Global Cryptocurrency Transfer Tax Overview

Author: TaxDAO

In addition to income tax issues, cryptocurrency transactions may also involve turnover tax issues. This article will analyze the tax status and future of cryptocurrency from the perspective of turnover tax, aiming to provide corresponding reference information for cryptocurrency investors. This article argues that, compared to turnover tax, more countries will still tend to use income tax or other forms of taxation to levy cryptocurrencies in the future.

1. Turnover tax and its main tax categories

1.1 Overview of Turnover Tax

Circulation Tax (Turnover Tax) is a tax that takes the turnover or quantity of goods or services as the tax object. Turnover tax is an indirect tax, which is levied in the process of commodity circulation.

According to the collection method, turnover tax can be divided into ad valorem tax and specific tax. Ad valorem taxes are levied on the value or price of goods or services, such as value added tax and excise tax. Specific taxes are levied according to the quantity or weight of goods or services, such as customs duties and resource taxes.

1.2 Main Turnover Tax

Circulation tax mainly includes the following five types of taxes: value-added tax, sales tax, consumption tax, business tax and customs duty.

• Value Added Tax (VAT) is a turnover tax that takes the added value of goods or services in each link of production, circulation and consumption as the tax object, reflecting the real value-added amount of goods or services.
• Sales tax (Sale Tax) is a turnover tax levied on the sales or price of goods or services. It is collected at the final sale of goods or services and only involves final consumers. The typical country that collects sales tax is the United States. In the United States, whether to levy sales tax and how to set the tax base and tax rate are determined by each state and local government.
• Consumption tax is a turnover tax levied on the production, import or sale of specific goods or services. Different from value-added tax, consumption tax usually only targets specific commodities such as cigarettes and luxury goods. Its purpose is to adjust consumption structure and promote conservation and environmental protection.
• Business tax (Business Tax) is a turnover tax levied on the turnover obtained from providing services, transferring intangible assets or selling real estate. Business tax is an old turnover tax in my country, which was replaced by value-added tax in 2015.
• Tariff is a turnover tax that is taxed on imported and exported goods and items, and is only collected during the ease of entry and exit.

In particular, capital gains tax is not a turnover tax, because it is not levied in the production, circulation and consumption of goods or services, but is levied when assets are transferred or traded.

2 Cryptocurrency transfer tax

2.1 Taxes that may arise during the circulation of cryptocurrency

Cryptocurrency turnover tax refers to the tax imposed on transactions or activities carried out using cryptocurrencies. Generally speaking, cryptocurrencies are not subject to excise taxes because they do not have the nature of luxury goods or "harmful goods"; they are also not subject to customs duties because they are digital assets and not physical goods. The discussion of turnover tax on cryptocurrencies in the working paper Taxing Cryptocurrencies published by the IMF in July 2023 is also limited to this scope. Therefore, cryptocurrency turnover tax mainly includes value-added tax and sales tax. This article attempts to briefly analyze the taxation situation of cryptocurrency value-added tax and sales tax in major countries around the world.

Different countries or regions may have different definitions, classifications and taxation methods for cryptocurrencies, so cryptocurrency investors need to check the corresponding turnover tax regulations according to their jurisdictions.

2.2 Countries and regions that levy turnover tax on cryptocurrencies

At present, most countries and regions do not impose turnover tax on cryptocurrencies, which is related to their legal definitions of cryptocurrencies. Only when cryptocurrencies are defined as "commodities" or "assets" can they be subject to turnover taxes; countries and regions that consider cryptocurrencies to be "currency" do not impose turnover taxes on cryptocurrencies.

This article briefly sorts out the representative countries and regions that impose turnover tax on cryptocurrency-related transactions, as shown in the table below.

2.3.1 Cryptocurrency transfer tax in the EU

The European Union's regulations on cryptocurrency transfer tax are in a leading position internationally. As early as in the Hedqvist case in 2015, the European Court of Justice ruled that the exchange service between fiat currency and Bitcoin constituted a VAT taxable service.

The facts of the Hedqvist case are roughly as follows: Hedqvist, a Swedish resident, intends to provide legal currency and bitcoin exchange services, and the Swedish Administrative Court submits the case to the European Court of Justice in order to determine whether the value-added obtained by Hedqvist in the exchange service is subject to VAT. The European Court held that: since Bitcoin is not a tangible asset, the exchange of fiat currency and Bitcoin is not a payment of goods, but a payment of services, and Hedqvist and the exchange party formed a "consideration" in the transaction. Therefore, the European Court of Justice found that the exchange of fiat currency and Bitcoin is a taxable service under Article 2(1)(c) of the EU VAT Directive.

At the same time, the European Court of Justice held that the spirit of Article 135(1)(e) of the VAT Directive applies to the conversion of cryptocurrencies, so it can be presumed that the conversion of fiat currency into cryptocurrencies is exempt from VAT.

Therefore, in terms of cryptocurrency exchange, affected by this case, EU countries have included the exchange between cryptocurrency and legal tender and between cryptocurrency into the taxable scope of value-added tax, but tax exemption regulations can be applied. But for mining business, the situation is different: except for France, most countries (such as Germany, Ireland, Sweden, etc.) do not consider value-added tax applicable to mining business.

2.3.2 General practice in other countries

European countries outside the EU have basically adopted the relevant spirit of the judgment of the European Court of Justice on the Hedqvist case, such as the United Kingdom and Norway. Countries outside Europe generally adopt a similar approach to Israel, excluding the exchange of virtual currency from the scope of VAT; at the same time, these countries treat the purchase of goods or services with virtual currency as a taxable sales behavior ( VAT is levied). As for the more diversified value-added tax treatment for "mining", mainstream policy opinions have not yet been formed.

Another design idea for taxation of cryptocurrencies is to completely exempt from turnover tax and instead regulate it from income tax, such as Singapore, Japan, South Africa and Hong Kong, China.

3 Future Prospects of Cryptocurrency Transfer Tax

There is no unified standard and specification for cryptocurrency transfer tax on a global scale. Different countries and regions have great differences in the definition, classification, identification, tax basis, tax rate, etc. of cryptocurrencies, which has led to the complexity and uncertainty of cryptocurrency turnover tax.

At present, most countries and regions tend to include cryptocurrencies in the scope of income tax, and tax the income generated from the sale, exchange, gift, donation, etc. of cryptocurrencies. This article argues that, compared to turnover tax, more countries will still tend to use income tax or other forms of taxation to levy cryptocurrencies in the future. This is because income tax collection and accounting are more convenient than turnover tax. It can not only adapt more flexibly to fluctuations and innovations in the cryptocurrency market, avoid tax losses or excessive collection due to uncertain prices or product diversity, but also coordinate differences in tax systems in different countries and regions, avoid international double taxation, and promote Cross-border transactions. Therefore, compared with turnover tax, income tax can better reflect the value change of cryptocurrency and the affordability of taxpayers. In contrast, turnover tax has some problems and challenges in terms of collection cost, effect, and fairness.