The United States’ Internal Revenue Service (IRS) has recently won a major victory against major bitcoin exchange Coinbase. The US government’s tax authority was able to successfully get a court order asking Coinbase to provide information (name, birth date, address and taxpayer identification number) for users who have accumulated transactions worth more than $20,000 on its platform between 2013 and 2015.
This means that the IRS can cross-reference user information with the tax returns filed by US taxpayers who purchased and sold bitcoins. The IRS currently treats bitcoins and other cryptocurrencies as “properties” which means gains (income) from the disposal of bitcoins should be taxed.
Given that many of their citizens have made huge amounts of money from bitcoin transactions, it is expected that governments would sooner or later take action in order to get what they perceive as the their fair share on this new found source of wealth.
Tax on bitcoin transactions
In many jurisdictions, bitcoin is not treated as currency. In Canada and Australia, bitcoin transactions that are done at market prices are considered as barter exchanges. However, a new legislation in Australia aims to remove the “double” imposition of sales tax on cryptocurrency transactions – first when buying the cryptocurrencies then later when using it to buy goods and services. Canada currently requires reporting of capital gains and losses on bitcoin and other virtual currency transactions in their tax returns.
In Japan, bitcoins are considered a special type of asset and bitcoin transactions resulting to gains are subject to capital gains tax.
Potential tax on bitcoin transactions
The Philippine Bureau of Internal Revenue (BIR) has not yet issued clear guidelines on the tax treatment of bitcoin transactions. However, it is clearly written in the internal revenue laws that any type of income earned by a Filipino citizen shall be taxed unless expressly exempted.
Given the government’s ambitious infrastructure program that requires massive funding, the BIR may sooner or later run after taxpayers who made money from bitcoin-related activities. This may cover profit generated from bitcoin speculation and mining. The BIR may also require local bitcoin exchanges to provide the information about their users just like what the IRS did in the US.
The tax that may potentially be collected by the BIR depends on how it will classify bitcoins. If bitcoins are classified as properties, then capital gains tax may be imposed on bitcoin transactions. If bitcoin transactions are taxed similarly as stocks, a fixed percentage tax may also be imposed. Income from bitcoin (or other cryptocurrency) mining can also be subject to regular income tax and other business taxes.
Just like the IRS, the BIR must find ways to monitor bitcoin-related transactions and they can do so with the help of local bitcoin exchanges. Legal challenges would undoubtedly happen. Given the backlog in the local courts, it may take time before we see a resolution on how bitcoin and other cryptocurrency transactions will be taxed.