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Brazil’s Crypto Tax Revolution: Senate Nods to 15% Levy on Overseas Holdings

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The Brazil Senate approved new income tax regulations on November 29, paving the way for Brazilians to be obligated to pay up to a 15% tax on income derived from cryptocurrencies held on exchanges outside the country. This development comes as part of a broader initiative by President Luiz Inácio Lula da Silva’s administration to revamp income tax rules.

Having already secured passage in the Chamber of Deputies, the bill is anticipated to receive final approval from President Lula, given that his administration initiated the changes in the income tax rule. Effective January 1, 2024, the new regulations stipulate that any Brazilian earning more than $1,200 (6,000 Brazilian reals) on exchanges outside Brazil will be subject to the tax.

Regulatory Shifts & Rising Crypto ETF Interest

This aligns foreign-held funds with the same tax rate applicable to domestically-held funds. Notably, funds earned before this date will be taxed upon access by the owner, with earnings on funds accessed before December 31 taxed at 8%.

The scope of the bill extends beyond individual cryptocurrency holders. It also impacts “exclusive funds,” referring to investment funds with a single shareholder and foreign companies active in the Brazilian financial market. The government aims to generate $4 billion (20.3 billion Brazilian reals) in revenue from these measures in 2024. However, not everyone in the Senate favors the bill, with Senator Rogério Marinho expressing opposition.

This move follows the September announcement by Roberto Campos Neto, the Banco Central do Brazil governor, revealing plans to tighten cryptocurrency regulations in response to their surging popularity. At the time, Campos Neto expressed concerns about potential tax evasion facilitated by using cryptocurrencies.

The regulatory landscape for cryptocurrencies in Brazil has been evolving throughout the year. In June, President Lula signed government decree No. 11.563, granting the Brazilian central bank jurisdiction over virtual asset service providers. This decree established rules under a December 2022 law, providing a legal framework for cryptocurrencies in Brazil.

It empowered the Central Bank of Brazil to regulate and supervise virtual asset service providers, ensuring that token projects qualifying as securities continue to fall under the purview of the Comissão de Valores Mobiliários (CVM), Brazil’s equivalent of the United States Securities and Exchange Commission.

While navigating this regulatory shift, Brazil is concurrently witnessing a significant demand for spot Bitcoin exchange-traded funds (ETFs), a trend that has persisted for over two years. This growing interest in crypto-related financial instruments among Brazilian investors underscores the changing landscape of digital asset acceptance.

The decision to tax income from cryptocurrencies held abroad signals a landmark change in Brazil’s regulatory approach to digital assets. As the government seeks to boost revenue through these measures, the opposition from some quarters highlights the contentious nature of cryptocurrency taxation.

However, Brazil’s journey through this evolving regulatory terrain is paralleled by the increasing acceptance and interest in crypto-related investment products, exemplified by the surge in spot Bitcoin ETFs.

Related Reading | U.S. Bitcoin ETF Battle Has A New Contender

IRS Crypto Tax: Commentary Extended Till Nov 13 Amidst Controversy

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The Internal Revenue Service or the IRS of the United States has decided to extend the comment period for the proposed crypto tax reporting rules, initially slated for October 30, 2023, to November 13, 2023. The decision, outlined in an official document, was made due to significant public interest in the matter. However, it’s crucial to note that the public hearing, scheduled for November 7, 2023, at 10 a.m. ET remains unaffected by this extension.

IRS

The focus of these comments pertains to a notice of proposed rulemaking [REG-122793-19] published in the Federal Register on August 29, 2023. These proposed guidelines have a dual objective: simplifying tax filing processes and curbing tax evasion. The primary strategy involves introducing a distinct form tailored specifically for crypto brokers. The Treasury Department believes this approach will streamline tax calculations for taxpayers, thereby eliminating the need for intricate computations or costly digital asset tax preparation services.

The proposed form, 1099-DA, aims to assist taxpayers in determining tax liabilities and avoiding complex calculations or the expense of digital asset tax preparation services when filing their returns. Notably, these rules are slated to become effective in 2026, impacting sales and exchanges conducted in 2025. Despite these intentions, the proposed tax regulations have encountered resistance within the crypto community.

