The proverbial tulip prices remain strong in the wake of the asset bubble popping. Today Japanese regulators are trying to distance themselves from trying to oversee the currency, but there are growing calls to create a legal framework. I don’t see why just Japan should try to regulate it – the crypto currency of course has nothing to do with Japan. No, my only suggestion is to regulate the exchanges via the Know-Your-Client (KYC) principle and by country.
- Anyone on the exchange must be identified using 2 pieces of ID and whatever tax forms are applicable to that country.
- The exchange should limit individuals to only their own residents or citizens. Invalid tax form = account to be closed.
- Tax Withholding on the capital gain at the maximum rate (as per tax treaties etc) should be calculated (but not withheld) as if the crypto currency was a security in that country. Reporting of those tax amounts should be passed onto the local tax authority for the individuals or corporations to file at tax time
I’m not a tax expert, and there’s probably loads of issues with what I recommend. Such a system would benefit corporations (who can have multiple subsidiaries in different countries) and who can arbitrage across different exchanges, or individuals who can exchange Bitcoins in black-market “Non-participating Foreign Financial Institution” exchanges that do not enforce KYC or tax reporting.
Similar to their FATCA equivalents, the other Bitcoin exchange participants can withhold gross proceeds starting in 2017 to those exchanges.
Purists (and anarchists) would suggest the entire point of a crypto-currency is to avoid identifying yourself for transactions. And I firmly object because it will encourage the exchange of illegal goods and money laundering on an international scale where policing is difficult or impossible. So does cash. But illegal cash transactions are more able to be policed by local law enforcement – my two cents.