Taxation problems involving cryptocurrencies
According to the Asahi Shimbun, the Tokyo tax agency recently announced a tax evasion incident. A photo studio in Tokyo helped three Chinese people transfer 27 billion yen (approximately US$237 million) to Japan for real estate investment in the country through cryptocurrency in three years.
Due to China’s foreign exchange control, there is a limit of 50,000 U.S. dollars in foreign exchange that individuals can exchange each year. Therefore, investors who intend to invest in overseas real estate often adopt other methods to exchange foreign currency. For Tokyo tax authorities, it is not within their scope of management how Chinese investors exchange foreign currency. But this brings difficulties to their taxation.
The photo studio helps customers convert cryptocurrency into Japanese yen and collects a portion of it as a commission. However, the annual income declared by the photo studio is only 10 million yen (about 80,000 US dollars). During the verification process, the tax agency found that there was a huge flow of funds in the company’s account. Therefore, from the perspective of the tax agency, the company apparently evaded a large amount of tax.
The company’s income cannot be normally reported to the tax authorities because it clearly violated China’s regulations on foreign exchange control. Regarding this issue, the retired tax official, and now the chairman of Ernst & Young Japan, Kakuda Shenhong pointed out:
“This case shows that the tax authorities of China and Japan need to cooperate. Completely solve the flow of funds, clarify the problems involved in such transactions. And implement measures to deal with the problems.”
However, the two countries have very different attitudes towards cryptocurrencies. Cooperation will be very difficult.
The natural “tax avoidance” attribute of cryptocurrency
Benjamin Franklin, the founding father of the United States, once said:
“In this world, only death and taxes are inevitable.”
For a long time, taxes have been justified in American hearts.
For a long time, taxes have been justified in American hearts. Therefore, generally few people openly discuss the topic of “evasion of taxation”.
But when the cryptocurrency appeared, things took a turn for the better. Although the topic of tax evasion is still taboo, many cryptocurrency users are tacitly aware of the “tax avoidance” function of this new thing. During this period, some extreme liberals openly declared that the current tax policy is unreasonable. The main justification is that part of the U.S. tax is used for war. However, as a peace-loving person, he is unwilling to spend money to support wars. People can refuse to pay taxes unless the government can distinguish the taxes used for war.
The representative person holding this view is Roger Ver, known as “Bitcoin Jesus”. Although this person is an American citizen, but because of his extreme liberal attitude. In the end, he voluntarily gave up his American citizenship. Of course, as a US citizen, one of the prerequisites for renunciation of nationality is to pay all taxes.
Significant differences in tax structure between China and the United States
The outside world has no way of knowing how much taxes Roger Ver paid. He holds a huge amount of Bitcoin. Since Bitcoin has risen too much since he bought it, he faces a huge “capital gains tax.” From this perspective, due to the continued rise in the price of Bitcoin, he gave up his American citizenship earlier and instead cancelled some taxes for him. Of course, did he truthfully declare his cryptocurrency holdings to the U.S. tax agency? Or whether the U.S. tax agency has the ability to find out the amount of cryptocurrency he actually owns is another topic.
The “capital gains tax”, a common tax in the United States, is a bit strange in China. To put it simply, a person buys an asset and sells it. As long as the selling price is higher than the buying price, the capital gains tax on the corresponding income should be paid. This has nothing to do with the condition of the asset. It does not matter whether the asset is stocks, bonds, real estate, or new things like cryptocurrency.
Cryptocurrency tax policies in various countries
Other countries have similar practices. For example, Austria plans to start levying a 27.5% capital gains tax on cryptocurrency assets such as Bitcoin and Ethereum in March next year. South Korea stated that it will start to impose a 20% capital gains tax on cryptocurrencies in January next year.
In some countries, there is no such thing as a capital gains tax. Take Singapore as an example, so Singapore has become a “tax haven” in a certain sense. For China, there is no capital gains tax.
Of course, China is not a “tax haven”. The value-added tax party is the main tax in China. For individual investors in China, although there is no capital gains tax. However, since most Chinese property is in real estate, China has a real estate value-added tax for real estate transactions.