• CFRED CUHK Law

Tax Policy and Compliance Trends for Cryptoasset Transactions

William G. Najmy – Stetson University College of Law


-- From its initial inception, the idea that a new form of money could come along at this point in history seemed farfetched, and the inherent decentralization of the blockchain network still makes many people skeptical. From that concept, cryptocurrency has branched out beyond the simple idea that it would be used solely a means for exchange, into three distinct and identifiable areas beyond magic internet money.” This expansion includes use as a digital investment, a way to raise capital through an Initial Coin Offering, and methods for transferring information through blockchains, smart contracts, or utility tokens. With this growth in function, it is time to abandon the use of the term “cryptocurrency” in favor of a broader term like “cryptoassets.” In my recent research paper, I argue that the term cryptoassets creates a unified vocabulary and an umbrella for all areas involving cryptocurrency, the underlying blockchain concept, and their progeny.


Currently, there is no international consensus for addressing the challenges surrounding cryptoassets, both their uses, economic policy, and taxation of transactions that occur as a result. Globally, three strong tax policy and characterization positions emerge regarding the cryptoasset, a liberal acceptance of it as a currency and means for exchange, the characterization of it as an investment and a capital generating asset, or a sliding scale of tight restrictions down to outright bans. However, within that broad variance of treatment, one thing is clear: even the most accepting governments have significant concerns when it comes to cryptoasset use in aiding criminal activity and circumventing national tax and economic policy by using cryptoassets to launder money.


The decentralized nature of blockchain creates a risk that that the technology could be used as a vehicle for money laundering and tax evasion, while a market that allows unregulated initial coin offerings creates instability that discourages under-educated individuals from participating. One analysis estimated that in 2009, the U.S. government alone lost over $1 trillion in revenue to general tax havens, a number undoubtedly higher around the world. Because of how easily cryptoassets may be used to further tax evasion schemes, it may always be in the best interest of any government or regulatory agency to create a comprehensive system of economic, legal, and tax policy for the cryptoasset ecosystem to operate within.


With those risks in mind, there is a clear need for legitimacy and stability that may only be accomplished through a global trend of regulation and policy. For instance, where the United States is generally an international leader in business and economic policy, the U.S. simply characterizes all cryptoassets as property, regardless of how the asset is being used. In contrast, Switzerland and United Arab Emirates take a more progressive approach, whereby both nations have created comprehensive and robust regulatory schemes that includes professionals licensing and distinct legal separations for cryptoassets based on their uses; a separate treatment for the “coin” and a separate treatment for the initial coin offering.

Indeed, this is a divergence from the original objective that cryptoassets would exist outside of any government regulation. However, with the increased rise in global adoption, any new regulatory policies should reflect the expanded growth of cryptoassets, and not simply treat all branches of the cryptoasset ecosystem as one single unit. While it is true that all nations are free to regulate their own tax and economic policy within their respective sovereignty, new cryptoasset regulation should strive to create a strong economic basis that in turn creates incentive for tax policy compliance by businesses and individuals. These types of policies should reflect the abstract nature of cryptoassets in general and incorporate a framework that protects investors and those seeking to raise capital by regulating the initial coin offering market, and one that protects consumers by regulating cryptoasset exchanges.

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