Bridging the Map and the Territory: International Taxation Issues in Relation to Cryptocurrencies

Abstract

The main motivation behind the creation of cryptocurrencies was to devise a way to take money out of the hands of the government. It only started to do so after 2009, with the creation of Bitcoin, which purported to be an alternative to money. Cryptocurrencies today are getting closer to fulfilling the economic functions of money, but have not yet reached that point. Nonetheless, international courts have started to recognise them as, at the very least, functional equivalents to money, especially when applying anti money laundering rules to frauds committed using cryptocurrencies. On the other hand, policy-makers refuse to recognise cryptocurrencies as money, as it the case of the taxation rules of the UK which recognise them as property, subject to cumbersome Capital Gains Tax calculations and reporting obligations upon disposal. This is not the only possible approach, with other jurisdictions taking more lenient approaches. The fact that the taxation of cryptocurrencies is not a coherent issue from an international standpoint can have negative consequences, such as jurisdiction arbitrage by users, and even some cryptoassets becoming the object of hybrid mismatches agreements such as those that are part of the BEPS project of the OECD. A solution to this issue would include taking care to properly characterise all cryptoassets so that their regulation is homogeneous at an international level, and making sure the actual tax regulation they are subject to respects, or at least considers, the objectives behind their creation. The use of deeming provisions is proposed to achieve the latter end.