IRS: Coinbase Legal Expert Flags Privacy Concerns

Chief Legal expert Paul Grewal from Coinbase exchange has voiced deep reservations, expressing concerns that the IRS’ intentions might extend beyond mere tax enforcement. He argues that these regulations could pave the way for unwarranted surveillance of users’ financial activities, potentially leading to the reporting of every digital asset transaction, even minor ones like purchasing a cup of coffee.

Grewal has actively urged the crypto community to join the movement against these proposed regulations. He believes that if these regulations become law, digital assets could be significantly disadvantaged, posing a threat to a budding industry still in its infancy.

Contrarily, some members of the U.S. Senate, including Elizabeth Warren and Bernie Sanders, have criticized the delay in implementing crypto tax reporting requirements, urging the Treasury and the IRS to expedite the rules swiftly. This divergence in opinions highlights the ongoing debate and concerns surrounding the proposed crypto tax regulations in the United States.

Coinbase Fears Extensive Surveillance in IRS Tax Rules

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Paul Grewal, Coinbase’s chief legal officer, has raised alarm over the IRS’ latest draft regulations for crypto tax reporting. The Internal Revenue Service [IRS] has recently proposed draft regulations for crypto tax reporting, sparking significant concerns within the cryptocurrency community. The new guidelines, introduced on August 25, aim to simplify tax filing and curb tax evasion by introducing a separate form specifically for crypto brokers. According to the Treasury Department, this move intends to make tax calculations more straightforward for taxpayers, eliminating the need for complex computations or expensive digital asset tax preparation services.

Coinbase

However, Coinbase’s legal expert has expressed deep reservations about these regulations. Grewal believes that the IRS’ intentions might go beyond mere tax enforcement, potentially leading to unwarranted surveillance of users’ financial activities. He took to his official X account to voice his concerns, stating that the proposed rules could establish a “dangerous precedent for surveillance” by necessitating the reporting of every digital asset transaction, even minor ones like buying a cup of coffee.

Grewal called upon the crypto community to unite against the IRS’ proposed regulations, asserting that these rules surpass the congressional mandate, putting digital assets in an unfavorable position and jeopardizing a burgeoning industry. He emphasized that the regulations would necessitate the collection of extensive user data, which serves no “legitimate public purpose.” In his view, this data collection would overburden Web3 startups with costly requirements, flooding the IRS with more data than they can effectively process.

Coinbase: The Privacy Concern

The proposed regulations specifically target crypto brokers, encompassing both centralized and certain decentralized exchanges, crypto payment processors, and specific online wallets. If approved, these regulations will come into effect in 2026, requiring brokers to report transactions from 2025 through Form 1099-DA starting January 2026. However, numerous U.S. lawmakers have urged the IRS to expedite the implementation of crypto tax reporting requirements before 2026.

The controversy surrounding these regulations highlights the delicate balance between tax enforcement and individual privacy, raising significant questions about the future of crypto taxation in the United States. As the crypto community led by Coinbase debates the pros and cons, the outcome will significantly impact the evolving landscape of digital assets and their integration into mainstream financial systems.

EU Greenlights DAC8: The Cryptocurrency Tax Revolution

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In a decisive move, EU lawmakers granted their resounding approval to the 8th edition of the Directive on Administrative Cooperation [DAC8], a groundbreaking cryptocurrency tax reporting regulation. This decision unfolded on September 13th during a meeting held in Strasbourg, France, marking a significant milestone in the journey towards DAC8’s implementation. The outcome of the vote was overwhelmingly positive, with 535 votes in favor and a mere 57 against, signifying the successful passage of DAC8 through its final hurdle.

The genesis of this pivotal directive traces back to May 16, 2023, when EU Member States reached a political consensus regarding new tax transparency rules applicable to all service providers engaged in facilitating transactions involving crypto-assets, electronic money, and central bank digital currencies [CBDCs] for EU residents. These innovative reporting requirements are poised to come into effect on January 1, 2026, through the EU DAC8 Directive.

The latest iteration of DAC introduces a comprehensive framework encompassing disclosure and reporting obligations tailored specifically for crypto-intermediaries involved in transactions conducted by EU customers. EU documents elucidate that the core objective of DAC8 is to endow tax authorities with the capability to meticulously monitor and evaluate all cryptocurrency transactions conducted by both organizations and individuals within the EU member states.

