The OECD and the G20 on 12 October 2020 published a report analysing different international tax policy implications of the taxation of virtual currencies, stablecoins, Central Bank Digital Currencies and decentralised finance.
The report, titled "Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues", sets out key insights for the consideration of policymakers for the purpose of making observations about the current tax treatment of digital currencies in various countries.
The insights provided by the OECD in the report for policymakers internationally included that policymakers must deploy:
Clear guidance and a clear legislative framework in their jurisdiction including how digital currencies fit within the existing tax framework;
Tax treatment of digital currencies is coherent with the broader regulatory framework and tax treatment of other assets; and
Simplified tax treatment for occasional or small traders of digital currencies.
The OECD stated:
... the taxation of [digital] currencies requires policymakers to balance a number of competing goals and perspectives.
Addressing the tax considerations of digital assets during different stages of its lifecycle, the OECD considered the following issues:
Creation of digital currencies
The first taxable event in some countries is considered to be on the receipt of a mined unit of digital currency, while a significant number of other counties consider no tax is payable until disposal of a mined digital currency;
Disposal of digital currencies
The majority of countries consider exchanges between digital currencies and fiat currency to be a taxable event. A small number of countries do not consider the exchanges of digital currency to be a taxable event including Switzerland, Italy, Portugal (if not the main activity), Grenda and the Netherlands. The report also addresses the less covered guidance on gifting of tokens, inheritance, theft and loss in different jurisdictions. Value-added taxation of digital currencies
There is a general consensus amongst countries that digital currencies are akin to fiat currency and are not subject to value added taxes (VAT in the EU and GST in Australia). However, the report discusses the varied treatment to services related to digital currencies including online wallet services and exchange services.
Central Bank Digital Currencies
Central banks internationally are carefully considering the potential disruption of the fractional reserve system even though there is a broad recognition that cross-border payments are overly costly.
The OCED reported on the various benefits of CBDCs compared to stablecoins stating that:
CBDCs on the other hand, which would be issued and backed by a central public authority, such as a central bank, would provide a stable digital form of fiat currency backed by a sovereign authority... a CBDC might provide an alternative, safe and stable payment system... [that] could enrich a central bank's monetary policy toolkit.
However, to date no country has provided guidance on the tax treatments of CBDCs and the OECD suggested the countries may wish to consider whether to treat CBDCs similarly to fiat currencies for tax purposes.
Stablecoins - The policy implications and risks of stablecoins were considered including the important consideration of whether stablecoins should be treated similarly to more "traditional" digital currencies for tax purposes. The report referred to various reports that raised concerns about stablecoins noting that:
Challenges related to stablecoins are increasingly high on the political agenda, in particular of the G20 and the G7... stablecoins were posing legal, regulatory and oversight risks related to sound governance, money laundering, integrity of payment systems...
Decentralised Finance - The tax implications of DeFi have commonly not been addressed by regulators however, the report referred to the Australian Taxation Office (ATO) that provided guidance in relation to the tax treatment of interest from DeFi loans when answering a taxpayers' question.
The ATO has stated that it does not have a specific view on DeFi matters but that:
Each cryptocurrency coin or token is treated as a separate CGT asset. Where there items are disposed of in any way, a CGT event arises and CGT needs to be calculated.
The OECD report is one of the most comprehensive reports released to date in relation to international tax policy and summarising the tax policy and legal challenges of the digital assets internationally, it is likely to be referred to by policymakers in deciding how to deal with digital currencies as they increase in adoption.