurrency as business, then he sells his mined cryptocurrency to his customers, even though he receives the gain from transferring cryptocurrency, it should be considered as income from business as specified in Section 40(8) which can deduct from his expenses instead of 40(4). Taxpayer who is miner still gets confused on how many times would be levied on tax, and the Revenue Department has not issued any official statement on how to calculate tax in this case since there are two means of calculation; one is when an individual gets cryptocurrency from mining, if it is considered as assessable income 40 (8), it is included in gross income to tax and when he disposes it, if he gets any gains from transferring, the income from activity is subject to tax again, an individual has two incomes and duty to pay tax twice. Another is when
Ref. code: 25615901040377MXO 75 he gets cryptocurrency, he has duty to pay tax only when he gets any gain from transactions. From the view of the writer, the mined cryptocurrency should be considered as income as specified in Section 40 (8) and subject to tax as mentioned above, and when disposing mined cryptocurrency and receiving any gain, it should be taxed again even if it seems that the miner has been double with tax from mining transaction but there are two different incomes derive from different events. First event is mining transaction and another is transferring of mined cryptocurrency transaction, so it is possible to specify the regulations to tax both of them. (4) Report information In Thailand, taxpayers are not familiar with capital gain calculation which relies on the firm system of recording information. Thus, the Revenue Department must force the cryptocurrency users; an individual who trade, invest, mine, or use cryptocurrency as means of payments for goods or services, including cryptocurrency exchanges included to record the information relating to cryptocurrency transaction. For tax aspects, if the taxpayers record every transaction which involved cryptocurrency in detail, they can use these records as their evidence to claim the tax officers when their assessment is overtaxed. On the other hands, tax officers can verify taxpayers whether their personal income tax filing is correct. The benefits from reporting information are not only for imposing cryptocurrency tax accurately and effectively but the government organization can also use this information to investigate and prevent criminal offences such as anti-money laundering, fraud, terrorist that will impact to the stability of financial system and economy. Even if it is difficult to keep the information because the nature characteristic of cryptocurrency transactions is anonymous, this duty falls on the Revenue Department, to create the guideline as much as possible for cryptocurrency users both of transferring in exchanges, or peer-to-peer system.
Ref. code: 25615901040377MXO 76
4.3.2.2 Peer-to-Peer Trading The peer to peer economy is a community of virtual marketplaces which connect individuals who want to sell and buy goods or services with one another through digital platforms.151 Such platforms are the technology which allow users to access their functions to create opportunities for advertising and marketing. There are many types of platforms, for example, traveler accommodation platforms such as Airbnb, retail businesses platforms such as Amazon, Alibaba, or freelancing platforms which match the desire of freelancers to the jobs. The number of users on peer-to-peer market is rising, in 2016 there was report from Pew Research Center stating that 72 percent of American people have used at least one of 11 different shared and on demand services.152 Cryptocurrencies are one of the platforms which allow individuals to make transactions without the involvement of a central authority such as governments or banks. Cryptocurrencies, exchanges are not only place for trading but there are also online peer-to-peer trading marketplaces where cryptocurrency users such as Bitcoin users, can communicate with each other to buy or purchase items online and use debit or credit card to make payment. For example, the Bitcoin users stated their wish lists for an online retailer, such as Amazon.com, they provide the discount they would like to receive on the goods in exchange of their Bitcoins, individuals who want to buy Bitcoin find the amount of Bitcoin which they want to purchase and accept to trade, they buy the goods on Amazon.com and request that goods to be delivered to Bitcoins’ users’ address, while Bitcoin users put the shared of Bitcoins in escrow with the marketplace, when the goods is delivered their address, they will notify the marketplace release their Bitcoin from escrow and send them to individual with a small fee to marketplace.
151 Aslam, Aqib, and Alpa Shah. Taxation and the Peer-to-Peer Economy. IMF Working Paper, Aug. 2017,www.imf.org/~/media/Files/Publications /WP/2017/wp17187.ashx. Accessed on December 17, 2018. 152 Id.