EU’s Latest Crypto Framework Adheres To CARF

Insiders privy to the matter divulged that DAC8 has drawn inspiration from the OECD Crypto-Asset Reporting Framework [CARF], a foundational set of model regulations governing the reporting and exchange of information pertaining to crypto-transactions. Conversely, the G20 consortium of nations remains in deliberation regarding CARF’s status as a potential global minimum standard. Nonetheless, critics of DAC8 have voiced reservations, contending that it brings little differentiation from CARF and potentially diminishes the authority vested in individual member states with regard to oversight.

Max Bernt, the Chief Legal Officer at Blockpit, articulated these concerns, emphasizing the sweeping changes brought about by DAC8. He particularly highlighted the obligation imposed on Reporting Crypto Asset Service Providers [RCASPs] to discern, on a case-by-case basis, whether a transferred crypto-asset qualifies for reporting.

The passage of DAC8 represents a watershed moment in the taxation landscape of the European Union, ushering in an era of heightened transparency and accountability in the realm of cryptocurrency transactions. As this directive inches closer to its effective date in 2026, it promises to reshape the regulatory landscape and has sparked both anticipation and debate within the crypto industry and beyond.

Crypto Industry Criticizes Biden’s Tax Reporting Rules

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The crypto community has voice­d its dissatisfaction with the proposed crypto tax reporting re­gulations put forth by the Biden administration. These­ rules, designed to de­tect tax evasion and simplify filing processe­s, may adversely affect the­ digital asset industry within the United State­s.

On August 25th, the Internal Re­venue Service­ (IRS) released a proposal outlining re­quirements for crypto brokers such as e­xchanges, payment processors, and walle­ts to report information on users’ sales and e­xchanges of digital assets to both the IRS and the­ individuals themselves.

Additionally, the­se rules would exte­nd reporting obligations for digital assets to include cash transactions e­xceeding $10,000. To facilitate tax asse­ssment and avoid complex calculations of gains, the U.S. De­partment of Treasury intends to introduce­ a new tax reporting form called Form 1099-DA.

The strict rules come from the $1 trillion 2021 Infrastructure Investment and Jobs Act. The government thinks they’ll make about $28 billion in 10 years by making crypto brokers report taxes more. Brokers might have to follow these rules starting in 2025, for taxes in 2026.

Crypto Industry Fears Losing Competitiveness

Messari CEO Ryan Se­lkis expressed criticism towards the­ news, stating that if Biden is ree­lected, the digital asset industry will struggle­ to thrive in the United State­s. He believe­s that there is a limited future­ for digital assets within the country under Biden’s le­adership.

Chris Perkins, the­ president of CoinFund, a digital assets venture­ firm, shares a similar perspective­. According to him, other countries have surpasse­d the U.S. in innovation due to strict regulations. Rathe­r than implementing harsh crackdowns, he advocate­s for simple and comprehensive­ rules that promote safe innovation within the­ Decentralized industry.

Kristin Smith, the CEO of the­ Blockchain Association, expressed conce­rns about combining digital asset reporting with traditional assets. She­ believed that me­rging these two forms of assets may pre­sent challenges and pote­ntial risks:

It’s important to remember that the crypto ecosystem is very different from that of traditional assets, so the rules must be tailored accordingly and not capture ecosystem participants that don’t have a pathway to compliance.

Seve­ral Democratic senators, including Elizabeth Warre­n, are urging the Treasury to swiftly imple­ment the rules. The­y argue that failure to do so will enable­ tax evaders to continue exploiting the­ system. The Treasury De­partment and the IRS are acce­pting feedback on the proposal until Octobe­r 30th.

Related Reading | Ethe­reum L2 Starknet Smashes 100 TPS, Eyes A Whopping 1000 TPS Next

Crypto Tax Rules Face Opposition From McHenry

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Rep. Patrick McHe­nry, the chairman of the House Financial Se­rvices Committee, strongly oppose­s the crypto tax rules propose­d by the Treasury Department and the IRS. He views these rules as part of the Bide­n administration’s ongoing campaign against the digital asset ecosyste­m.

The proposed regulations, issue­d on August 25th, would necessitate crypto broke­rs to disclose critical customer information such as names, addre­sses, and taxpayer identification numbe­rs, along with transaction details like gross procee­ds and basis.

The objective behind these rules is to implement a provision in the 2021 infrastructure law that aims to generate $28 billion in reve­nue via crypto taxation. However, McHe­nry contends that these re­gulations are overly broad and ambiguous while failing to capture­ Congress’s original intentions.

