Republican Congressman Tom Emmer has called for more accurate taxation of cryptocurrency income after a Law Library of Congress report he commissioned revealed a glaring discrepancy between the regulatory approaches of different tax authorities around the world.
The 128-page study examines tax laws for cryptocurrencies in 31 countries and focuses on their application to coins and tokens earned through mining and storage. As the report notes, many countries have already established specific rules for coins earned from mining, but only five have established guidelines for potential strikers.
Of the 31 jurisdictions included in the study, only Australia, Switzerland, Finland, New Zealand and Norway addressed tax rate rules.
Proof of work, or PoS, is a consensus mechanism used by many blockchains as an alternative to the more energy-intensive Bitcoin proof of work (BTC). The process is similar to mining cryptocurrencies, but instead of trying to gather the most computing power, people at PoS put their coins on the blockchain in exchange for a proportional share of the block’s rewards.
The report also details the tax policy applicable to drop and hard fork currencies, where tokens are either given away for free or created by the birth of a new blockchain. Only six countries mention bird baths or hard forks in their national tax guides: Finland, Japan, New Zealand, Australia, Singapore and the United Kingdom.
Emmer said the Internal Revenue Service needs to provide clearer guidance to prevent a stranglehold on technological innovation in the US:
For these technologies to thrive and reach their revolutionary potential, we need to get the knowledge and organisational landscape of the regulatory approach right so that this innovation is not hampered. We can improve the clarity of IRS taxes while ensuring that they are applied wisely.
Abraham Sutherland, legal counsel for the Proof of Stake Alliance, said the logical first step would be to tax the sale of tokens generated by the offering, not their initial purchase.
An essential first step is to make it clear that block rewards are taxed when the new tokens are sold, like any other new good, and not when they are first purchased. This will both reduce red tape and ensure people are not overwhelmed, Mr Sutherland said.