DeFi and NFTs complicate the picture or Listed and regulated companies are paying tax
Categories: UK
In some respects, tax requirements are becoming clearer for firms that work in the crypto sector. However, the rapidly evolving nature of crypto continues to introduce new complications and ambiguity, with NFTs and DeFi-related cryptoassets widening the scope for potential tax avoidance.“When it comes to DeFi tokens, the German law is not providing clear guidance, such that large difficulties arise on the transaction level how to exactly tax such transactions,” said Prof. Philipp Sandner, the head of the Frankfurt School Blockchain Center. “The bulk of taxation issues lie with how investors deal with their crypto investments. We have just launched a tax working group to bring our members together around common taxation issues, largely in response to HMRC [Her Majesty's Revenue and Customs]’s February updated guidance on staking and DeFi lending,” said Ian Taylor.According to him, CryptoUK and its members have decided to initially focus on NFTs, largely because they’re seeing increasing complications both in terms of taxation and legal treatment. This all reinforces the suspicion that the crypto sector as a whole gets away with paying a considerable amount of tax, if only because confusion and ambiguity continues to reign with regard to relevant laws.Because of this, answering how much the sector currently pays in tax is extremely difficult. That said, the few crypto-related firms that are publicly listed (and that therefore have to release financial statements) give some indication of what the regulated half of the industry is paying. For instance, in its latest shareholder letter, Coinbase revealed a net income for 2021 of roughly USD 7.35bn and an effective tax rate of 6%. Likewise, (mining firm) Bitfarms’ most recent financial statement -- for Q3 2021 -- revealed that it paid USD 10.9m in income tax that quarter, from a net income (before tax) of USD 34.7m.What this shows is that, even if we can’t calculate a reliable total for how much tax it pays, the crypto industry is increasingly contributing to public finances. And as the market matures and more of the sector falls under regulation, we could expect that it will increasingly help fund the public resources and infrastructure it benefits from.