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This week in tax: US tax crackdown on cryptocurrencies

Will the world turn up the heat on cryptocurrencies?

The Biden administration has announced plans to impose tax reporting requirements on cryptocurrency transfers. The result has seen Bitcoin’s value crash.

Investors transferring more than $10,000 in cryptocurrency will have to report their transactions to the Internal Revenue Service (IRS) under the proposal. The price of Bitcoin fell by 5% after the US government announced its plans to crackdown on high-value cryptocurrency transactions.

This came a day after the People’s Bank of China warned financial institutions not to accept cryptocurrency as payment. Investors took this as a sign that the Chinese authorities are about to crackdown on cryptocurrencies.

As a result, Bitcoin lost as much as 30% of its value, reaching a low of $30,101 per coin before clawing back its losses to less than 8%. In just 24 hours, more than $8.6 billion of positions were liquidated.

The Chinese government may be looking to restrict cryptocurrencies before it launches its own digital currency. Meanwhile the IRS is more concerned about the potential risks of tax evasion posed by the rise of cryptocurrencies and non-fungible tokens (NFTs).

“As more money enters this space, when transitioning from crypto into fiat currency, the tax treatment becomes the critical question for governments to answer,” said Sheila Warren, head of data, blockchain, and digital assets at the World Economic Forum (WEF).

“If you don't have a taxation scheme, the amount of money you're going to be leaving on the table is a lot,” she told ITR in a recent article.

Tax authorities and financial regulators may fear the ‘disruptive’ potential of cryptocurrencies, not least because such currencies defy traditional fiscal and monetary policies. Technological change has created a range of problems for governments around the world.

At the same time, the US government has signalled it is willing to accept a global minimum corporate tax rate of 15% in a retreat from its original position of 21%. The OECD-led talks have yet to reach a consensus on a final rate.

The Biden administration wants a global agreement so it can secure the US high technology sector from further unilateral measures. Much like with cryptocurrencies, governments are turning up the heat on technology companies out of concerns these businesses are a source of fiscal instability.

Top headlines

Here’s a selection of ITR’s top stories this week.

European Commission replaces CCCTB with BEFIT

The Commission’s proposal sets out rules for a single corporate tax system across the EU based on features from the CCCTB proposal, as well as the OECD’s pillar one and two proposals. BEFIT builds on the discussions at the OECD’s Inclusive Framework about formulary apportionment for the partial reallocation of profits under pillar one.

It would introduce rules for calculating the EU-wide corporate tax base in order to use pillar two. This would prepare the groundwork for the EU to implement the OECD’s proposed global minimum corporate tax rate.

“Common rules for determining the corporate tax base will deliver substantial simplifications for companies operating in the single market,” said Benjamin Angel, the Commission's Director of Direct Taxation.

“Instead of having 27 different sets of corporate tax rules, a group will be able to determine its tax liability in each member state according to one single set of rules. This paves the way for more simplifications, such as the possibility of a single EU corporate tax return for a group,” said Angel.

Pillar one takes a unique approach to allocating taxing rights by applying a formula to reallocate a small part of the taxable base. BEFIT builds on pillar one by replacing EU rules for allocating a taxable base with EU-wide formulary apportionment on corporate group profits.

Read the full article here

UK set to raise TP compliance burden

HM Revenue and Customs (HMRC) is seeking UK corporations to file a local and master file along with an International Dealings Schedule (IDS) in a bid to strengthen its transfer pricing (TP) compliance rules and frameworks.

Suggested changes to HMRC’s TP documentation requirements put additional compliance burdens on more UK companies, particularly small and medium-sized enterprises (SMEs) within scope. Consultation proposals, including evidence logs for local TP files and an IDS measure, demand more work to be carried out by corporations, which could also lead to an increase in TP audits.

“The area that is going to be hit is companies that have come out of the SME exemption. There may be a transition phase, where they go from being an SME to now having to comply with documentation requirements if this is brought in for companies smaller than the €750m ($910m) mark,” said Thomas Heal, TP senior manager at Mazars.

Taxpayers can suggest changes to HMRC here, and the consultation closes on June 1.

The UK demands multinational enterprises (MNEs) to commit to the OECD’s minimum standard on country-by-country reporting (CbCR). The latest measures introduced by HMRC would require more MNEs to submit local and master files on request to the UK authorities, similar to other jurisdictions.

Read the full article here

Next week in tax

Readers can expect an in-depth analysis of the US proposal for a 15% corporate minimum tax rate as the OECD-led talks on pillar two seek to close in on a final rate. The Biden administration has re-engaged the OECD and this compromise could be the basis of a final agreement in the weeks ahead.

At the same time, ITR will taking a look at the ATAF alternative proposal to the OECD’s pillar one. The African Tax Administration Forum (ATAF) has put forward its own plans for how to reform the international tax system.

Historically, the OECD has been perceived as “a rich countries’ club” and ATAF is looking to make sure African voices are heard. In short, the OECD’s work is far from done and, even once a final deal is secured, there will be outlier nations.

The COVID-19 pandemic has changed the relationship between businesses and tax authorities around the world. ITR will be looking at how the crisis has made engagement with tax authorities more difficult, but also even more crucial than before.

This is just a sample of stories to come, don’t miss out on the key developments each week. Sign up for a free trial to ITR.

more across site & bottom lb ros

More from across our site

This week Switzerland opens consultation on draft legislation to implement the OECD’s global minimum tax rate, while Germany cuts VAT amid the highest inflation rate in decades.
ITR looks into the biggest transfer pricing cases in 2022 including multinational companies McDonald’s, BlackRock, and Rio Tinto.
TP technical leader at ‘big four’ firm KPMG Philip Roper talks to senior reporter Leanna Reeves about how businesses can mitigate the transfer pricing impact of higher interest rates in the UK.
Vikas Garg talks to reporter Siqalane Taho about how regulation, technology and the goods and services tax has affected the manufacturing company.
A major shift is underway in tax as the profession transitions from a mostly accounting and finance sector to a hybrid industry that requires significant IT skills, say tax experts.
The Biden administration is about to give $80 billion to the Internal Revenue Service to enhance the tax authority’s enforcement processes and IT systems.
Audi, Porsche, and Kia say their US clients will face higher prices under the Inflation Reduction Act after the legislation axes an important tax credit for electric vehicle production.
This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
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