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HOW ARE BITCOINS BEING TREATED IN VARIOUS JURISDICTIONS FROM A TAX PERSPECTIVE?

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Bitcoin is a peer-to-peer payment system and digital currency. It is a crypto currency, as it uses cryptography to control the transfer of money. Bitcoins are created by a process called ‘mining’, in which users verify and record payments into a public ledger in exchange for transaction fees and Bitcoins. Bitcoins can be obtained by ‘mining’ or in exchange of products, services, or other currencies.

Globally the use of Bitcoins by speculators has grown, causing the price also to rise enormously. Bitcoins as a form of payment for products and services is becoming more and more popular for both traders as well as merchants, for whom it is a more cost efficient method as transaction fees are lower than the 2–3% imposed by credit card providers.

HOW ARE BITCOINS BEING TREATED IN VARIOUS JURISDICTIONS FROM A TAX PERSPECTIVE? 3As regards to the legal status of the crypto currency Bitcoin, it is currently evolving rapidly around the world with some countries such as Thailand, Lebanon, India and Taiwan excluding Bitcoins, some countries such as Germany, Canada, Belgium, Denmark, Norway, Poland, Russia, Singapore and Switzerland stating Bitcoins are entirely legal, and other countries such as China limiting some uses of Bitcoins while stating others are legal.

There has been an increasing interest lately in Cyprus, in making payments with Bitcoins.

Nevertheless the Ministry of Finance, Energy, Commerce, Industry & Tourism as well as the Central Bank of Cyprus warned of the dangers associated with buying, owning and trading with virtual currencies such as Bitcoins. As an unregulated digital product, it can be used only for the exchange of goods within a limited network of merchants.

The following risks connected with Bitcoins have been pointed out:

  • The money may be lost, if the online trading platform collapses;
  • Hackers may steal Bitcoins from any digital wallet;
  • The value of Bitcoins fluctuates considerably;
  • Virtual currencies may be used for criminal activities.

The rapid growth of the use of Bitcoins has further raised concerns about the lack of transparency and the use for tax evasion and money laundry.

What is the tax treatment of Bitcoins?

There are two possible ways of how Bitcoins should be treated for tax purposes, either as (1) an intangible asset, or (2) a foreign currency. The problem with defining it as a currency is that it is not issued by a government, as traditional currencies are. Canadian and Swedish tax authorities are treating Bitcoins as an asset. Also, the German Finance Ministry does not classify Bitcoins as e-money or a foreign currency, but rather as a financial instrument under German banking rules. Unless the Congress enacts legislation to treat Bitcoins as a foreign currency, they will further be treated as an asset by the Internal Revenue Service.

At this stage, in the UK there is 20% VAT on the purchase of Bitcoins providing for threats from UK-based traders wanting to move abroad as such a high VAT rate makes their businesses unprofitable. The HMRC is now considering alternative VAT solutions, such as excising VAT only on commissions charged by the crypto currencies’ trading exchanges.

In terms of the tax treatment of Bitcoins, income or gains arising from crypto currency transactions will be calculated for the tax payable. For Bitcoin investors, the sterling equivalent of gains made in any tax year, where exceeding the annual capital gains tax allowance of £10,900 (2013/14) will be charged 18% – 28%.

Bitcoin miners and online traders accepting Bitcoins for products and services will be taxed upon their profits. Internet gamblers using Bitcoins should be exempt from UK taxation because HMRC doesn’t regard gambling and betting as trades. However, internet gamblers maintaining crypto currency stockpiles will be chargeable to UK capital gains tax on the sterling equivalent of gains in their stockpiles.

For UK tax residents the current tax rules provide a reasonably clear framework for Bitcoin transactions in contrast to individuals not UK domiciled, for which the situation is less clear due to legal uncertainties on where Bitcoins are actually situated and/or traded.

Once the VAT position of Bitcoins is resolved, the UK could be one of the first countries to maintain a consistent tax framework for Bitcoin transactions. The HMRC will then be expected to circulate guidance informing those using crypto currencies to declare their tax liabilities. A point of consideration for the HMRC might be the secrecy of the internet being a real problem for tax evasion.

Similar to the UK, the Japanese government indicated that Bitcoin transactions will be taxable when used to make purchases or when bought on an exchange, fulfilling requisitions on income tax, corporate tax and consumption tax laws.

Japan’s cabinet stated that Bitcoins will not be treated as a currency and will not be under the country’s Financial Services Agency, they will rather be treated as a commodity.

Tax authorities around the world seek to capture revenues from Bitcoins and minimise risks of tax avoidance and evasion. The value of the world’s stock of Bitcoin has currently risen from $150 million to $10 billion over the past year, adding urgency to regulators’ efforts to finally clarify its status.

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Sterling rises above $1.37 for first time since 2018; UK inflation rises

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Sterling rises above $1.37 for first time since 2018; UK inflation rises 4

By Elizabeth Howcroft

LONDON (Reuters) – A combination of heightened risk appetite in global markets and UK-specific optimism lifted the pound on Wednesday, as it strengthened to its highest in nearly three years against the dollar and five-month highs against the euro.

The dollar weakened against major currencies for the third straight session, helped by U.S. Treasury Secretary nominee Janet Yellen’s urging lawmakers to “act big” on spending and worry about debt later.

The pound rose above $1.37, hitting $1.3720 — its highest since May 2018 — at 1045 GMT. By 1136 GMT it had eased some gains and changed hands at $1.3687, up 0.4% on the day and up 0.2% so far this year.

