OECD Encourages Regulators To Form Uniform Crypto Tax Regulations

Regulators all over the world are struggling to come up with an effective tax policy for virtual currency transactions. Recently, the IRS was scrutinized by the government watchdog, The Treasury Inspector General for Tax Administration (TIGTA), about this very issue.

A recently issued report by Organization for Economic Co-operation and Development (OECD), suggests a framework that regulators can use to come up with effective tax rules for cryptocurrency transactions. OECD is an intergovernmental economic organization with 37 member countries, founded in 1961 to stimulate economic progress and world trade. 

According to OECD report, regulators find it challenging to come up with a robust tax policy for cryptocurrency due to lack of centralized control, pseudo-anonymity, valuation difficulties, hybrid characteristics, and rapid evolution of the technology. As a result, different countries treat cryptocurrency related transactions in different ways. There’s no uniformity nor consistency in applying these tax rules leading to low compliance rates and lost tax revenues. For starters, different jurisdictions define virtual currency in various ways for tax purposes.

Mining income is taxed differently by regulators. For example, the IRS taxes crypto mining rewards at the time of the receipt as ordinary income. The Australian Taxation Office (ATO) subjects mining income to capital gains taxes if the mining operation is not considered to be a business. 

While a small number of countries (Grenada, Italy, Netherlands, Portugal & Switzerland) don’t consider any exchanges made by individuals to be a taxable event, the majority of the countries impose taxes on crypto to fiat trades, purchase of goods and service thru crypto and crypto to crypto trades. 

OECD Suggestions For Policymakers Like the IRS

After analyzing the crypto tax rules for fifty jurisdictions, the OECD suggests policymakers worldwide to consider several key items to have an effective cryptocurrency tax policy. 

First, policymakers should start issuing more specific guidance covering all life-cycle events of a cryptocurrency such as the creation, exchange, storage, disposal, loss/theft, etc. Guidance should be issued more frequently to stay up to date with this fast-moving space. The OECD encourages policymakers to also provide a rationale for adapting certain tax rules to improve transparency. OECD is also a supporter of introducing a de minimis rule to small crypto transactions so they could be immune from taxation. 

Second, the OECD recommends regulators to adopt a proper tax policy on taxing hard forks. This is an area where only a handful of countries have issued very limited guidance so far. The guidance on this subject should clearly mention when hard fork income should be taxed and why ᠆᠆᠆ at the time you gain dominion of control vs. when you sell them.

Third, OECD notes that stablecoins have grown rapidly during the past few years. It also expects that Central Bank Digital Currencies (CBDCs), stablecoins backed by banks, will become more prevalent in the coming years. Applying generic cryptocurrency related tax rules for these stablecoins may not be applicable in most cases. The OECD encourages regulators to think of these stablecoins as real currency when formulating regulations. 

Lastly, OECD asks regulators to come up with Proof of Stake (PoS) specific tax guidance because staking has overtaken Proof of Work (PoW). With Ethereum moving from PoW to PoS in the coming months, this is an important area regulators need to come up with new tax guidance. 

It is noteworthy to mention that tax regulators like the IRS are now under the microscope of both local (The Government Accountability Office & The Treasury Inspector General for Tax Administration and scrutinize the IRS’s virtual currency compliance efforts) and international watchdogs like OECD to improve crypto tax guidance and enforcement. In this environment, crypto users should do everything they can to be as compliant as possible to avoid any trouble.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.