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Thus a Bitcoin will not has a standard price, it can be set up by the Bitcoin users that impact to keep its fair market value and basis record. Individuals who purchase goods and pay the discount rate and fees in exchange of Bitcoins would be required to report the total cost incurred as their basis of received Bitcoins. The Thai Revenue Department should realize the ability of taxpayer to purchase cryptocurrency through peer-to-peer markets, taxpayers have high risks to file the amount of taxable income incorrectly, or to not file this amount because it is quite tricky to Revenue Department to trace and inspect such transactions. For example in United States, there are estimations stating that 7% of population around the world who is the owner of Bitcoin and other cryptocurrencies are American but the number of the filed tax return in relation to cryptocurrency is only 0.04%. Therefore tax authorities shall find the measure to support cryptocurrency trade in a tax system such as in exchanges which are approved by the Securities and Exchange Commission. In conclusion, Thai government decided to issue the new laws, the Emergency Decree Digital Asset Businesses B.E. 2561 and the Emergency Decree amending Revenue Code (No.19) B.E. 2561, to deal with the cryptocurrencies transactions. In the view of cryptocurrency investor, promulgating both of Emergency Decrees affirms the trustworthiness in cryptocurrency, facilitates the small businesses to fundraising for setting up the company, and protects people from fraud. Moreover in taxation, the Decrees produce more income to government from trading, exchanging, and transferring cryptocurrency. However, there are urgent problems which should be adjusted, or vague issues which should be explained by government. First, the impropriety of the provision which is not suitable to cover all cryptocurrencies transferring regardless of the purpose and characteristic of transaction. Then the lack of information which tax authorities should provide such as ways of income calculation, how to value cryptocurrencies in Thai baht, how to impose tax on mined cryptocurrency, and which information should be recorded, or kept, furthermore the existent of peer-to-peer market which taxpayers can avoid paying tax
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While the use of cryptocurrencies is continuously increasing by time, government should be responsible for improving itself to catch up with or be ahead of new technologies and bringing them into the existing legal and taxation system.
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CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions
In the past, cryptocurrency was posted in a gray area, it was not accepted legally from the governments. Some of governments did not approve the status, and some decided to ban it as long as they find the solution to control. During a decade, however, the usage of cryptocurrency has grown increasingly from transferring money because the transactions has minimal cost, faster than ordinary transferring, the users can cover their real private information, and every transaction is unregulated from any financial institutions or governments, to use cryptocurrency as a means of payment, some businesses have begun accepting cryptocurrency payments which later resolved as a mean to pay for products and eventually led to holding cryptocurrency as an investment such as a speculation, an Initial Coin (ICO), it affects the growth of cryptocurrency users as well. Thai government recognized the growing number of transaction involving cryptocurrency, therefore the Emergency Decree on the Digital Asset Businesses B.E. 2561 was released to state the meaning of cryptocurrency and categorize it as digital asset. For tax consequences, the government released another the Emergency Decree to amend the Revenue Code by adding the new subsection under Section 40 (4) and 50 to impose income, only the capital gain, from transferring cryptocurrency transactions is considered as assessable income and subject to personal income tax, in addition, such income will be withheld by 15 %. However, because of the narrowness of the regulation and lack of important information such as how to convert cryptocurrency in Thai baht, it will be difficult for taxpayer to calculate the value of cryptocurrency for assessing the gain or loss. Furthermore, in the case of calculating gain or loss from many cryptocurrencies which are received at different times and rates, which value of cryptocurrencies will
Ref. code: 25615901040377MXO 80 be applied as basis to find gain or loss. It is hard for both of taxpayer and tax authorities to assess income tax accurately. Additionally, mining is one of activities to acquire cryptocurrency but the laws have not stated specific tax consequences for this case, the miners do not know when they should convert and how to value the mined cryptocurrency, including whether mined cryptocurrency is considered as assessable income or how to tax mined cryptocurrency, only once when the miner dispose it or tax twice, one for receiving cryptocurrency and one for disposing cryptocurrency. Reporting information, the Revenue Department is not aware of the necessity to enforce the taxpayers to record the cryptocurrency transaction information which is not only useful to the Revenue Department for imposing tax but also beneficial to other government organizations to investigate and prevent criminal offences, or stability of financial and economy. Peer-to-peer trading, due to taxpayers who are involved in cryptocurrency can exchange or trade by themselves, is difficult for tax authorities to trace and investigate, taxpayers may take advantage from the limited capability of the Revenue Department to create tax evasion. In conclusion, even Thailand already has specific laws for cryptocurrency transactions, but for imposition of personal income tax on cryptocurrencies, is still problematic because of ineffective measures and there is no information provided as tax treatment, guidance, or notice to explain further information from the Revenue Department.
5.2 Recommendations
5.2.1 Tax laws For the suitability and effectiveness in imposing of tax on cryptocurrencies, the government should amend Section 40 (4) (i) because this section is not proper. It cannnot cover every disposing transactions relating to cryptocurrencies.
