As more people invest in cryptocurrencies, many governments globally now consider crypto taxes as an additional source of revenue for the country. However, that is where the similarities end. Different nations are taking different approaches to crypto taxation. Chief among the nations are the Japanese and US regulators.
In this crypto news digest, we will discuss the Japanese regulator’s move to scrap the “unrealized gains” tax on crypto, the United States proposed crypto taxing rules, and a paper by a Harvard legal expert proposing that the US government tax the metaverse so as not to create a ‘tax haven’.
Japanese Regulator Moves to Scrap “unrealized gains” tax on crypto
The Financial Services Agency (FSA) of Japan has proposed a change to the tax code regarding digital assets. A notable change in the proposal is a bid to stop domestic firms from paying “unrealized gains” tax on crypto at the end of every year.
Unlike many other nations, legal entities in Japan had to pay crypto taxes on an annual basis. However, if the amendment is accepted, crypto entities will now have to pay taxes whenever the crypto assets are exchanged for fiat.
The suggestion to eliminate the yearly unrealized gains tax was first proposed by the Japan Blockchain Association. The bid gathered support from the Ministry of Economy, Trade and Industry.
If approved, the change is likely to “improve the environment for the promotion of Web3 and promote business startups that make use of blockchain technology.”
United States Proposes New Crypto Taxing Rules
The Internal Revenue Service (IRS) proposed new rules that brokers who sell and trade digital assets should follow on August 25. Essentially, the proposed rules will make crypto tax reporting similar to that of other assets. Consequently, brokers would be required to use a new form to make tax filing easier and prevent tax evasion.
The move has stirred negative reactions among several in the crypto community. Many believe the crypto rules championed by the Joe Biden administration are killing innovation in the country.
Messari CEO Ryan Selkis is confident crypto has no future in the US if Biden is reelected. President of CoinFund, Chris Perkins, also expressed a similar opinion. Perkins noted that the new rules will further drive innovators away from the country.
Elsewhere, Grayscale Investments CEO Michael Sonnenshein noted that the Securities and Exchange Commission regulation by enforcement approach will drive crypto firms out of the country. Likewise, Brad Garlinghouse, CEO of Ripple, opined that the crypto industry was gradually moving away from the US to other countries with a faster and clearer regulatory process.
Harvard Legal Expert Proposes Policy for Taxing the Metaverse
Meanwhile, Harvard scholar Christine Kim has suggested that the government should roll out a plan to tax the metaverse to avoid inadvertently creating a ‘tax haven’. Professor Kim published a paper where he outlined how the metaverse allows participants to create and build wealth within its system.
Consequently, Professor Kim proposed that it be brought under the tax code:
“Because economic activity within the Metaverse satisfies the Haig-Simons and Glenshaw Glass definitions of income, its exclusion will create a tax haven.”
However, the professor noted that taxation should only be on realized income or when a taxable event like a withdrawal occurs. More importantly, Kim proposed a dual approach to enforce tax payments within the metaverse.
One method will require that metaverse platforms withhold taxes for their users. Another approach called residence taxation would mandate the metaverse platforms to send tax information to their users. These would then file their taxes and make payments as necessary.
