Tax reporting is becoming a global phenomenon for the crypto business – PwC report
Recent high profile failures of crypto exchanges, hedge funds and tokens – as well as a decline in valuations – have added fresh impetus to global regulatory scrutiny and to tax compliance in the crypto space. But while 2022 has been a turbulent year for the industry, investment, adoption and innovation continue to be strong.
These are among the findings in PwC’s Global Crypto Tax Report 2022. The report finds that – while there are still noticeable tax policy and guidance differences between jurisdictions – crypto tax reporting is rapidly becoming a global phenomenon, where there is geographical coordination. There are four main drivers behind this:
- The OECD’s Crypto Asset Reporting Framework (CARF);
- Updates to the Common Reporting Standard (CRS);
- The EU’s Directive on Administrative Cooperation 8 (DAC8); and
- The USA’s Infrastructure, Investment and Jobs Act.
“Since we started this report in 2020, we have seen increasing tax regulation of the digital assets sector,” says Peter Brewin, Partner, PwC Hong Kong and Mainland China. “Nowhere is there more apparent than in the new proposals on tax reporting for virtual asset service providers released by the OECD.”
Along with major steps to increase tax reporting, the paper highlights a number of other key trends. These include greater scrutiny of NFTs and NFT marketplaces, which may raise some operational difficulties for marketplace operators. Decentralised Finance (DeFi) is also starting to be addressed – notably in the UK and New Zealand. The good news for market participants is that increased regulatory scrutiny has prompted some software providers to start developing solutions to help with tax reporting.
“Looking forward, the impact of the bankruptcy of FTX will continue to be felt in 2023, with calls for greater transparency,” says Gwenda Ho, Tax Partner, PwC Hong Kong. “Another major development is the Ethereum network’s shift from ‘proof of work’ to ‘proof of stake’, which also raises complex tax issues that have yet to be addressed in many markets. Finally, the issue of how stablecoin transactions should be treated for tax purposes is also likely to keep regulators busy.”
PwC’s Global Crypto Tax Report is now in its third year. The 2022 edition offers an overview of tax guidance and regulation in nearly 40 jurisdictions, along with analysis of the major issues facing the crypto space.