Ref. code: 25615901040377MXO 81
Since transferring cryptocurrency causes either gain or loss, it can be capital gain as specified in Section 40 (4) (i) if the purposes of holding cryptocurrency is to trade or keep as investment. However any gain or loss can be considered as other assessable income such as income under Section 40 (8), if an individual who is the dealer and transfers his/her coins to customers as his/her business, or in the case of mined cryptocurrency, transferring coins with the business purposes, the received gains from disposing should be considered as income as specified in Section 40(8) instead. The different types of income leads to different tax deduction, and tax results, taxpayer should have appropriate tax consequences for the activity. Thus section 40 (4) (i) should be amended by adding specific purpose of transaction such as any benefits which are gain from holding or transferring cryptocurrencies but not including any benefits which are gain from holding or transferring cryptocurrencies derived from employment, business or others except investment. Having suitable measures creates effective tax system, taxpayers do not have prejudice against tax payment, and government would receive more revenue. 5.2.2 Tax policy 5.2.2.1 Issuing tax notice or treatment For certainty of tax imposition on cryptocurrencies, Revenue Department should provide adequate information to make taxpayers aware of their tax responsibility, thus the Revenue Department should release a tax notice or treatment to explain the details of imposing cryptocurrency by addressing the following issues. (1) Value issue To value cryptocurrency, the Revenue Department shall regulate the fair market value of cryptocurrency in Thai baht at the time of transaction, and identify the reputable online exchanges which taxpayer can apply the fair market value to determine his cryptocurrency value. There are many online exchanges which are approved by the Securities and Exchange Commission such as bx.in.th, bitkub.com, coinasset.co.th, so
Ref. code: 25615901040377MXO 82 the Revenue Department can specify one or more online exchanges and allow taxpayers to apply the rate as fair market value of cryptocurrency when he makes transactions. The Revenue Department can establish its own cryptocurrency exchange for providing accurate exchange rate for cryptocurrency transaction. It does not benefit only for the cryptocurrency users to determine the value of coins but also for tax authorities to challenge the users’ self- assessment in the case which value of cryptocurrency is under assessed. (2) Basis issue In the case of receiving cryptocurrency at different rate, and time, the Revenue Department shall specify the methods to determine the basis value of cryptocurrencies such as the first-in, first-out (FIFO), or last-in, first-out (LIFO), or specific identification method to compute any gains or loss. For First-in, First-out (FIFO), this method assumes that the goods first acquired are sold first, so when taxpayers sell some cryptocurrencies, the basis of first cryptocurrencies will be calculated. While, Last-in, First-out (LIFO), this method assumes the goods last acquired are sold first, it allows taxpayers to apply the value of last purchased products to calculate the basis. Moreover, Specific identification is for the case that taxpayers can identify which cryptocurrency they want to sell. (3) Mining To identify the value of mined cryptocurrency, the Revenue department should address the fair market value and when to value such cryptocurrency. For instance, using the fair market value of mined cryptocurrency in Thai baht from the reputable online exchanges which approved by the Revenue Department when the date of successful mining to assess the value, and other gain or loss.
Ref. code: 25615901040377MXO 83
Moreover, the Revenue Department should state exactly how to tax cryptocurrency by determining mined cryptocurrency as assessable income and is subject to tax when successful mining and receiving cryptocurrency as income from section 40 (8), and the miner is levied on tax again when he disposes such mined cryptocurrency and acquires money, property or any benefits in exchange. However which types of latter income would be taxed depends on the purposes of transferring. (4) Reporting information To specify the necessary information that has to be recorded as information for every transaction which involves cryptocurrency; the date of each transaction, value of the cryptocurrency in Thai baht at the time of transaction, the purpose of the transaction, the detail of the other party involved such as the wallet address. For the approved online exchanges, not only above information which should be recorded but the Know your Customer process (KYC) should also be implemented to identify information of customers, the exchanges shall require their customers to show identification before processing any transaction and record the details of transactions such as data transfer history, and another valuable data which involved with the transaction. Apart from KYC, the approved online exchange should run the Customer Due Diligence (CDD) process with every customer in every time that a customer proceeds a transaction. They should have conditions or measures to testify and identity the customers Moreover, the Revenue Department should regulate cryptocurrency exchanges to keep the record within the specific period for the purpose of examination and send the information and data of their customer to the tax authorities or other government officers when asked for investigation. 5.2.2.2 Convincing taxpayers to comply with tax system Since cryptocurrency users can trade cryptocurrency via peer- to-peer market, it is difficult for governments to trace and collect revenue from
Ref. code: 25615901040377MXO 84 cryptocurrency transactions because high technology must be applied which lead the administrative costs. Therefore, to convince users of cryptocurrency for trading their coins in approved exchanges by the Securities and Exchanges Commission, the Revenue Department should provide a de minimis tax for taxpayers. Since, cryptocurrency is consider as digital asset, it is in relation to Value Added Tax (VAT), a general indirect tax on consumption, when it is traded, however if the Revenue Department wants to impose revenue from cryptocurrency transactions and check such transactions whether taxpayer file the amount of taxable income is correct, it should support taxpayers to trade and exchange their coins in approved exchanges by waving VAT to individuals to bring taxpayers into taxation system and governments will receive the expected revenue. Furthermore, to reduce the tax burden on taxpayers in auditing and calculating income from cryptocurrency transactions, the Thai Revenue Department should propose a requirement for approved exchanges to withhold tax. This method is easy and simple for tax administration as well. Even if governments provide the VAT exemption for individuals and reduce the burden once they trade and exchange coins in specified system, however, governments should consider to extend the powers of the tax authority to receive data from unapproved platforms, or in the case of approved exchanges, government should still exercise power to require the report of customers’ transactions. For example, in the United States 2017, IRS asked a California federal court to order Coinbase, a reputable online exchanges, to give records for all users who have bought, sold, sent, or received more than $20,000 through their accounts in a single year between 2013 and 2015 to IRS. From such order, there were around 14,000 users who meet the government’s requirement.