Numerous lawmake­rs from both parties have emphasized the importance of a narrow, tailored, and cle­ar proposed rule. They highlight that the­ complexity and novelty of the crypto industry make it unrealistic to finalize the rule­s by the end of this year as re­quired by the infrastructure law.

McHenry Pushes For Alternative Crypto Legislation

McHenry urge­d the Biden administration to cease­ its efforts in undermining the digital asse­t ecosystem within the Unite­d States. Instead, he propose­d collaborating with Congress to establish clear and de­finitive guidelines for the­ industry.

Additionally, McHenry highlighted his bipartisan bill called the­ Keep Innovation in America Act, which was co-sponsore­d by Rep. Ritchie Torres and others. This bill aims to ensure that only entitie­s involved in brokering digital assets for custome­rs are subjected to re­porting requirements.

The­ bill explicitly excludes crypto mine­rs, node operators, hardware ope­rators, and other participants who lack access to customer information or transaction control. His proposals would provide clarity and security to the crypto industry while ensuring compliance with tax regulations and preventing fraud.

He noted that this approach aligns with recommendations from the leading trade group, Blockchain Association. McHenry has consistently supported crypto regulation and innovation within Congress, as well as the Digital Tokens Act and Ransomware and Financial Stability Act.

Furthermore, he has provided insights on re­cent developme­nts within the crypto sector, such as PayPal’s stablecoin launch de­cision and BlackRock’s application for a spot Bitcoin ETF.

Related Reading | Ethereum Sees Surge In Large Addresses & Transactions Amidst Price Dip

India’s Crypto Tax Collection Grosses $19M In FY23: Report

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The Government of India has raked up ₹158 crores or $19 million as TDS from its crypto investors, as of 20th March 2023.

According to information provided to the Parliament [legislative body], up till March 20, 2023, the direct tax revenue obtained through tax deducted at source [TDS] on payments made upon transfer of virtual digital assets [VDA] was Rs. 157.9 crores.

In a written statement, addressed to the Rajya Sabha [India’s upper house], Pankaj Chaudhary, Minister of State for Finance wrote,

“Crypto assets are currently unregulated in the country. However, transactions in cryptocurrencies are subjected to provisions of various laws like the Prevention of Money Laundering Act, 2002, and Income Tax Act, 1961.”

He also said that the Financial Stability Board states in its consultative document titled “Regulation, Supervision, and Oversight of Crypto-Asset Activities and Markets” that investment and activity in the crypto-asset market are largely self-contained and is mostly for speculative purposes with limited connections to the real economy.

Last year, Indian authorities imposed a 30% capital gains tax on cryptocurrency assets as well as a 1% tax deducted at source [TDS] on all cryptocurrency transaction proceeds, all of which took effect on April 1, 2022.

The nation’s crypto investors were left frustrated by these strict regulations as trading volumes took a drop within 10 days and subsequently fell by 90% over the following three months.

A number of crypto entities left India, moving their operations and trading to countries that are more accepting of the asset class, such as Dubai or El Salvador.

While the nation’s apex bank, the Reserve Bank Of India [RBI], has called for an outright ban on crypto assets. The Indian government, on the other hand, is yet to take a firm stance on the same.

Indian Crypto Platforms Required To Do This

According to sources, the government has reportedly been developing a crypto policy since 2019, and even released a draft crypto bill, however, the legislature never took it up.

In the most recent announcement made by the Indian Finance Minister Nirmala Sitharaman, the administration intends to debate crypto laws with the G20 members to determine the best way to go about them.

Further, on March 7, the finance ministry issued a notification stating that local crypto exchanges and entities dealing with virtual digital assets [VDA] will be required to conduct know-your-client due diligence on their users. 

28% cryptocurrency tax proposal in 2023 Portugal budget

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The state of the cryptocurrency market is not ideal right now. Since the beginning of the year, it has been in a protracted bear market and declining. The current crypto bear market has seen some of the biggest losses in the industry. Adding to the dismal is the crypto tax being imposed in countries globally.

In its 2023 budget, Portugal will impose a 28% cryptocurrency tax, according to a Bloomberg article. The tax, which would be implemented for the first time in Portugal, is being pushed for inclusion in the budget for the following year.

The idea, according to authorities, aims to create standards so that Portugal may boast a system that encourages expansion of the local crypto industry. Portugal’s government wants to capitalize on the growing adoption of cryptocurrency across much of Europe.

