The chief tax-writing committee of the United States House of Representatives, the Ways and Means Committee has proposed to include the wash trade law to the controversial crypto clause in the U.S. Infrastructure bill. Last month, the Ways and Means Committee published a summary report, adding cryptocurrency to the list of entities that come under the wash sale rule. While wash trading is the most popular loophole for traders to prevent paying massive taxes on their profits, but it may soon be taken away from them if the Ways and Means Committee proposal is passed.
The tax-writing committee noted that the decentralized sphere did not exist when the wash sale rule was first implemented, hence the law doesn’t apply to the crypto industry yet. However, the authorities argued that cryptocurrency operations are like stocks & securities and therefore, the wash trade law that applies to stocks & securities should also be a legal requirement for crypto traders. Furthermore, the elimination of the crypto tax loophole would add an eminent revenue stream for tax generation, which can also be used to fund the infrastructure bill. If the Ways & Means Committee suggestions are adapted, cryptocurrency trades occurring after December 31, 2021, will be subject to the wash sale rule.
“This section (Sec. 138153) includes commodities, currencies, and digital assets in the wash sale rule, an anti-abuse rule previously applicable to stock and other securities. The wash sale rule in section 1091 prevents taxpayers from claiming tax losses while retaining an interest in the loss asset”, states Sec. 138153 of the Ways & Means summary document.
NFTs also use the Wash Trade Loophole
Earlier this month, Coingape reported on the Founder of Kynikos Associates, James Steven Chanos’ critique on the trending NFT industry, comparing the tokenized market strategy to “wash trading”. He asserted that traders can conveniently set a false, inflated market price, only to then issue another set of NFTs later, at a seemingly prominent discount, to trigger massive buying. Chanos argued that the NFT sphere has been overflown with “nefarious activity” and conflicts of interest.
South Korea: Opposition’s Bill against Crypto Tax aims to delay the implementation
After internal disputes regarding the controversial crypto taxation law in South Korea, now the opposition has also hopped on the anti-crypto tax wagon with its exclusive bill. The People Power Party has drafted a proposal to tone down capital gain taxes on cryptocurrencies and will reportedly submit the bill by tomorrow itself.
The bill proposes the postponement of the crypto taxation law by one year, i.e., 2023. Furthermore, the bill also seeks a steep fall in the tax percentage enforced on cryptocurrency incomes according to the present law.
“It is not right to impose taxes first at a time when the legal definition of virtual currency is ambiguous…The intention is to ease the tax base to the level of financial investment income tax so that virtual currency investors do not suffer disadvantages.”, The Korea Herald quoted Rep. Cho Myoung-hee of the People Power Party.
Authorities determined to prevent delay in Crypto Tax implementation
Last week, Deputy Prime Minister and Minister of Strategy and Finance, Hong Nam-ki took a firm stance and reinstated that the implementation of the South Korean law for taxing income from virtual asset businesses will not see any postponement to the scheduled date, i.e., 2022 onwards. The government of South Korea is against any further delay, arguing that the move has come in lieu of maintaining legal and financial stability.
While former announcements saw the Democratic Party of Korea continue discussions on the postponement of taxation through the Virtual Asset Task Force, yet this will be the second official statement in a row confirming no further delay in the crypto taxation period. According to official statements, the cryptocurrency taxation policy will be implemented on January 1 next year, which will impose a 20% tax on the profits of the transactions.
At the latest parliamentary audit by the National Assembly’s Planning and Finance Committee, Hong Nam-ki noted, “It is judged that it is difficult to re-adjust or postpone the taxation of virtual assets in terms of legal stability or policy reliability…We believe that the taxation infrastructure for the use of real-name accounts is in place, and virtual assets traded through exchanges are sufficiently taxable,”.
South Korean Taxman to Be Granted Right to Search Crypto Tax Evaders’ Homes
Things are going from bad to worse for South Korean crypto investors. Fresh from seeing their crypto exchange options shrivel to just four, heavily audited platforms on Friday, they are now being told that if they seek to sidestep crypto trading profits reporting protocols, their coins could be liquidated – and bailiffs could be sent to search their houses.
Crypto is not yet taxable in South Korea, but as of January 1, 2022, all crypto profits above USD 2,100 will need to be declared, and traders will be forced to pay a flat rate of 20% on their earnings above this threshold.
In addition, local branches of the National Tax Service (NTS) have been executing a countrywide crackdown on individuals they suspect of making crypto buys in order to avoid declaring income. This initiative has seen millions of USD worth of tokens seized and in many instances liquidated by the NTS, which demands not only overdue tax bills, but also fines in some instances.
But, Maeil Kyungjae reported, the Ministry of Strategy and Finance confirmed that the government “recently submitted an amendment to the National Tax Collection Act” to the National Assembly.
The latter is almost certain to green-light the proposal, which will be bundled with other legal amendments and hurried through parliament in the coming weeks.
Once legally binding, this will give the NTS sweeping new powers “to collect tax on cryptocurrencies such as bitcoin (BTC),” the media outlet noted.
Currently, tax officers only have the power to confiscate cryptoassets from tax “dodgers” by freezing and seizing coins on exchanges. But, the ministry confirmed, the new powers will allow tax officers to search homes and other premises if the need arises.
The measure will also grant officers the right to convert crypto funds to fiat KRW wherever they find them. This means that officers could decide to liquidate (and then confiscate) customer funds on any given exchange providing they feel they have enough proof that the customer in question has been evading taxes.
In Ukraine, meanwhile, MPs could be set to mull draft crypto tax proposals that would see individuals taxed at a rate of 6.5% on crypto trading profits, and companies taxed at a slightly lower rate of 5%.
Mikhail Chobanian, the founder of the crypto exchange Kuna, wrote on Telegram that lawmakers have “received proposed amendments to the tax code, and opined that the idea was “cool, clear, simple and sane.”
Crypto Taxes to Help Raise $550 Billion to Fund US Infrastructure Plan
The US Senate plans to raise part of the $550 billion necessary for investing into the transport and power infrastructure from posing taxes on cryptocurrency holders.
Bloomberg has reported that the U.S. Senate intends to tighten crypto taxation on investors and traders in order to raise $28 billion from that industry in taxes.
This would be part of the $550 billion necessary to fund the transportation and power systems across the country.
— Bloomberg Crypto (@crypto) July 29, 2021
Planning to rake in $28 billion in crypto taxes
The Senate proposal suggests that the IRS must now tax crypto transactions, collecting data from crypto brokers. Businesses would have to report transfers of digital currencies that exceed $10,000.
The bipartisan plan is set to invest $550 billion in the U.S. transportation network, broadband and utilities. The final target has been reduced from the $579 billion proposed last week.
Simultaneously, the Senate is voting for a $3.5 trillion stimulus for social programs in the U.S.
Crypto becomes an area for tax cheats
According to IRS officials, the crypto industry is largely turning into a shelter for those who are hiding their taxes from the federal government.
In an attempt to increase control over crypto transactions, last year the IRS introduced an addition to Form 1040, as well as to the individual tax return.
Executives in the crypto sphere refuse to agree to this proposal, saying that some companies would simply be unable to collect the data required by the IRS.
Senator Elizabeth Warren also mentioned that she wants to impose a wealth tax, including on people who made their fortunes on crypto. She said that it does not matter to her what assets the wealth to be taxed is tied to.