Ref. code: 25615901040377MXO 85
REFERENCES
Books and Book Articles
Chrirelstein, A. M. (2009). Federal Income Taxation: Foundation Press. Goode, R. (1966). The Individual Income Tax Washington, D.C.: The Brookings Institution. ชัยสิทธิ์ ตราชูธรรม. (2558). ค าสอนวิชากฎหมายภาษีอากร. กรุงเทพมหานคร: ส านักอบรมศึกษา กฎหมายแห่งเนติบัณฑิตยสภา. พีรพัฒน์ หาญคงแก้ว, & ณัฐชนน โพธิ์เงิน. (2561). Bitcoin & Blockchain 101 เงินดิจิตัลเปลี่ยนโลก. กรุงเทพมหานคร: สต็อคทูมอร์โรว์. พินิจภูวดลม, ศ. (2544). ค าอธิบายกฎหมายมหาชน การคลังและภาษีอากร (พิมพ์ครั้งที่ 2 ed.). กรุงเทพมหานคร: วิญญูชน.
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Demner, A. (2018). Taxation of cryptocurrencies in Canada: What business leaders need to know. www.thor.ca/blog/2018/08/taxation-of-cryptocurrencies-in-canada- what-business-leaders-need-to-know/ Development, O. f. E. C.-o. a. (2018). How to deal with Bitcoin and other cryptocurrencies in the System of National Accounts ? www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=COM/SDD /DAF(2018)1&docLanguage=En Falk, T. (2018). A simple guide to cryptocurrency tax in Australia. www.finder.com.au Frumkin, D. (2018). Cryptocurrency And Taxes: What U.S. Residents Need To Know. www.investinblockchain.com/cryptocurrency-taxes/ Green, R. A. (2018). Accounting Method Impacts Crypto Income Taxes. www.forbes.com/sites/greatspeculations/2018/04/10/accounting-method- impacts-crypto-income-taxes/#2c1509f02b5c Lee, B., & Krever, R. (1998). Individual Income Tax. In V. Thuronyi (Ed.), Tax Law Design and Drafting (Vol. 2): International Monetary Fund. Retrieved from www.imf.org/external/pubs/nft/1998/tlaw/eng/ch14.pdf. Office, A. T. (2016). Are you in business. www.ato.gov.au/Business/Starting-your-own- business/Before-you-get-started/Are-you-in-business-/ Office, A. T. (2018). CGT assets and exemption. www.ato.gov.au/general/capital-gains- tax/cgt-assets-and-exemptions/ Office, A. T. (2018). Consultation: Substantiating cryptocurrency taxation events. www.lets-talk.ato.gov.au/PAG/news_feed/consultation-substantiating- cryptocurrency-taxation-events Office, A. T. (2016). Keeping your tax records. ww.ato.gov.au/individuals/income-and- deductions/in-detail/keeping-your-tax-records/ Office, A. T. (2018). Tax treatment of cryptocurrencies. www.ato.gov.au/general/gen/ tax-treatment-of-crypto-currencies-in-australia---specifically-bitcoin/ Office, A. T. (2014). TD 2014/25. www.ato.gov.au/law/view/document?docid=TXD%2FT D201425%2FNAT%2FATO%2F00001 Office, A. T. (2014). TD 2014/26. www.ato.gov.au/law/view/document?docid=TXD%2FT D201426%2FNAT%2FATO%2F00001 Office, A. T. (2014). TD 2014/27. www.ato.gov.au/law/view/document?DocID=TXD/TD 201427/NAT/ATO/00001 Office, A. T. (2014). TD 2014/28. www.ato.gov.au/law/view/document?DocID=TXD/TD 201428/NAT/ATO/00001
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ธนาคารแห่งประเทศไทย. (2018). ขอความร่วมมือสถาบันทางการเงินไม่ให้ท าธุรกรรมเกี่ยวข้องกับค ริปโตเคอเรนซี. www.bot.or.th/Thai/FIPCS/Documents/FPG/2561/ThaiPDF/25610039.pdf ธนาคารแห่งประเทศไทย. (2557). ข้อมูลเกี่ยวกับ Bitcoin และหน่วยข้อมูลทางอิเล็กทรอนิกส์อื่นๆที่ ลักษณะใกล้เคียง. www.bot.or.th/Thai/PressAndSpeeches/Press/News2557/n0857t.pdf
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Pratya Apaiyanukorn. (2015). Anti-money laundering against virtual currency in case of using bitcoin. Thammasat University, พงศ์บวร ควะชาติ. (2014). สกุลเงินเสมือนจริงปลอดการควบคุมบนเครือข่ายอินเทอร์เน็ต. มหาวิทยาลัยธรรมศาสตร์
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APPENDICES
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APPENDIX A
Tax treatment of cryptocurrencies in Australia - specifically Bitcoin
Tax treatment of cryptocurrencies
The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government. The creation, trade and use of cryptocurrency is rapidly evolving. This information is our current view of the income tax implications of common transactions involving cryptocurrency. Any reference to 'cryptocurrency' in this guidance refers to Bitcoin, or other crypto or digital currencies that have the same characteristics as Bitcoin. If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances. Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions. If you have dealt with a foreign exchange and/or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
Transacting with cryptocurrency
A CGT event occurs when you dispose of your cryptocurrency. A disposal can occur when you: sell or gift cryptocurrency trade or exchange cryptocurrency (including the
Ref. code: 25615901040377MXO 93 disposal of one cryptocurrency for another cryptocurrency) convert cryptocurrency to fiat currency like Australian dollars, or use cryptocurrency to obtain goods or services. If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded. If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain. While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.
