An evolution on how countries tax virtual currencies : is there a consensus evolving

Abstract

Background: Tax implications of virtual currencies are a widespread debate that perplexes many governments, policymakers and revenue collection authorities. Virtual currencies are not physical but rather digital, and only exist electronically. Their unique decentralized online exchange platform means that they do not belong to a specific country, jurisdiction or regulatory body and therefore no bank can govern the use or exchange of these currencies. The combination of the above poses unfamiliar challenges to tax jurisdictions regarding how to effectively accommodate and tax these currencies within existing traditional tax systems that were not designed to absorb unconventional technologies.

Main purpose of the study: Using a systematic review, this study aimed to provide a holistic view of the tax implications of virtual currencies globally and whether a consensus on an approach has developed.

Method: Applying a systematic review, relevant secondary data was obtained from quality sources and analysed against predetermined criteria for relevancy. This collective data was scrutinized, and findings were presented and discussed. A conclusion regarding whether a consensus is evolving on how virtual currencies are taxed was reached and summarized accordingly.

Results: The approach taken in academic literature regarding how to tax virtual currencies varies. Commonly, virtual currencies are simply incorporated into existing tax law; either by incorporating them into current tax law definitions by way of defining what virtual currencies are or by amending existing tax definitions to include virtual currencies. Unavoidably, tax jurisdiction existing laws differ; for example what constitute revenue in nature, capital gains taxes and wealth taxes. Consequently, there will be different tax implications for virtual currencies as well. Therefore, various factors exist that will impact how jurisdictions tax virtual currencies.

Conclusions: The different stages in the lifecycle of virtual currencies are of utmost importance. Once the lifecycle stages are understood, current tax law can be amended to accommodate these stages and bring them into the tax net as either revenue, capital in nature or non-taxable. In conclusion, no consensus has been reached regarding the tax implication on Normal Tax, however promising results exist for Value Added Tax.