Bank of Russia Sets Out to Regulate Digital Asset Taxation, Exchange, Still Opposed to Crypto

November 13, 2022 Bitcoin.com

Brussels Set to Begin Talks on EU Crypto Tax, Report Reveals

November 12, 2022 Bitcoin.com

Bank of Russia Suggests Tax Cuts for Long-Term Digital Asset Holders

November 9, 2022 Bitcoin.com

Russia’s Central Bank report examines crypto’s place in the financial system

November 8, 2022 Coin Telegraph

accounting

Russia's Central Bank has released a report on digital assets which looks at how the technology could be integrated into its traditional financial system.

The Central Bank of Russia (CBR) is looking at ways to integrate crypto assets and blockchain technology into its local financial system amid a pile-on of global financial sanctions.

In a Telegram post by the CBR on Nov. 7, the central bank shared a public consultation report titled "Digital Assets in Russian Federation."

It considers how the sanction-hit state may possibly open up its domestic market to foreign issuers of digital assets — particularly those from “friendly countries.”

Other areas of focus in the report are digital asset regulation, retail investor protections, digital property rights related to smart contracts and tokenization, as well as reformed accounting and taxation proposals.

The CBR stated that it strongly supports the “further development of digital technologies” provided they don’t create “uncontrollable” financial or cybersecurity risks for consumers.

Despite the nascency of blockchain technology, CBR said the same regulatory rules concerning the issuance and circulation of traditional financial instruments should also extend to digital assets.

The CBR said regulation over the short term should focus on protecting investor rights, strengthen rules for admitting a digital asset into circulation, ensuring the issuer is accredited and ensuring the issuer discloses all relevant information to investors.

The Central Bank's message on Telegram, originally written in Russian, said while the legal framework for digital assets has been created, improved regulation is required for its continued development.

“Russia has created the necessary legal framework for the issuance and circulation of digital assets [...] But so far the market is at the initial stage of its development [...] and is many times inferior to the market of traditional financial instruments. Its further development requires improved regulation.”

As for smart contract regulation, the central bank acknowledged that a legislative framework was already in effect — however, it proposes that Russian-created smart contracts be independently audited before being deployed.

CBR was also positive about the potential for tokenized off-chain assets. However, the bank noted that legislation would need to be put in place to ensure a “legal connection” exists between the token holder and the token itself.

The report comes as the Russian Ministry of Finance recently approved the use of cryptocurrencies as a cross-border payment method by Russian residents on Sept. 22.

However, the CBR’s 33-page report made no reference to the increase in sanctions that have been imposed on Russia and the crippling effect it has had on its economy — nor did it discuss the Russia-Ukraine War that is currently taking place in Ukraine.

It however mentions a separate report it is working on, which focuses on Russia’s new central bank digital currency (CBDC) — the digital ruble —which is expected to be piloted in early 2023.

In Aug. 2022, The CBR stated that they plan on rolling out the digital ruble to all Russian-based banks in 2024.

Russia Plans to Allow Mining of Any Cryptocurrency, Lawmaker Unveils

November 2, 2022 Bitcoin.com

Before ETH drops further, set some money aside for surprise taxes

October 19, 2022 Coin Telegraph

Coin Telegraph

Ethereum's Merge resulted in a Proof-of-Work airdrop. That means you could be on the hook for tokens you didn't even want.

Ethereum’s Merge dominated the crypto world in September with promises of quicker transaction times, improved security and a 99% reduction in energy consumption. However, will you end up with a surprise tax bill too? Let’s examine.

During the Merge event, the Ethereum mainnet — the then current proof-of-work (PoW) blockchain — merged with the proof-of-stake (PoS) Beacon Chain, marking the end of PoW as the consensus mechanism for the Ethereum blockchain.

On the Beacon Chain, Ethereum joined ranks of other major PoS blockchains such as BNB Chain, Cardano and Solana. Ether (ETH) is the second largest cryptocurrency by market cap after Bitcoin (BTC), and Ethereum is the chain that has spearheaded decentralized finance (DeFi) and nonfungible token (NFT) activity. The Merge heralds ramifications aplenty, but what of the potential tax implications to investors, traders and businesses alike? It’s doubtful anyone will be too pleased with a surprise tax bill — but that is, potentially, exactly what they’ll get.