Exchanging a cryptocurrency for another cryptocurrency
If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Because you receive property instead money in return for your cryptocurrency, the market value of the cryptocurrency you receive needs to be accounted for in Australian dollars. If the cryptocurrency you received cannot be valued, the capital proceeds from the disposal are worked out by using the market value of the cryptocurrency you disposed of at the time of the transaction. Example On 5 July 2017, Katrina acquired 100 Coin A for $15,000. On 15 November 2017, through a reputable digital currency exchange, Katrina exchanged 20 of Coin A for 100 of Coin B. Using the exchange rates on the reputable digital currency exchange at the time of the transaction, the market value of 100 Coin B was $6,000. For the purposes of working out Katrina's capital gain for her disposal of Coin A, Katrina's capital proceeds are $6,000.
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Cryptocurrency as an investment
If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency. You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.If you hold the cryptocurrency as an investment, you will not be entitled to the personal use asset exemption. However, if you hold your cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount to reduce a capital gain you make when you dispose of it. If you have a net capital loss you can use it to reduce a capital gain you make in a later year. You cannot deduct a net capital loss from your other income. You are required to keep records of each cryptocurrency transaction in order to work out whether you have a made a capital gain or loss from each CGT event. Example Terry has been a long term investor in shares and has a range of holdings in various public companies in a balanced portfolio of high and low risk investments. Some of his holdings are income producing and some not, and he adjusts his portfolio frequently at the advice of his adviser. Recently, Terry's adviser told him that he should invest in cryptocurrency. On that advice Terry purchased a number of different cryptocurrencies which he has added to his portfolio. Terry doesn't know much about cryptocurrency but, as with all of his investments, he adjusts his portfolio from time to time in accordance with appropriate investment weightings. If Terry sells some of his cryptocurrency the proceeds would be subject to CGT because he has acquired and held his cryptocurrency as an investment.
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Personal use asset
Cryptocurrency is only capable of being acquired, held and transacted with. Both the period of holding and the nature of the subsequent transaction will be relevant to whether your cryptocurrency is a personal use asset. The relevant time for determining whether or not an asset is a personal use asset is at the time of its disposal. During a period of ownership, the way that cryptocurrency is kept or used may change (for example, cryptocurrency may originally be acquired for personal use and enjoyment, but ultimately be kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business). The longer the period of time that a cryptocurrency is held, the less likely it is that it will be a personal use asset. Cryptocurrency is not a personal use asset if it is acquired, kept or used: As an investment in a profit-making scheme, or in the course of carrying on a business. If you have to exchange a cryptocurrency you own to Australian dollars (or to a different cryptocurrency) to purchase or acquire the items for personal use or consumption, then this strongly indicates the cryptocurrency you own was acquired, held and used for a purpose other than personal use or enjoyment. Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded. Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption. Only capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded. Example Michael wants to attend a concert. The concert provider offers discounted
Ref. code: 25615901040377MXO 96 ticket prices for payments made in cryptocurrency. Michael pays $270 to acquire cryptocurrency and uses the cryptocurrency to pay for the tickets on the same day. Having regard to the circumstances in which Michael acquired and used the cryptocurrency, the cryptocurrency is a personal use asset. Example Peter has been regularly keeping cryptocurrency for over six months with the intention of selling at a favourable exchange rate. He has decided to buy some goods and services directly with some of his cryptocurrency. Because Peter used the cryptocurrency as an investment, the cryptocurrency is not a personal use asset.
Loss or theft of cryptocurrency
You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen. In this context the issue is likely to be whether the cryptocurrency is lost, whether you have lost evidence of your ownership, or whether you have lost access to the cryptocurrency. Generally where an item can be replaced it is not lost. A lost private key cannot be replaced. Therefore, to claim a capital loss you will need to be able to provide the following kinds of evidence: when you acquired and lost the private key the wallet address that the private key relates to the cost you incurred to acquire the lost or stolen cryptocurrency the amount of cryptocurrency in the wallet at the time of loss of private key that the wallet was controlled by you (for example, transactions linked to your identity) that you are in possession of the hardware which stores the wallet transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.
