Blow for Bitcoin as revenue target online currency

Revenue plans to clamp down on traders who are earning huge profits from cryptocurrencies such as Bitcoin.

More than half a million people in Ireland own digital currencies, a recent survey revealed.

While these currencies operate outside of the traditional banking sphere, both institutions of the State have moved to warn traders traditional laws of taxation apply.

Finance Minister Paschal Donohoe warned that crypto profits earned are subject to normal tax laws. Pic: Niall Carson/PA Wire

In response to a parliamentary question from Social Democrat co-leader Catherine Murphy, Finance Minister Paschal Donohoe warned that crypto profits earned are subject to normal tax laws.

Deputy Murphy asked if he and the Revenue commissioners have ‘evaluated the potential for tax liability concealment and or avoidance as a consequence of the use of the various different types of crypto assets and or cryptocurrency transactions’.

In his response, Minister Donohoe said: ‘The Revenue operate a risk-based compliance framework, using advanced analytics in a Risk Evaluation Analysis and Profiling (REAP) system to detect non-compliant behaviour.

Bitcoin
Minister Donohoe said: ‘The Revenue operate a risk-based compliance framework, using advanced analytics in a Risk Evaluation Analysis and Profiling (REAP) system to detect non-compliant behaviour. Pic: Karen Bleier/AFP via Getty Images

‘Risks in relation to crypto assets are included in Revenue’s compliance framework and this analytical approach to taxpayer behaviour and risk is continuously evolving and being enhanced in line with current developments.’

Mr Donohoe said there are ‘no special rules in Ireland for the tax treatment of crypto assets’.

He added: ‘The receipt of crypto assets as a form of payment for services or goods rendered will give rise to Income Tax for individuals or Corporation Tax for corporate taxpayers.’ The minister warned investors that VAT must be applied on the euro equivalent value of any payments made in the form of crypto assets.

He also said the disposal of crypto assets ‘is treated in the same way as the disposal of all assets for Capital Gains Tax purposes’.

Mr Donohoe said there are ‘no special rules in Ireland for the tax treatment of crypto assets’. (Photo by Yuriko Nakao/Getty Images)

And Mr Donohoe warned that, under the Taxes Consolidation Act, Revenue ‘has the power to obtain information on crypto asset or cryptocurrency transactions, as is the case for other transactions, where there is reason to believe the transaction is relevant to tax’.

Concern has been growing across the world over the rising potential of cryptocurrencies to be used for money-laundering and terrorism.

In the US, Treasury Secretary Janet Yellen has claimed cryptocurrencies ‘are used, at least in a transaction sense, mainly for illicit financing’.

And she warned: ‘I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.’

A glimpse into the future? Bitcoin ATMs in Hong Kong. Pic: Getty

On Friday, China’s most powerful regulators intensified the country’s crackdown on cryptocurrency with a blanket ban on all crypto transactions and crypto mining, hitting bitcoin and other major coins and pressuring crypto and blockchain-related stocks. Ten agencies, including the central bank as well as banking, securities and foreign exchange regulators, vowed to work together to root out ‘illegal’ cryptocurrency activity, the first time the Beijing-based agencies have joined forces to explicitly ban all cryptocurrencyrelated activity.

At home, Irish consumers have been warned about a rise in cryptocurrency investment scams, with victims being conned out of sums of up to €50,000.

A recent survey by Finder of 26 countries found Ireland ranks 15th for cryptocurrency ownership, but still ahead of the US and UK.

It found that some 15% of the adult population here owns cryptocurrency, with people aged 25 to 34 most likely to invest, followed by those between the ages of 45 and 54.

A 2019 National Risk Assessment by the Department of Finance on Money-laundering and Anti- Terrorist Financing noted that 44% of Irish businesses are impacted by cybercrime.

The assessment also noted that ‘increasingly the proceeds of cybercrime are transferred through the financial system, money remittance firms and, more recently, using cryptocurrencies such as Bitcoin’.

The report further noted: ‘There are concerns amongst Irish law enforcement agencies that convertible virtual currencies – particularly cryptocurrencies with a focus on anonymity – may offer criminals untraceable avenues for both money laundering and terrorist financing.’

However, Mr Donohoe said the Government is planning to tackle the anonymity surrounding cryptocurrency investments.

He revealed one of the ways it plans to do this is through ‘obtaining information from the taxpayer, from a financial institution or from any other third party who holds relevant information’.

Revenue also confirmed it is planning a number of clampdowns to police crypto transactions.

A spokesperson said this includes a requirement for ‘cryptocurrency exchanges to collect, and report, its customers’ identity.

The taxman will also be supported by the new EU wide Anti Money Laundering Authority (AMLA), which will have an oversight function on cryptocurrencies.

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