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How Specifically The EU & US Intend To Tax Your Bitcoin

February 25, 2017 - Bitcoin, Cryptocurrency
How Specifically The EU & US Intend To Tax Your Bitcoin

For the EU and US, the Wild West days of bitcoin are over. 2017 will be the year of bitcoin regulation and taxation during which individuals need information and caution. 

 

The bad news: Central bankers want private, centralized blockchains to facilitate all movement of wealth so they can skim the top. Complicit governments intend to regulate competitors, including individual wallet holders, and then collect a ‘fee’ in the form of taxes.

The good news: Bitcoin cannot be regulated without disabling the internet or the bitcoin network, which is arguably the largest and most diverse network in the world. “If you want to kill Bitcoin, it will be an impossible task,” the Former Governor of the Bank of China LH Li recently stated.

GovernorMore bad news: Central banks and governments will try. LH Li added, “So it [bitcoin] will continue to exist. What is important now is that we should properly regulate it.”

To avoid becoming collateral damage, individuals should plan now.

Of course, the real threat to most readers is not China but the EU or the US, both of which are signaling specific plans to regulate and eventually tax cryptocurrencies.

EU’s Coming War on Bitcoin

From January 16 to 18, an international conference of some 400 representatives of intelligence units met in Doha, Qatar to discuss the ‘problem’ of money laundering (tax evasion) through digital currencies. The conference sprang from an alliance between the Basil Institute, Europol and Interpol. Bitcoin was mentioned by name; “Special attention should be given to the international exchange of suspicious Bitcoin addresses that threaten economic stability.” Economic stability is bureaucratese for economic control.

Six recommendations for action resulted.  In summary:

Exchanges and wallet providers are targeted because they are low-hanging fruit. They are far easier to detect and regulate than individuals, which is why individual wallets are the most private alternative. Conventional merchants who accept bitcoin are almost certainly next, and for the same reason as exchanges.

Samourai WalletSome impending measures are obvious.

EU nations will accelerate information sharing, especially of blacklisted bitcoin addresses. EU members that were formerly friendly to bitcoin, such as the Netherlands, may turn hostile.

Anti-money laundering regulations and “Know Your Customer” policies will be imposed on exchanges and wallet Providers. For those who value privacy, this is a fine time to consider relocating from exchanges that will function as an arm of the state to exchanges that will put their customers first.

Know Your Bank. Know Your Government. Know Your Exchange.

The use of mixers and tumblers will be de facto evidence of illegal activity. The EU wants to track ‘suspicious’ transactions in real time and it will “not tolerate” being denied. Again, those who value privacy should consider exchanges that are not within unfriendly resident nations.

The crime of “unexplained wealth” is becoming globally popular, with Australia and the UK actively proposing legislation. Turning “unexplained wealth” into a criminal offense gives the tax people a blank check to sift through the worth of everything you own, of every cent you receive. You are guilty until or unless you can demonstrate innocence to the tax man’s satisfaction. If your assets appear disproportionately high compared to your income, then be prepared to document the sources. Of course, it is possible to live within your visible means and carefully document it.

US’s Coming War on Bitcoin

IRSCoinbase, a popular American cryptocurrency service provider, is a cautionary tale on several levels.

In March 2014, the IRS issued its “Virtual Currency Guidance” on the tax requirements for cryptocurrencies. The guide created confusion more than it clarified. Lacking an enforcement mechanism and, perhaps, tripping over its own tangled requirements, the IRS sought a nuclear solution.

In November 2016, the IRS served Coinbase with a John Doe Summons for the  transaction records of all users between January 1, 2013 and December 31, 2015. A “John Doe” summons does not identify a person but aims at a group or class of people. Because one Coinbase user might be guilty of a crime, all records were to be examined.

Many people asked “Why Coinbase?”

Coinbase has a reputation for being hyper-compliant with regulations and government demands. Coinbase’s co-founder Brian Armstrong stated, “At Coinbase, our first priority is to ensure that we operate the most secure and compliant digital currency exchange in the world.” Surely this is the last exchange with which the IRS needs to use brute force.

But it makes sense that Coinbase would be the first exchange approached; the IRS wants to set a chilling example to others. It may have assumed Coinbase would cave to its demands and an important precedent would be easily established. Coinbase reportedly dug in its heels with Armstrong announcing, “We will likely incur a legal cost of between $100,000 and $1,000,000 in the process of defending our customers from this overly broad subpoena.” The cryptocurrency community applauded.

There is a phenomenon known as “demonstrated preference,” however. In short, when a person’s words contradict his actions, you should believe the actions. Coinbase’s recent actions and surrounding events raise the possibility that Armstrong’s announcement was either PR or a position from which he has backed down.

Consider:

None of the preceding is a smoking gun. Taken together, however, they suggest a pattern: whatever Coinbase states publicly, it seems to continue a course of hyper-compliance. If so, the IRS will undoubtedly pursue other exchanges in the same manner. If so, bitcoiners should use Coinbase and affiliated agencies with full knowledge.

Conclusion

A poster on Steemit captured the governmental zeitgeist toward bitcoin when he wrote, “The old axiom goes, if you can’t beat them, join them. But for the establishment cartels that seek to rule the world through control over the global monetary system, their addendum to this is, if you can’t beat them, usurp them.”

The EU and US cannot beat bitcoin in a fair fight. They cannot beat bitcoin in a rigged fight. But they are going to try. One way or the other, users should get out of the path of damage.


 Images via Shutterstock.

Sursa: news.bitcoin.com