Versus the euro, the pound hit a five-month high of 88.38 pence per euro, before easing to 88.51 at 1137 GMT, up around 0.5% on the day.

The pound’s recent strengthening can be attributed in part to relief among investors that the impact of Brexit has not caused the chaos some feared, as well as a lessening of negative rates expectations, said Neil Jones, head of FX sales at Mizuho.

“Going into early 2021, there was a bearish sentiment building into the pound on the Brexit deal, in terms of maybe it had a limited reach, and then secondly an expectation of negative rates and so to some extent the market has been cutting down on sterling shorts because neither of those things have been quite so apparent as they were,” he said.

Bank of England Governor Andrew Bailey said last week that there were “lots of issues” with cutting interest rates below zero – a comment which caused sterling to jump.

The UK’s progress in rolling out vaccines is also seen as a positive for investors, Jones said.

Currently, the United Kingdom has vaccinated 4.27 million people with a first dose of the vaccine, among the best in the world per head of population.

“Further progress in vaccinations (a pick-up in the daily rate) by the time the BoE MPC meeting takes place on 4th February may prove enough to hold off on any additional monetary easing,” wrote Derek Halpenny, head of research for global markets at MUFG.

Inflation data for December showed that prices in the UK picked up by more than expected in December, to a 0.6% annual rate.0.6

Inflation has been below the Bank of England’s 2% target since mid-2019 and the COVID-19 pandemic pushed it close to zero as the economy tanked.

(Graphic: CFTC: https://fingfx.thomsonreuters.com/gfx/mkt/oakpeyayxpr/CFTC.png)

(Reporting by Elizabeth Howcroft, editing by Larry King)

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Euro sinks amid broader risk rally against dollar

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Euro sinks amid broader risk rally against dollar 5

By Ritvik Carvalho

LONDON (Reuters) – The euro struggled to join a broader risk rally against the dollar on Wednesday as analysts said the risk of extended lockdowns in Europe to combat the spread of COVID-19 and the continent’s lag in a vaccine rollout were weighing on the currency.

Down 0.1% against the dollar at $1.2117 by 1130 GMT, Europe’s shared currency had only the safe-haven Swiss franc and Sweden’s crown for company in resisting a broad rally against the greenback by the G-10 group of currencies.

“We’re getting more headlines that the current lockdowns will be extended further, which could mean that the euro zone would be flirting with a double-dip recession before long,” said Valentin Marinov, head of G10 FX research at Credit Agricole, noting Europe’s lag in rolling out a coronavirus vaccine compared to the United States and Britain.

“So all of that plays into the story that tomorrow’s ECB meeting, while uneventful in terms of policy announcements, could convey a relatively dovish message to the market. On top of that, President Lagarde could once again jawbone the euro, so the euro is kind of lagging behind.”

Marinov also noted price action in the pound, which hit $1.3720 – a 2-1/2-year high – and 88.38 pence – its highest since May 2020 against the euro – as a contributing factor to euro weakness. [GBP/]

There was also focus on a story by Bloomberg News, which reported the European Central Bank was conducting its bond purchases with specific yield spreads in mind, a strategy that would be reminiscent of yield curve control.

Elsewhere, the risk-sensitive Australian dollar gained 0.4% to $0.7727. The New Zealand dollar, also a commodity currency like the Aussie, gained 0.25% to $0.7133.

DOLLAR WEAKNESS

While the world will be watching Joe Biden’s inauguration as U.S. president at noon in Washington (1700 GMT), traders were more focused on his policies than the ceremony.

U.S. Treasury Secretary nominee Janet Yellen urged lawmakers at her confirmation hearing to “act big” on stimulus spending and said she believes in market-determined exchange rates, without expressing a view on the dollar’s direction.

The index that measures the dollar’s strength against a basket of peers was up almost 0.1% at 90.510. The euro forms nearly 60% of the dollar index by weight.

It also fell 0.1% against the Japanese yen to 103.81 yen per dollar.

While the dollar has perked up in recent weeks on the back of a rise in U.S. Treasury yields, investors still expect the currency to weaken.

“We remain bearish U.S. dollar, and expect the downtrend to resume as U.S. real yields top out,” said Ebrahim Rahbari, FX strategist at CitiFX.

“Continued Fed dovishness remains important for our view, in addition to global recovery, so we’ll watch upcoming Fed-speak closely.”

Positioning data shows investors are overwhelmingly short dollars as they figure that budget and current account deficits will weigh on the greenback.

(Graphic: Dollar positioning: https://fingfx.thomsonreuters.com/gfx/mkt/oakveyombvr/Pasted%20image%201611132945366.png)

UBS Global Wealth Management’s chief investment officer Mark Haefele reiterated a bearish view on the dollar, saying that pro-cyclical currencies such as the euro, commodity-producer currencies, and the pound would benefit “from a broadening economic recovery supported by vaccine rollouts”.

The cryptocurrency Bitcoin fell 4%, trading at $34,468.

(Reporting by Ritvik Carvalho; Editing by Angus MacSwan)

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Britain to publish new weekly consumer spending data

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Britain to publish new weekly consumer spending data 6

LONDON (Reuters) – Britain’s statistics office said it would publish new weekly consumer spending data from Thursday, based on credit and debit card payments information collected by the Bank of England.

The figures come from Britain’s CHAPS high-value payments data and cover the proceeds of recent credit and debit card payments made by payments processors to around 100 major retailers.

The ONS said the figures would provide greater insight into spending on social activities and other consumer services that are not captured by its monthly retail sales data.

(Reporting by David Milliken, editing by Elizabeth Piper)

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