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Cryptocurrency transactions fall on to the Brazilian Federal Revenue’s radar

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Ricardo Luiz Becker and Fabio Tarandach of Pinheiro Neto explore how tax authorities are quickly evolving to regulate Brazil’s surging cryptocurrency market.

Just like several countries across the world, cryptocurrency transactions in Brazil have become increasingly important day by day. Whether as a new form of payment (as a substitute to the conventional payment types such as cash or cards), or whether as a form of investment (given the valuation of the cryptocurrency unit), the fact is that cryptocurrency transactions have grown to earn relevance in the Brazilian market.

Brazilian tax law has no legal specific act concerning the taxation of cryptocurrency operations, so transactions involving virtual currencies are currently subject to the same taxation as transactions with different classes of assets. The taxation will follow the set guidelines: (1) the revenue obtained with the settlement in cryptocurrency should be regularly taxed; (2) an entity that settles an obligation with the use of cryptocurrencies should withhold the applicable taxes; and (3) the capital gains earned with the sale of cryptocurrency should be taxed as well.

Nevertheless, until a few months ago, there was no rule foreseeing how these transactions should be brought to the attention of the authorities. Thus in practical terms, the Federal Revenue did not have the resources or tools to collect taxes over these transactions. Since cryptocurrency transactions were becoming more valuable, the Brazilian Federal Revenue (RFB) chose not to ignore this situation.

In this sense, the RFB issued the Normative Instruction Nº 1,888/19 (IN 1,888/19) which determines that all cryptocurrency transactions are properly informed to the authorities by Brazilian exchange brokerage firms (exchanges), by individuals or legal entities owning the crypto assets, depending on the case. 

There are many reporting requirements established under IN 1,888/19, such as date and number of encrypted transactions; description of individuals or companies that were parts in the transaction; type of cryptocurrency transferred; operation’s value; value of the service fees; and address of the delivery and receipt wallet. Moreover, a penalty of 3% is foreseen in cases in which the information provided to the authorities is inaccurate, incomplete or incorrect.

In our view, the new obligations (IN 1,888/19) bring a new perspective to Brazilian public finance and a new scenario to all the players of this market. In accordance to the last information provided by the RFB, in the first two months that the new rule has been in force, the total amount informed to the authorities was around BRL 14 billion. In other words, if the Brazilian tax authorities intend to keep up with controlling cryptocurrency transactions, and tax it, there will be a free way ahead.

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