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Chain splits
Cryptocurrency held as an investment If you hold cryptocurrency as an investment, and receive a new cryptocurrency as a result of a chain split (such as Bitcoin Cash being received by Bitcoin holders), you do not derive ordinary income or make a capital gain at that time as a result of receiving the new cryptocurrency. If you hold the new cryptocurrency as an investment, you will make a capital gain when you dispose of it. For the purposes of working out your capital gain, the cost base of a new cryptocurrency received as a result of a chain split is zero. If you hold the new cryptocurrency as an investment for 12 months or more, you may be entitled to the CGT discount. Example Alex held 10 Bitcoin on 1 August 2017 as an investment, when Bitcoin Cash split from Bitcoin. Immediately after the chain split, Alex held 10 Bitcoin and 10 Bitcoin Cash. Alex does not derive ordinary income or make a capital gain as a result of the receipt. On 25 May 2018, Alex sold the 10 Bitcoin Cash for $4,000. Because the cost base of the Bitcoin Cash was zero, Alex makes a total capital gain of $4,000 in the 2017-18 income year from the sale of the Bitcoin Cash. Cryptocurrency held in a business you carry on A new cryptocurrency you receive as a result of a chain split in relation to cryptocurrency held in a business that you carry on will be treated as trading stock where it is held for sale or exchange in the ordinary course of the business, and must be brought to account at the end of the income year.
Cryptocurrency used in business If you are carrying on a business that involves transacting with cryptocurrency the trading stock rules apply, rather than the CGT rules.
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Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible. Examples of businesses that involve cryptocurrency include: cryptocurrency trading businesses cryptocurrency mining businesses cryptocurrency exchange businesses (including ATMs). Not all people acquiring and disposing of cryptocurrency will be carrying on businesses. To be carrying on business, you will usually: carry on your activity for commercial reasons and in a commercially viable way undertake activities in a business-like manner. This would typically include preparing a business plan and acquiring capital assets or inventory in line with the business plan prepare accounting records and market a business name or product intend to make a profit or genuinely believe you will make a profit, even if you are unlikely to do so in the short term. There is also usually repetition and regularity to your business activities, although one-off transactions can amount to a business in some cases. Whether you are carrying on a business and when the business commences are important pieces of information. If you’re still setting up or preparing to go into business, you might not yet have started the business. Money received (or property received) prior to a business being carried on is not generally assessable income. Likewise, you cannot claim deductions incurred prior to the business being carried on. Example Sachin is in the business of trading cryptocurrency. On 15th December 2017, he purchases 1,500 Coin A for $150,000. On the same day, he sells 1,000 Coin A for
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$200,000. As Sachin holds the cryptocurrency for sale or exchange in the ordinary course of his business, Sachin can claim a deduction for $150,000 for the acquisition for Coin A and declares income of $200,000 for the later sale of Coin A.
Using cryptocurrency for business transactions
If you are carrying on a business that is not a cryptocurrency business, but use cryptocurrency in your activities you need to account for cryptocurrency as you would for other assets or items used in your business. If you receive cryptocurrency for goods or services you provide as part of your business, you need to include the value of the cryptocurrency in Australian dollars as part of your ordinary income. This is the same process as receiving any other non-cash consideration under a barter transaction. One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange. Where you purchase business items using cryptocurrency (including trading stock) you are entitled to a deduction based on the market value of the item acquired.
Paying salary or wages in cryptocurrency
Where an employee has a valid salary sacrifice arrangement with their employer to receive cryptocurrency as remuneration instead of Australian dollars, the payment of the cryptocurrency is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act 1986. The benefit will be a property benefit whose value is established at the time of provision of the benefit.
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In the absence of a valid salary sacrifice agreement, the employee is considered to have derived their normal salary or wages and the employer will need to meet their pay as you go obligations on the Australian dollar value of the cryptocurrency it pays to the employee. An example of this is where an employee has already earned their salary or wages and then asks to be paid in cryptocurrency instead.
Record keeping
It is vital to keep good records for all your transactions with cryptocurrency, whether you are using cryptocurrency as an investment, for personal use or in business. You need to keep the following records in relation to your cryptocurrency transactions: the date of the transactions the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange) what the transaction was for and who the other party was (even if it’s just their cryptocurrency address). The sorts of records you should keep include: receipts of purchase or transfer of cryptocurrency exchange records of agent, accountant and legal costs digital wallet records and keys software costs related to managing your tax affairs Keeping good records will make it easier to calculate and meet your tax obligations, and if you are in business, they will assist you to manage your cash flow and see how your business is doing. You can use an accountant or third party software to help meet your record keeping obligations and working out your tax.