What are the possible tax implications?

If we take a short trip down memory lane back to Bitcoin’s civil war in 2017, it eventually concluded in a split in the chain into Bitcoin and Bitcoin Cash (BCH). This event was coined — no pun intended — as a hard fork.

In this instance, new BCH coins were issued to BTC holders and, as a result, this gave rise to taxable income at the fair market value upon receipt of BCH for the recipients. Furthermore, if any BCH holders went on to dispose of their coins, any accumulated gains or losses were subject to capital gains tax.

Is a civil war brewing among the Ethereum community due to the Merge? There are certainly rumblings, and it looks as though the PoW consensus could continue to be supported by some Ethereum miners. This potential forked version of Ethereum already has the ticker ETHW, which stands for EthereumPoW — with ETHW continuing with the PoW codebase and ETH forking to the new proof-of-stake chain.

The tax implications depend on where you live — your tax residency.

In the United States, the Internal Revenue Service (IRS) has not issued any specific guidance on the Merge per se. However, for ETH holders who receive an equivalent airdrop of ETHW, this is beyond doubt subject to income tax, just like the BCH in 2017. The IRS does have clear guidance on this.

In the United Kingdom, an airdrop of ETHW is treated differently. According to the guidance, it can be inferred that no income tax is applied upon receipt. HM Revenue and Customs has gone one step further and provided some guidance on what it describes as a one-way transfer — citing the Ethereum mainnet to Beacon Chain upgrade. Its view is that section 43 of the Taxation of Chargeable Gains Act 1992 will apply to this scenario. Simply put, a taxable event subject to capital gains tax was not triggered by the Merge. Instead, the cost basis of your existing ETH is attributed to your ETHW token and any subsequent disposals will accrue a gain or loss as normal.

What about staking and mining?

Investors and traders can stake (and lock in) their ETH and receive rewards. They should take a conservative approach to these rewards, even if tax guidance is unclear.

For U.S. holders, following the Merge, crypto mining and staking are both subject to income tax upon receipt and capital gains tax (CGT) upon disposal. However, staking is a contentious topic and is subject to an ongoing court cas, so this may be set to change in the future as the case proceeds.

In the U.K., ETH staking and mining rewards are generally miscellaneous income (less certain allowable expenses) and subject to income tax upon receipt and CGT on disposal. However, this also depends on the degree of activity, organization, risk and commerciality.

So what are the odds?

In a hard fork, the mainnet blockchain becomes part of the newly merged blockchain. All smart contracts along with previous data move over. An Ethereum hard fork is unlike forks we've seen before.

The Merge was a planned upgrade. An ETHW fork most likely lacks the necessary support from exchanges, DeFi protocols and oracles. Just like Bitcoin Cash, ETHW, in my view, will become an insignificant sideshow in the shadow of the prevailing post-Merge PoS chain.

Essentially, this type of fork updates the protocol and is intended to be adopted by all. Moving from ETH (PoW) to ETH 2.0 (PoS), token holders convert ETH on a 1:1 basis for ETH 2.0, and the original ETH gets burned in the process.

Practical advice for investors and traders

Investors and businesses should exercise an ounce of prudence and prepare for this scenario by creating a tax liability provision. You will not want to be in a position where a hard fork occurs, and in the worst-case scenario, the value of your Ether declines significantly post-Merge, inhibiting your ability to raise funds to pay your crypto tax bill. Remember, this can only be paid across to your tax agency in fiat currency.

If ETHW proceeds do not become taxable then it’s a simple case of releasing the tax provision and redeploying those funds elsewhere — perhaps to buy more Ether.

Tony Dhanjal serves as the head of tax strategy at Koinly and is its PR and brand ambassador. He is a qualified accountant and tax professional with more than 20 years of experience spanning across industries within FTSE100 companies and public practice.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.