The future of regulation and taxation of cryptocurrency assets and mining in Russia

Russia step by step creates the rules of the game to regulate the activity of cryptocurrency enthusiasts: in the spring of this year, the concept of “digital rights” appeared in the RF Civil Code, and the laws on digital assets and crowdfunding as the Russian version of ICO are expected to be adopted in autumn.

Taxation of cryptocurrency transactions

The bill on digital financial assets says nothing about cryptocurrency taxation. Rather, it creates a conceptual apparatus that will help key players speak the same language and move further in the development and regulation of the industry. The document will define what “digital financial assets” are, what they are and how they are interconnected with “digital rights” that are already enshrined in the Civil Code.

Meanwhile, the second draft law – on attracting investment using investment platforms (crowdfunding), including ICO – has more to do with tax issues.

For example, if we are talking about investment platforms, this directly implies raising money in exchange for certain digital financial assets. As a result, besides the proceeds, investment digital rights are issued, their turnover occurs – purchase, sale, installment as the authorized capital. This gives the state more opportunities to understand how, when and at what price the sale takes place, to determine the tax consequences of these transactions and recover the necessary amount to the budget.

In general, we can say that now the authorities are striving to create a basis for the subsequent introduction of taxation. Amendments to the Civil Code (Federal Law No. 34-FZ), which will come into force this fall, partially fixed the gap in the legislation. In particular, digital rights were classified as property rights, which made it possible to regulate them from the point of view of the Tax Code.

Meanwhile, before the final approval of the bills discussed now, it is difficult to say whether the authorities are trying to create something new in this area or still adhere to the traditional approach to collecting taxes.

Russian legislation does not yet allow dividing digital assets into cryptocurrency and tokens. Earlier, Elvira Nabiullina noted that she opposes the launch of cryptocurrency in the monetary system, and the regulator is exploring the possibility of using steylcoin.

Now cryptocurrency and tokens are conditionally classified into two categories: those issued on the Russian investment platform and on the other. With an optimistic development of the situation, the concepts of “cryptocurrency” and “token” are expected to be consolidated and their sale and purchase will be equated to conventional money units.

Earlier, the Ministry of Finance did not rule out permission to buy and sell cryptocurrency in Russia. However, it is difficult to determine their official exchange rate, which makes taxation difficult. If an entrepreneur bought tokens, for example, for bitcoins , then the tax authorities will not be able to determine the amount of expenses to calculate the taxable income. There are several possible approaches that can theoretically be applied. One option is to still consider such transactions the exchange of one digital financial asset for another, which does not require the use of a single exchange rate.

In the absence of the official exchange rate of the Central Bank, one can try to determine the average market indicator, but then the question arises – which agency will calculate it and on the basis of which cryptocurrency exchanges? But even this will not solve the problem to the end, as there will be disputes why they took courses from 10 platforms instead of 15, for example, since in this case the averages will be different. So far this approach has not been applied by any country in the world, therefore this development of the situation is possible only in the long term.

A more classical approach is to focus on the fact that tokens as an investment tool will be bought for ordinary ("fiat") money, for example, from a foreign currency account. The bill directly states that digital assets are not legal tender, and the ruble is the only means of payment. In this scenario, this is a common foreign trade transaction, which is easy to track down and calculate expenses at the rate of the Central Bank in rubles, as well as document it. This is an ideal scenario for tax authorities, but it is unlikely to cover a significant amount of operations on cryptocurrency exchanges .

The development of the industry attracts more and more people who would like to make money on trading in cryptoactive assets, playing on growth and falling and making a profit due to the resulting difference in rates. At the same time registering as an individual entrepreneur and working on a simplified tax system, you will encounter gaps in the legislation that can reduce the income of this low-margin business.

Now in Russia, representatives of small businesses in the simplified taxation system choose one of two models of tax payment: 6% of turnover (income) or 15% of profit (income minus expenses). At the same time, VAT is not paid, which gives a serious tax savings, and a number of other taxes.

For example, an entrepreneur bought cryptocurrencies for 100 units, and sold for 110. Given that his profits are not large, he naturally seeks to reduce the tax and pay 15% of the profits, rather than 6% of the total income. But a problem arises here, because according to the Russian legislation that comes into force in the autumn, he bought digital rights, which the Civil and Tax Codes will consider to be property rights. At the same time, the 15 percent “simplified payment” allows you to include in the list of expenses only standard business expenses: for wages of employees, purchase of fixed assets, rental of premises and other things, but not expenses for the purchase of property rights. As a result, the entrepreneur cannot attribute the purchase of cryptoactive assets to expenditures for tax purposes and apply the favorable for USN rate.

The options that remain in this situation are to switch to 6% income tax (turnover), which does not take into account expenses, or go to the general system of taxation with VAT. Both approaches are unprofitable for the entrepreneur, since they significantly increase his tax burden.

Mining Taxation

Mining has long been transferred from the category of a hobby to a full-fledged business, which, despite the current gaps in the legislation, is easy enough to take control and tax.

The complexity of mining computing has increased significantly in recent years, and mining is already being done on an industrial scale. In addition to buying miners, you need to spend money on electricity for their power, cooling systems and other equipment, rent a room and pay a fee for participating in mining pools in order to receive a share of the total revenue earned.

Tax authorities may apply a universal approach to this type of activity, taking into account a number of key features of business activities stipulated by the Civil Code of the Russian Federation.

• Firstly, an entrepreneur performs a series of actions with a specific goal – acquires technical means for making profit.
• Secondly, his business is systematic, that is, a person not only remembered once, turned off the device, put it on the shelf and forgot, but performs certain actions regularly.
• Thirdly, he earns income by earning cryptoactives and turning them into fiat money. As a result, according to formal signs, the tax authorities may well call this activity entrepreneurial and collect taxes.

At the same time, even if a businessman has not registered as an individual entrepreneur, then it will not be so difficult to calculate it. First of all, the bank’s attention will be attracted by regular financial receipts of large sums from abroad with an unclear purpose of payment. After the necessary inquiries, the tax authorities, in turn, will understand that this is money from the “exit to Fiat” – sales of the extracted cryptocurrency for ordinary money, for example, on cryptocurrency exchanges. As a result of control measures, they will discover a mining farm and start collecting unpaid taxes.

In particular, for the lack of registration as an entrepreneur, an administrative fine of up to two thousand rubles was established. For conducting an activity by an organization or an individual entrepreneur without registering with the tax authority – a tax penalty of 10% of the income received during a specified time as a result of such activity, but not less than 40,000 rubles. For failure to provide tax returns – 5% of income for each month of delay, but not more than 30% of the total income.

In addition, there will be additional taxes that could arise if the miner had registered as an individual entrepreneur. As there is no registration, as well as the choice of a simplified taxation system, at least 13% of personal income tax and 20% of VAT on the general taxation system will be charged from it.

As a result, if the tax payment requirement is not fulfilled within two months, the materials will be handed over to the investigating authorities, where the issue of a criminal case will be decided if the amount of unpaid taxes exceeds 900,000 rubles.

The tax authorities have not yet developed a uniform approach to how the Russian legal field will regulate digital financial assets, both domestic, which will be issued under the new law, and foreign, which are used in the world now.

This forces testers to use the control mechanisms that are available to them now and be guided by simple logic: people can earn cryptoactive assets for as long as they want, but in the end, everyone needs real money. Since the funds received are transferred with the help of banks, this allows them to be detected, measured and taxed. In this regard, crypto enthusiasts should plan to tax their incomes in advance.

According to Forbes.

Posted July 11, 2019
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