When to report Bitcoin: A Look at the cryptocurrency taxation bill
To the State Duma has been submitted a government-approved bill on cryptocurrency taxation. The document provides for fines for breaches of the reporting regime for digital currencies, but the penalties are significantly more liberal than the amendments to the Criminal Code and Criminal Procedure Code proposed earlier by the Finance Ministry, experts say.
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The explanatory note to the bill ‘On amendments to Parts One and Two of the Tax Code of the Russian Federation’ states that cryptocurrencies are frequently used for money laundering and tax evasion.
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It also states that the tax authorities lack information on cryptocurrency wallets opened by Russian legal entities and Russian citizens and the transactions conducted on them.
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The bill recognises digital currencies as property and obliges individuals and legal entities to report on their receipts, transactions with them and wallet balances if transactions in a calendar year exceed the equivalent of 600 000 rubles.
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The calculation of the amount is ‘based on the market price of the digital currency on the date of each transaction’, the document states.
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‘The main question is how they intend to determine the market price of the cryptocurrency on the day of the transaction,’ says lawyer Maria Agranovskaya.
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It remains unclear how fluctuations in the ruble and price differences across exchanges will be taken into account when calculating this ‘market price’.
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The first filing to the tax authorities on digital currencies must be filed by 30 April 2022. The reporting is synchronised with the deadlines for the personal income tax return.
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‘But you would need to calculate your income in rubles on a daily basis to know whether it exceeds 600,000 rubles, right now,’ noted Agranovskaya.
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A fine of 10% of the higher of the two ruble equivalents—the amount received or the amount spent on digital currency—is provided for furnishing false information to the tax authorities.
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A fine of 50,000 rubles applies for late filing of the report.
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Non-payment or underpayment of tax on income from digital currency transactions is punishable by a fine of 40% of the unpaid tax.
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‘In my view, this is overly harsh, since in other cases such a penalty applies only for intentional wrongdoing,’ said Dmitry Kirillov, senior tax-lawyer at Bryan Cave Leighton Paisner (Russia) LLP and a lecturer at Moscow Digital School.
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According to him, one of the key points is that transactions in digital currencies are not subject to VAT.
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‘This issue worried everyone, because taxing such operations with VAT could have killed the entire Russian cryptocurrency market.’
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Questions remain about how to determine income in exchange trading when cryptocurrencies bought at different times at different market prices are traded on the same day, as well as questions of accounting and tax treatment of cryptocurrencies, Kirillov added.
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The explanatory note to the law states that the Federal Tax Service now has the ability to request bank statements from individuals conducting cryptocurrency transactions when there are signs of possible violations.
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‘So far, no one has shared the criteria, which, of course, will breed a lot of subjectivity,’ said GMT Legal head Andrey Tugarin.
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It is important to note that the current bill amends only the Tax Code of the Russian Federation and is ‘at the very early stages of consideration,’ he stressed.
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‘Those who end up in the first, so to speak, ‘ten’ for inspection by state bodies, including the tax authority, won’t be lucky. All errors will be tested out, and further changes will follow. Perhaps in ten years we’ll have it perfected,’ said Tugarin.
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If adopted, the law will take effect on 1 January 2021. At the same time, the Duma-approved law ‘On Digital Financial Assets’ will come into force.
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The current bill ‘On Amendments to Parts One and Two of the Tax Code of the Russian Federation’ was approved by the government at the end of November.
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The government approved the current bill at the end of November.
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Prior to that, Russian Prime Minister Mikhail Mishustin stated that changes to the Tax Code would allow holders of digital assets to obtain legal protection in the event of any wrongdoing, as well as defend their property rights in court.
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Earlier, the Russian Finance Ministry presented an updated package of documents concerning the regulation of digital currencies.
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Among them are amendments to the Criminal and Criminal Procedure Codes, which experts called ‘inadequate’. They envisage criminal liability and large administrative fines for undeclared cryptocurrency transactions or false information about them.
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