The UN is not a friend to bitcoin – Newspaper Kommersant No. 149 (7350) of 08/17/2022

Cryptocurrencies help blur the tax base and undermine capital controls in developing economies, follows from the work of the United Nations Conference on Trade and Development (UNCTAD). In most of these countries, there is no tax regulation of cryptocurrencies, and their users have no incentive to report their assets. The problem of capital outflow is exacerbated by miners who actually convert electricity paid in national currencies into crypto assets. UNCTAD, like the OECD and the IMF earlier, proposes to clarify the status of cryptocurrencies and start an international exchange of information about them.

UNCTAD analysts joined the view that cryptocurrencies erode the tax base and undermine capital controls in developing countries. Attempts by states to strengthen control over settlements in cryptoassets is difficult because they are not subject to the regulation that is standard for other financial assets. At the same time, there is not so much direct crime in the crypt – according to the Financial Action Task Force on Money Laundering (FATF), less than 10% of the total volume of transactions in bitcoins are related to criminal activity. However, cryptocurrencies have all the characteristics of traditional tax havens (anonymity of accounts, lax regulation and tax controls), and at the same time, unlike the former, crypto does not depend on banks or related legal and accounting services, since transactions are carried out through unregulated crypto exchanges. The financial equivalent of cryptocurrencies is quite significant – for example, according to UNCTAD, the total balance of more than $1 million is recorded in more than 80 thousand bitcoin wallets.

In most emerging economies, there is no tax regulation of crypto assets, and cryptocurrencies do not have a legal status. As of November 2021, 67 jurisdictions have already applied tax legislation to cryptocurrencies, but its effectiveness is low due to the lack of a generally accepted approach to their taxation with the freedom of cross-border transfers.

UNCTAD also emphasizes that there is no incentive for cryptocurrency users to report their assets, and their distribution is expanding: they are popular not only among wealthy people, but also among middle-income households, since in conditions of political and / or macroeconomic instability, such a currency can become a hedge against exchange rate fluctuations and inflation. Also, with the help of cryptocurrency, you can quickly withdraw funds from the country, which depletes the financial resources of developing countries. The outflow of capital is also facilitated by miners who actually receive cryptocurrency in exchange for electricity paid in the national currency. The IMF has already written that the popularity of cryptocurrencies is growing rapidly in countries with high inflation and unstable economies (see Kommersant on May 11).

The circulation of cryptocurrencies is associated with many intermediaries, including crypto exchanges, digital wallets and decentralized financial services (DeFi), which allow you to use or store them. UNCTAD proposes to introduce control over these service providers to obtain information about transactions. Also, analysts consider it necessary to clearly define the legal status of cryptocurrencies, introduce a global reporting standard and higher taxes on crypto assets compared to other financial instruments, and limit the number of transactions on crypto exchanges. UNCTAD has generally supported the trend in which international organizations seek to clarify the status of cryptocurrencies and strengthen global control over them. Back in March, the OECD released a set of proposals on the introduction of a unified regulation of the disclosure of data on the turnover of crypto assets to the tax and financial administrations of developed countries and announced a document for the G20 summit, which will be held in November (see Kommersant on March 25).

Georgy Smirnov