Taxing Crypto-Asset Transactions: Foundations for a Globally Coordinated Approach

Book overview

This comprehensive publication offers an in-depth analysis of potential taxable events associated with 25 prominent crypto-assets and their classification within the framework of model tax conventions.

Key themes and topics

The emergence of digital assets and blockchain technology has introduced considerable ambiguity in the field of taxation. While some jurisdictions have made efforts to address issues like crypto income tax others are yet to take significant steps in this direction. Unlike the taxation of ordinary income in the digitalized economy, there is a conspicuous absence of a unified global approach for crypto taxes.

This study delves into the consequences of crypto transactions within the structure of the international tax system. It begins by applying a modified version of the constant comparison method, traditionally used in grounded theory research, to analyse a selection of digital assets white papers. This analysis aims to inductively identify potential taxable event and subsequently develop ten transaction categories, each characterized by distinct features. These identified categories serve as the foundation for a comprehensive doctrinal analysis concerning the nature of taxable income being generated from these transactions within the international tax system and its alignment with the provisions of the model tax conventions. Finally, the study also explores the prospective implications of measures aimed at taxing the digitalized economy.

The study reveals that although it is feasible to categorize each of the identified transaction categories within the articles of the model tax conventions, alternative constructions within the treaty and divergent interpretations could substantially influence the distribution of the taxing authority. Furthermore, crypto may introduce additional complexities to the traditional understanding of the permanently established concept of capital assets or capital gains and capital losses, potentially exacerbating issues related to base erosion. Even though crypto transactions could theoretically fall under measures designed to tax the digitalized economy, the pseudonymous and decentralized characteristics inherent in blockchain technology may pose challenges to the effective implementation of such measures.

This study has the potential to guide individual jurisdictions in shaping the parameters and results of a holistic approach to managing crypto-asset transactions. Additionally, it offers a foundational framework for categorizing these transactions within the international tax framework, assisting in the establishment of a global harmonized approach for crypto tax. Ultimately, this research could also make valuable contributions to the broader evolution of digital economy taxation, especially given the growing importance of crypto exchange transactions and digital assets in this context.