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Bridging the digital gap: How tax fits into cryptocurrencies and blockchain development

Schwanke, Amelia.  ; London (Mar 23, 2017).

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The world is on the cusp of a major tax revolution as cryptocurrencies and online distributor ledger technologies, such as blockchain, push financial systems from the physical world to online. Amelia Schwanke speaks to the experts in a roundtable discussion about the tax implications and usage of digital currencies and blockchain.

The potential uses for blockchain go beyond the capabilities of what our financial systems can support today. In a futuristic sense, blockchain could revolutionise how tax is calculated with real-time transactions that everyone, including governments, taxpayers and their advisers, could have live access to. This would allow governments to charge tax immediately and may eventually eliminate the compliance and audit issues that all parties face. However, it is only 2017 and we are a long way from this futuristic world. Today, we are building the foundations to support this with industry stakeholders investing in research and growth to bridge the gap between where technology is now and its full potential.

The two core talking points for tax professionals of emerging technology is the taxation of virtual currencies, such as Bitcoin, and how blockchain, the online ledger for these currencies, can help with tax. As a breakdown, the following are the central tax matters industries will have to consider and work on:

Digitalisation of tax issues like nexus characterisation for identity and location;

Real time tax compliance - making money smart; and

Levying indirect, transactional, and withholding taxes, as well as accounting for private equity in real time across burst rates of around 14,000 transactions per second.

These issues are difficult to overcome without a solid basis, however. For example, depending on the jurisdiction, the transaction is deemed as either a commodity, as currency, or as a reward token. In certain jurisdictions, you may not even be able to buy something...