How the Crypto Industry is Increasingly Paying Its Share of Tax
Categories: UK
Crypto is now a billion-dollar industry. While reports covering the entire sector are patchy and overly conservative, filings from individual companies speak to the growing scale of crypto, with Coinbase and Blockchain.com alone generating USD 7.35bn and USD 1.5bn in revenue in 2021, respectively.These are relatively big figures, yet they raise an important question regarding tax. Because with crypto-related companies benefitting from the resources and infrastructure that have been cultivated in part using tax (e.g. educated people, energy grids, telecoms networks), there’s a strong argument to say that they should, in turn, be contributing to the system they’re benefitting from. So few crypto firms are publicly listed, meaning that it’s nigh-on impossible to say with any certainty how much the sector as a whole actually contributes to public finances. However, industry figures affirm that all legally registered companies comply with all applicable taxation laws in their respective jurisdictions, implying that crypto’s tax bill is indeed growing in parallel with its revenues and profits. The crypto sector and tax: Havens and reputational risks The relationship between the crypto industry and tax is something of a mystery, if only because so many major crypto exchanges and businesses are registered in tax havens.For instance, Binance’s holding company is said to be currently registered in the Cayman Islands, a tax haven where corporations pay no income, capital gains, payroll, or other direct taxes. Similarly, Bitfinex is registered in the British Virgin Islands, BitMEX and OKX (formerly OKEx) in Seychelles, and Huobi in Gibraltar, to name a few others. Not only is Binance the biggest crypto exchange in the world by volume, but the registration of so many other major exchanges in havens indicates that they -- and the industry as a whole -- escape paying the kind of tax they would do if they were based where most of their customers are also located.Schmidt says that the problem of legal tax avoidance in crypto is “overblown,” an account supported by various industry bodies. For instance, CryptoUK’s executive director Ian Taylor reports that the trade association keeps close tabs on the UK government’s Cryptoassets Manual, in order to advise its members on how best to comply with all applicable taxation requirements. The CryptoUK executive director does admit that some crypto firms still use tax havens, yet he suggests that much of this usage comes from uncertainty surrounding tax regulations and crypto, rather than a strong intention to avoid paying tax.“Governments and tax offices around the world are still debating how to treat cryptocurrencies. That means huge discrepancies between how crypto is viewed and how it is taxed,” he explained.