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APPENDIX B Digital Currency
Digital currency is electronic money. It's not available as bills or coins. Cryptocurrencies are a type of digital currency created using computer algorithms. The most popular cryptocurrency is Bitcoin. No single organization, such as a central bank, creates digital currencies. Digital currencies are based on a decentralized, peer-to-peer (P2P) network. The “peers” in this network are the people that take part in digital currency transactions, and their computers make up the network.
Using digital currencies
You can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges. An open exchange is similar to a stock market. To use digital currencies, you need to create a digital currency wallet to store and transfer digital currencies. You can store your wallet yourself or have a wallet provider manage your digital currency for you. You need a “public key” and a “private key” to use your wallet. Keys are made up of a random sequence of numbers and letters. Public keys are used to identify your wallet. Private keys are used to unlock your wallet and access your money. Private keys should be kept secret. All transactions are recorded to a public ledger or “blockchain” that everyone can see.
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Digital currencies are not a legal tender
Digital currencies, such as Bitcoin or other cryptocurrencies, are not legal tender in Canada. Only the Canadian dollar is considered official currency in Canada. The Currency Act defines legal tender. Legal tender is defined as: bank notes issued by the Bank of Canada under the Bank of Canada Act coins issued under the Royal Canadian Mint Act Digital currencies are not supported by any government or central authority, such as the Bank of Canada. Financial institutions, such as banks or credit unions, don't manage or oversee digital currency.
Automated exchangers (Bitcoin ATMs)
Automated exchangers are commonly referred to as Bitcoin ATMs. They are vending machines that allow you to insert cash in exchange for bitcoins, and in some cases bitcoins for cash. Unlike traditional ATMs, they are not connected to your bank, credit union or the Interac network. You may be charged a transaction fee for using a Bitcoin ATM. Shop around as exchange fees vary and you may be able to get lower rates elsewhere. Generally, when you use a Bitcoin ATM, the machine: reads the bills you insert converts the amount into an amount of bitcoins sends the equivalent of bitcoins to the Bitcoin address you enter
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How tax rules apply to digital currency
Tax rules apply to digital currency transactions, including those made with cryptocurrencies. Using digital currency does not exempt consumers from Canadian tax obligations. This means digital currencies are subject to the Income Tax Act. Buying goods or services using digital currency Goods purchased using digital currency must be included in the seller’s income for tax purposes. GST/HST also applies on the fair market value of any goods or services you buy using digital currency. Buying and selling digital currency like a commodity When you file your taxes you must report any gains or losses from selling or buying digital currencies. Digital currencies are considered a commodity and are subject to the barter rules of the Income Tax Act. Not reporting income from such transactions is illegal.
Risks of using digital currency
Using digital currency has certain risks. You may have fewer protections, you may not have access to a complaint- handling process like you would with other payment methods, such as debit and credit cards. Even if you use a wallet provider to help you manage your digital currency, the provider does not have to help you get your funds back if something goes wrong with your transaction. Your deposit is not insured.It's your responsibility to protect your digital currency wallet. Federal or provincial deposit insurance plans don't cover digital
Ref. code: 25615901040377MXO 104 currency. For example, the Canada Deposit Insurance Corporation only covers eligible deposits in Canadian dollars at member financial institutions if the institution fails. If the currency exchange or wallet provider that has your digital currency fails or goes bankrupt, your funds won't be protected. Your investment may be high risk. Digital currencies can be risky investments because their value can change quickly. The value of a digital currency can increase or decrease over a very short period of time. Such changes in value can be difficult to predict. When you exchange your digital currency for traditional currency, such as the Canadian dollar, it may be worth less than when you bought it. You may have a hard time exchanging your digital currency. Digital currencies can be difficult to buy and use. You may not be able to exchange them easily for cash or to purchase goods and services.Merchants don't have to accept digital currencies as payment. They don't have to exchange digital currencies for traditional currencies, such as the Canadian dollar. You may be exposed to fraud. Digital currencies may be vulnerable to fraud, theft and hackers. All transactions are recorded to a public ledger or “blockchain”. The blockchain may include information such as transaction amounts, wallet addresses and the public keys of the sender and recipient. Digital currencies are also sometimes used to support illegal activities. Transactions are not reversible. Purchases and transactions made with digital currencies are not reversible. This means: you can’t reverse the charges if you didn’t receive the product, you can’t get your money back unless the seller agrees, a user might not be able to stop a payment
Tips for using digital currency
Here are a few tips to help you protect yourself when using digital currency.
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Protect your wallet Take steps to protect your wallet: keep your wallet, and any backups, in a safe place encrypt your wallet using encryption software encrypt any copies you make or online backups set a password to help prevent thieves from withdrawing your funds use a strong password that contains letters, numbers and symbols.
Know the merchant’s refund, return and dispute policies. Before you make a purchase, find out: what the exchange rate will be if refunds are available if refunds will be processed in digital currency, Canadian dollars or store credit how to contact someone if there’s a problem
Wait for multiple confirmations before completing a transaction It can take 10 minutes or more for a digital currency transaction to be confirmed. Confirmation happens when users on the network verify the transaction. During that time, a transaction could be reversed and you could lose your funds to a dishonest user.
