Many governments consider crypto-crypto trades tax events. As of May 29, the Finnish Tax Authority considers crypto-crypto exchanges tax events, too. That is potentially a big problem for users of future distributed applications that use multiple blockchains and cryptocurrencies. In particular, if cross-chain atomic swaps become very commonplace the swaps might happen mostly under the hood even without the knowledge of the app user. For example, an app might automatically work out the cheapest currency to use to pay for a service while holding balances of different cryptocurrenciess for different purposes. It would make a lot of sense to store different sums of different sizes in different cryptocurrencies owing to different trade-offs between security, transfer fees and speeds of different blockchains.
Cross chain atomic swaps explained
With considerable volatility of different cryptocurrencies, a DApp user might unwittingly profit considerably from a percentage of the swaps over time while losing a lot of money in other swaps. With the tax rules not allowing for deducing any losses from any gains in crypto trading, the user may be in for very steep tax liabilities over the course of an entire year of using DApps. This may become a serious problem under the current rules. Not all apps can even be used anonymously.
This is why I think tax authorities should listen to a wide range of experts on the field before using their power to issue guidelines delegated to them by legislative bodies. The simple model of crypto taxation where only crypto-fiat or crypto-goods/services trades were tax events that Finland had until May 29 of this year was adequate despite some minor flaws. The current one may prove very harmful in hurting Finnish software companies who wish to develop DApps for the domestic market. I hope that the latest tax guidelines published by the Tax Authority will not be the final word.
Check out my post on the new tax guidelines on virtual currencies (in Finnish).
Hi markku. That is why Malta will boom. Why do your banking in your own country when you will be penalized all the time. I think it is only fair to tax you on the profits from the end of the year. They have to take in the losses otherwise it is too one sided. If you don't live in Malta but bank there you pay 18 % give or take but all trading is free of tax.
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This type of predatory taxation will only ensure that those with considerable crypto wealth will move to places like Malta. That's why much of the software development will also happen in places with crypto-friendly taxation.
By the way, your tax jurisdiction is not determined by where you bank but your place of residence. For example, when you move out of Finland, you can remain obligated to pay taxes to Finland on all or some of your income earned either in Finland or abroad depending on whether you have ties in Finland for quite some time after you move. Tax agreements between governments and laws limiting double taxation may exempt you from having to pay some taxes. It can get complicated. But one thing is certain: banking in Malta will not exempt you from paying taxes on any income earned in Malta if you are or have recently been a resident of Finland.
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Then the answer is to bank in Malta for your crypto and pay taxes on only profits. It has nothing to do with the country where you reside as it is off shore. You are paying legitimate taxes in Malta. You can apply for duel nationality as well. There are going to be loopholes that the smart ones jump through. Do you have to declare your Steemit in Finland if you power down?
The tax laws are going to get messy as this is all new to us.
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Legally, tax obligations have everything to do with the country you live in. If you get caught not reporting significant income, it could mean going to prison in the worst case. It probably is mandatory to report any and all income anywhere but you might get those taxes you have already paid deduced from the taxes you have to pay where you life.
I'm still not sure what taxes I should pay from Steem income and when. I earned very little last year and none in fiat. Now the guidelines have changed.
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If you earn in Malta you are right you have to pay taxes there. If you reside in Malta and make money from other countries you will not pay double tax. I don't know all the ins and outs as I am no expert but I am reluctant to pay taxes on crypto. My problem is you may do well on some and not so well on others and be breaking even but they will want to tax you on only the good ones. To me it is a cost incurred like running a business where the cost to make the profit is tax deductible. It should be the same with this.
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What I mean is that if I continue to live in Finland but do my crypto-banking in Malta, I will continue to be fully obliged to report all of my earnings in Malta to the Finnish Tax Authority. If I fail to report those earnings and they are very significant, I'm risking criminal prosecution for tax fraud in Finland. That income may never be found out but it's possible that it will if the Maltese authorities should share information with Finland. That could happen many years after the fact. It's politics and you never know about the future.
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I understand. I just think it sucks that the government can nail you only on profits. My account was hacked last year so I lost $1200. In my eyes that should be written off against any tax they want to tax me on crypto profits.
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I think you just might be able to write it off as permanently lost. Has the South African government released any guidelines as to how cryptocurrencies are taxed?
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No the SA Government will come up with something. They are desperate to refill the coffers after all the thefts and corruption so expect something harsh. At the moment if you deposit or withdraw more than $1000 it raise red flags. There is only a couple of overpriced local exchanges that operate here.
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To bypass all that shit:
https://www.iol.co.za/business-report/economy/sas-first-cryptocurrency-atm-comes-to-joburg-14982296
It doesn't say whether you can also sell Bitcoin for fiat using that ATM, though.
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I do not know much about tax laws but I think that governments sooner or later always look for ways to collect taxes for any enrichment or gain, however small it may be for people.
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Very informative, I had never thought that a dapp could operate on this basis and it makes total sense. The taxation policy in Australia is a disgrace, trading crypto to crypto is a taxable event. I really hope the situation improves.
Thanks for the post.
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In Finland, a crypto to crypto trade used to be a non-event. But now our tax officials decided to ape most other countries to a disastrous effect.
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I really think most governments will realise it's not practical, or when they have people claiming capital losses they will quickly change their mind lol.
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You can claim capital losses but the tax man won't care under the current system. Each and every crypto gain will be taxed separately no matter what. What this will result in is that a lot of small gains will not be reported at all.
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