The pace, scale and level of development in the crypto space in the past year has been truly exciting to observe. We have seen Bitcoin prices skyrocket and, as 2021 draws to a close, Bitcoin and Ethereum are again reaching all-time heights due to a variety of factors, such as: increased interest of institutional investors, global uncertainties on inflation linked to the ongoing government responses to the COVID Pandemic, heightened public awareness/education, and expanded channels allowing mainstream use.
The market for non-fungible tokens (“NFTs”), unique digital assets stored on the blockchain, has exploded, resulting in multi-million sales and launches of multiple NFT marketplaces and digital exchanges, with the focus moving recently into the Metaverse and on Play-to Earn Games. Decentralised Finance (“DeFi”), financial applications operating on smart contracts via blockchain technology, has also seen significant growth, adoption and real-world application.
A similar level of pace and action has been taking place from a regulatory perspective. Notably, the European Parliament put forth an action plan for policy on preventing money laundering, which specifically cites and seeks to tighten the application of AML and CFT rules to the entire crypto sector. Regulatory focus has been placed on virtual asset exchanges, including the introduction of new regulatory licensing frameworks. Furthermore, the OECD released an analysis of approaches and gaps to the taxation of crypto assets and virtual currencies across over 50 jurisdictions with rules on tax reporting for virtual asset service providers (“VASPs”), with the Common Reporting Standard (“CRS”) rules expected in early 2022.
In the US, major regulatory initiatives are finally taking shape starting with the recently signed into law Infrastructure bill which includes for the first time digital asset information reporting requirements. These new reporting requirements are estimated to generate $28 billion in revenue over 10 years. The bill provides a new definition for “digital assets”, introduces obligations for “brokers” in the context of digital assets more broadly, and requires reporting on proceeds and basis for digital assets sales and transfers. It also requires new reporting similar to cash reporting over $10,000 for business transactions of digital assets.
Amidst all the action, we are building on to the previous edition of the Crypto Tax Report by evaluating and reviewing the developments in digital assets tax guidance that have taken place in the past year. This year’s edition of the Crypto Tax Report includes insights from more countries and covers the tax implications of several key, newly emerging areas such as NFTs and DeFi.