The proposed legislation would impose a 28% crypto tax on all digital assets in Portugal, although not all of them would be subject to the new legislation. According to the announcement made on Monday, only virtual currencies purchased and held for less than 12 months would be liable to taxation.

The plan from lawmakers also maintains the tax exemption for digital assets held for more than a year. A 10% tax on free crypto transactions, which might include airdrops, was also proposed by policymakers. According to reports, the proposal also includes a 4% tax on the commissions paid by crypto brokers.

However, the budget must first receive approval from the Portuguese parliament before becoming a law.

Portugal’s history with cryptocurrency

Deputies from the Portuguese government spoke during a discussion of the State Budget for 2022. There were a number of up-front proposals. It was intended for the discussion to go on all week.

Different suggestions from various parties were turned down. One of many recommendations was the taxation of cryptocurrency. A news site called ECO Sapo reported in May 2022 that the taxing proposal for cryptocurrencies was rejected.

One of the most crypto-friendly nations in Europe, Portugal, recently announced that it would start taxing cryptocurrencies. The days of tax-free benefits for cryptocurrency investors in Portugal, according to many, are over.

India Might Add 28% To Its Existing Crypto Tax

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People with knowledge of the situation indicated that an Indian cabinet panel will meet next week to talk about imposing a goods and services tax on cryptocurrency transactions.

The council, made up of the finance ministers of the federal government and the states, is looking to expand the tax net in order to more effectively track transactions involving virtual digital assets, according to the people, who declined to be named due to restrictions on speaking with the media. Beginning on June 28, the panel will convene for two days in Chandigarh, in northern India.

The individuals added that although conversations may be done about including it in the highest tax bracket of 28 percent, the panel is unlikely to decide on a rate in the forthcoming meeting.

India thinks a hefty 30% tax is not enough

In an effort to gauge the extent of the local cryptocurrency market and keep track of users, India’s Finance Minister Nirmala Sitharaman levied a 30 percent tax on revenue from the transfer of virtual assets and a 1 percent source tax on all cryptocurrency transactions earlier this year. The action was perceived as resolving doubt over the legality of cryptocurrency transactions.

Due to the ambiguity around whether digital currencies should be treated as products or services and the absence of a legal framework, there is still uncertainty over the implementation of a sales tax on them.

We previously reported that the federal government is already working on legislation to either regulate or strengthen regulations. However, it is envisaged that this would only happen until a worldwide agreement on the regulation of such assets emerges.

As global central banks have started to raise interest rates to rein in growing inflation, digital currencies and other risky assets have been under attack all year. This year, Bitcoin has decreased by almost 50%, while Ether has decreased by 70%

Cryptocurrency tax dodgers beware of Operation Hidden Treasure

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As the use of cryptocurrency has grown, the IRS has initiated an investigation into taxpayers who are seeking to hide their cryptocurrency income. Cryptocurrency adoption is at an all-time high, and regulators are keeping a close eye on the digital asset market.

Authorities are attempting to regulate digital assets and determine whether or not they can be taxed. The goal of Operation Hidden Treasure is to catch investors who aren’t disclosing their cryptocurrency income and aren’t reporting it.

IRS to capture tax cryptocurrency tax evaders

The Internal Revenue Service (IRS) report was detailed in a press release issued by the Tax Law Offices of David W. Klasing on 16 June 2022. The Internal Revenue Service (IRS) has initiated an investigation into taxpayers who try to conceal their crypto revenue.

Internal Revenue Service

The IRS has developed a task force made of professionals in tracking various sorts of crypto income, as well as integrating the civil and criminal divisions of the IRS to combat crypto tax fraud, in order to accomplish the initiative’s goals.

According to the press release, one of the most prevalent methods used by investors to avoid paying taxes is to conduct repeated transactions of less than $10,000. Other investors use shell firms to conceal the name of the company’s owner. By concealing the investor’s name and party, he or she is able to engage in several activities.

Operation Hidden Treasure is also investigating cloaking blockchain technology, which allows some exchanges to provide trading services to users while keeping their identities hidden. The report further stated,

“Whether the unreported income was intentional, or a mistake is difficult to prove and the larger the amount of unreported income the less likely the IRS will be to believe your noncompliance was non willful or unintentional.”

The programme would also investigate and track undeclared cryptocurrency profits generated through anonymous transactions. The IRS is now keeping a close eye on cryptocurrencies because investors believe it can help them remain anonymous.