In a sure sign that cryptocurrency is close to becoming mainstream, governments around the world are stepping up efforts to make sure they get their cut of the action.
The tax enforcement agencies of the U.S., U.K., Canada, Australia and the Netherlands — the so-called Joint Chiefs of Global Tax Enforcement — are cracking down on tax evasion among cryptocurrency holders. They are seeking data from crypto exchanges, sharing information and methods, and partnering on investigations as they address the growing potential for transnational tax crime posed by crypto traders.
The U.K. this month began seeking information on user data from several cryptocurrency exchanges. Two years ago, the IRS issued a summons on Coinbase to get data on its customers.
“The days of trading in cryptocurrencies with minimal detection risk are passed,” Alexander Demner, a partner at Thorsteinssons LLP in Vancouver, told Bloomberg News.
The IRS’s criminal investigation division held an event in June on cyber crime at the World Bank headquarters in Washington, with participants from about 20 foreign countries.
Most countries have started extensive information-gathering efforts — obtaining as much data as possible from cryptocurrency exchanges and individual users. Some countries have gone past the information-gathering stage into actual audits and investigations.
- The U.S., U.K., Australia, Canada and the Netherlands formed the J5 last year to coordinate efforts. The group is working on more than 50 investigations of international tax evasion, and have exchanged more data in the last year than the previous 10 years combined.
- The Canadian Revenue Agency is preparing for auditors to ascertain if crypto assets are business income or capital gains, which would have immense tax implications for holders. Business income is 100% taxable, capital gains is 50%.
- The central bank for the Netherlands is backing a proposal for a bill to register cryptocurrencies.
- IRS is pioneering global standards to track and audit tax evaders including using AI, but agencies are still behind the curve.
Karma Take: A period of lax crypto tax enforcement is coming to an end and efforts to increase oversight will surely spread globally. Investors better prepare for increased oversight and maybe additional tax payments.