Understand what the actual costs will be Find out if there are any mark-ups or other fees. Find out what will happen if the rate changes before the exchange is completed.
Think about the future
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Consider what will happen if you fall ill or die and can no longer access your wallet. If no one knows the locations and passwords of your wallets when you are gone, the funds can’t be recovered. Consider having a backup plan for your peers and family.
Date modified: 2018-01-19
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APPENDIX C Notice 2014-21
SECTION 1. PURPOSE
This notice describes how existing general tax principles apply to transactions using virtual currency. The notice provides this guidance in the form of answers to frequently asked questions.
SECTION 2. BACKGROUND
The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay for goods or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction. Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. For a more comprehensive description of convertible virtual currencies to date, see Financial Crimes Enforcement Network (FinCEN) Guidance on the Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001, March 18, 2013).
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SECTION 3. SCOPE In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability. This notice addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term “virtual currency” as used in Section 4 refers only to convertible virtual currency. No inference should be drawn with respect to virtual currencies not described in this notice. The Treasury Department and the IRS recognize that there may be other questions regarding the tax consequences of virtual currency not addressed in this notice that warrant consideration. Therefore, the Treasury Department and the IRS request comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance.
SECTION 4. FREQUENTLY ASKED QUESTIONS
Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws? A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
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Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency? A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.
Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3? A-4: The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.
Q-5: How is the fair market value of virtual currency determined? A-5: For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.
Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
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A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.
Q-7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency? A-7: The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or 4 business are examples of property that is not a capital asset. See Publication 544 for more information about capital assets and the character of gain or loss.
Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.
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Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities? A-9: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute selfemployment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on selfemployment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.
Q-10: Does virtual currency received by an independent contractor for performing services constitute self-employment income? A-10: Yes. Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to the self-employment tax. See FS-2007-18, April 2007, Business or Hobby? Answer Has Implications for Deductions, for information on determining whether an activity is a business or a hobby
Q-11: Does virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes? A-11: Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the fair market value of virtual currency paid
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Q-12: Is a payment made using virtual currency subject to information reporting? A-12: A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. For example, a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee. Examples of payments of fixed and determinable income include rent, salaries, wages, premiums, annuities, and compensation.
Q-13: Is a person who in the course of a trade or business makes a payment using virtual currency worth $600 or more to an independent contractor for performing services required to file an information return with the IRS? A-13: Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099- MISC, Miscellaneous Income. Payments of virtual currency required to be reported on Form 1099-MISC should be reported using the fair market value of the virtual currency in U.S. dollars as of the date of payment. The payment recipient may have income even if the recipient does not receive a Form 1099-MISC. See the Instructions to Form 1099-MISC and the General Instructions for Certain Information
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Returns for more information. For payments to non-U.S. persons, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
Q-14: Are payments made using virtual currency subject to backup withholding? A-14: Payments made using virtual currency are subject to backup withholding to the same extent as other payments made in property. Therefore, payors making reportable payments using virtual currency must solicit a taxpayer identification number (TIN) from the payee. The payor must backup withhold from the payment if a TIN is not obtained prior to payment or if the payor receives notification from the IRS that backup withholding is required. See Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs, for more information.
Q-15: Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers? A-15: Yes, if certain requirements are met. In general, a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO). A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000. When completing Boxes 1, 3, and 5a-1 on the Form 1099-K, transactions where the TPSO settles payments made with virtual currency are aggregated with transactions where the TPSO settles payments made with real currency to determine the total amounts to be reported in those boxes. When determining whether the transactions are reportable, the value of the virtual currency is the fair market value of the virtual currency in U.S. dollars on the date of payment. See The Third Party Information
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Reporting Center, http://www.irs.gov/TaxProfessionals/Third-Party-Reporting- Information-Center, for more information on reporting transactions on Form 1099-K.
Q-16: Will taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with this notice prior to March 25, 2014? A-16: Taxpayers may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions may be subject to penalties, such as accuracy-related penalties under section 6662. In addition, failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722. However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.
SECTION 5. DRAFTING INFORMATION The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718; for further information about employment tax issues addressed in this notice, please contact Mr. Neil D. Shepherd at (202) 317- 4774; for further information about information reporting issues addressed in this notice, please contact Ms. Adrienne E. Griffin at (202) 317- 6845; and for further information regarding foreign currency issues addressed in this notice, please contact Mr. Raymond J. Stahl at (202) 317- 6938. These are not toll-free calls.
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BIOGRAPHY
Name Miss Punnarat Pirisomboon Date of Birth February 1,1993 Educational Attainment 2016:Bachelor degree of law 2017: Thai Barrister at law
Publications
Punnarat Pirisomboon. ‘The imposition of tax on cryptocurrencies’ Thammasat University. 2018
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