UK: Revised Crypto Tax Guidance Coming in 2019
The beginning of 2019 might bring tax-related news to the UK’s crypto market.
Her Majesty's (HM) Treasury is working closely with HM Revenue and Customs (HMRC) to consider the tax issues raised by cryptoassets and the revised guidance is estimated to be released by early 2019, according to a new report from the UK’s Cryptoasset Taskforce, jointly published by HM Treasury, the Financial Conduct Authority (FCA), and the Bank of England.
Both authorities recognise the risks of tax avoidance and evasion arising from the increased use of cryptoassets and are continuing to review the range of enforcement tools and approaches at HMRC’s disposal, the report added.
Also, in the report, several heavy-handed measures are discussed to regulate and control how British citizens should interact with digital assets.
In the report, the FCA – the UK’s main financial regulator – said that “there are substantial potential risks associated with cryptoassets” and that the government’s priority is to “mitigate” these risks, “and prevent the use of cryptoassets for illicit activity.” The authors added that “strong action” should be taken by the authorities to address the perceived risks.
Perhaps the most severe action proposed in the report is a potential ban on all cryptoasset derivatives, including futures contracts and contracts for difference (CFDs), which are all popular instruments among traders. According to the report, “the FCA will consult on a prohibition of the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin, including CFDs, futures, options and transferable securities.”
The futures market, for example, is already a heavily regulated marketplace where large traders either take bets, or hedge risks from elsewhere, with the use of contracts that track the price of an underlying asset – in this case bitcoin.
Ironically, an active futures market for bitcoin has been mentioned as a requirement from the US Securities and Exchange Commission (SEC) for it to approve any bitcoin-based exchange traded fund (ETF). Now, it appears the UK is moving in the opposite direction as it seeks to ban any futures contracts based on cryptoassets such as bitcoin.
Benefits of cyptoassets and support to DLT
Meanwhile, the report stressed that “the authorities will continue to encourage and enable experimentation and innovation, so that DLT [distributed ledger technology] and other new technologies can develop and be adopted safely in the financial system.”
It also added, that “the backbone of the existing payments system – the Bank of England’s new RTGS [real-time gross settlement] service - will be compatible with DLT - based payment systems, supporting further innovation and use of DLT in financial services.”
Although the report did also list potential benefits of cryptoassets, they were few compared to the risks discussed.
The report noted that cryptoassets today deliver few benefits, but added that “benefits may materialize in the future, for example through the use of ICOs [initial coin offerings] as a capital raising tool.”
In the community, people are discussing whether the proposed regulations by the Cryptoasset Taskforce are appropriate, with some even asking if the agency is going far enough:
Others, however, question the authors’ level of understanding of the subject matter:
It's also funny that the Cryptoasset Taskforce calls cryptocurrencies such as Bitcoin "exchange tokens" pic.twitter.com/OifROyT64n— Larry Cermak (@lawmaster) October 30, 2018
In the past, the FCA led a group of global regulators known as the Global Financial Innovation Network (GFIN) in drafting a consultation document on the issue of regulatory sandboxes for fin-tech firms.
Among other things, the document proposed that regulators in different countries should work together to “support responsible innovation” in areas such as distributed ledger technology and ICOs, as well as requirements pertaining to know-your-customer (KYC) and anti-money laundering (AML).