The U.S. Treasury Department plans to include in the $3.5 trillion budget bill new reporting requirements for cryptocurrency firms. Roll Call reports, citing an informed official.
According to him, companies offering services related to digital assets to users will have to report to the Treasury on the assets and activities of foreign customers. The Treasury would be able to share this data with “global trading partners of the United States.”
In exchange, the department expects to receive information about American citizens’ accounts on foreign platforms. The agency will use such reports to raise tax revenues.
The publication noted that since 2010 a similar rule has applied to credit institutions.
A Roll Call source explained that, in the Treasury’s view, some entities create shell corporate structures to interact with offshore exchanges and wallets. To curb these activities, the United States needs information from regulators in foreign jurisdictions.
If approved, the new requirements would take effect in 2023. They would apply to cryptocurrency exchanges and digital-wallet operators.
Coin Center’s executive director Jerry Brito drew attention to the piece.
We don’t object to crypto tax reporting requirements (indeed we’ve asked for reporting guidance for years), we object to last-minute additions to “must-pass” bills outside regular order and with little or no public input.
— Jerry Brito (@jerrybrito) August 30, 2021
“We do not object to crypto tax reporting requirements (in fact we’ve been asking for guidance for years), we object to last-minute changes to must-pass bills outside the regular order and with little or no public input,” he wrote.
According to Brito, it’s too early to judge the impact of the proposed requirements on American companies. He emphasized that conclusions can only be drawn after the text of the bill is published.
Kraken exchange head Jesse Powell questioned the legality of such rules. In his view, foreign regulators may continue to communicate with U.S. companies directly, “as they have done for the last decade”.
I don’t even know if this is legal. Why don’t the foreign agencies just ask us for the info directly, as they have been for the last decade. Presumably, US companies are not directly serving non-US clients, except through subsidiaries in foreign countries, which engage locally.
— Jesse Powell (@jespow) August 30, 2021
“Presumably, American companies do not serve foreign clients directly, except through subsidiary structures abroad,” he added.
Adam Cochran, a partner at venture firm Cinneamhain Ventures, noted that the new requirements would deter foreign investors from an already stringent jurisdiction. He said that in pursuing a broader tax base, the Treasury would ultimately trim the take.
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Having data shared with the US so it can be shared with “global trading partners” without clear limits, just means that international users will avoid US crypto exchanges further disadvantaging an already stringent jurisdiction.
— Adam Cochran (@adamscochran) August 31, 2021
Earlier, a provision of the infrastructure bill became a flashpoint, which touched upon the taxation of the cryptocurrency industry.
The original wording would widen the broker definition so far that under certain interpretations it would cover miners, node operators, PoS validators, wallet developers, and liquidity providers in DeFi protocols.
This would require all the above non-custodial market participants to report to the Internal Revenue Service about their users’ activities and to introduce a KYC procedure. Even if they wanted to, such requirements are technically infeasible—for example, miners do not know whose transactions they add to a block and cannot determine whether any of them constitutes a trade.
Senators Ron Wyden, Cynthia Lummis and Pat Toomey proposed to exclude these activities from the bill and not apply broker norms to them.
Their colleague Rob Portman agreed, but introduced a counterproposal that would exclude only miners and sellers of equipment or software that allows individuals to control private keys. In his proposal, the status of PoS validators remained unclear.
Ultimately, Democrats, Republicans and the Treasury reached a compromise, but the corresponding amendment did not receive unanimous support — opposed by 87-year-old Senator Richard Shelby.
Lobbyists for the industry are now preparing for a vote in the House of Representatives, given that the current wording threatens to push crypto business and innovation out of the United States.
The U.S. Treasury says some industry concerns are well founded. To calm them, the Treasury will clarify the cryptocurrency companies’ tax reporting requirements in the appropriate guidance.
As noted, Senator Toomey urged the U.S. authorities to tailor the legislation to the crypto industry rather than ignore and suppress it.
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