In this episode, Barry E James interviews Ben Brown, Tax Partner at DLA Piper, on tax and ICOs - and how they shine a light on how very different an animal they are! So much so that, like the duck-billed platypus when it was discovered, they defy categorisation and force a complete re-think - for the UK’s HMRC and regulators around the world.
People are generally very familiar with the tax treatment of traditional financing methods, including currencies, and with the way companies generally raise money, whether that’s through a Share issue or issuance of bonds - there’s a tax regime for those.
In contrast, the whole cryptocurrency landscape has developed so fast that tax authorities across the globe are racing to catch up.
The last major guidance from HMRC was in 2014 when it discussed how to deal with Bitcoin and cryptocurrencies, but there’s been little since - especially around ICOs. Indeed, transactions in crypto can be seen as so speculative that they’re akin to gambling, returns on which have traditionally not been charged on individuals.
So until there’s proper guidance on how to tax ICOs, for now each case needs to be looked at on a one-by-one basis whether equity-raising on a debt security. Uncertainty may reign for some time - but this is the beginning and not the end of the story!
- There’s currently no tax regime specific to ICOs, but that doesn’t mean there’s no tax payable.
- The token economy has grown so quickly and thrown up so many different routes, some being shares or debt, some smart contract technology can lead to something with equity-like features, some debt-like features - so some commentators have compared it to a duck-billed platypus - like something else, but made up of familiar parts put together in an almost-familiar way.
- It would help if HMRC issued some guidance aligning ICOs with traditional capital raising, to give comfort that investors won’t lose 20% of the proceeds at the moment of issuance.
- Clarity in this sector is key - and because it’s fintech, HMRC should support the sector to keep the UK competitive in this field, making the UK the best place to do cryptocurrency business in the world.
- A cryptocurrency with no other purpose than exchange should be taxed as a currency for VAT purposes.