The UK’s highest tax authority, Her Majesty’s Revenue & Customs (HMRC), has issued a request for block chain analysis tools. The main objective of the request is to identify and implement technology that will allow the government to track and tax users of crypto currencies.
The problem facing the UK government, as well as all other governments, is that crypto-currency transactions are more difficult to track than electronic fiat transactions. Without a simple tracking methodology, crypto users can often fly under the radar of normal tax reporting services. HMRC is therefore looking for “a tool that supports information gathering methods to identify and group cryptographic transactions into linked transactions and identify those linked to cryptoasset service providers”.
Bitcoin (BTC) has proven to be somewhat easy to track, with wallet addresses relatively easily linked to account holders. However, other currencies such as Monero (XMR), Zcash (ZEC) and Dash (DASH) are more difficult to track because of their privacy features.
Because tracking cryptographic currency transactions can be complex and a government agency requires sophisticated software on a large scale, the offer is being made for GBP 100,000 (USD 130,000).
HMRC says the system is to be delivered by February 2020.
Last year HMRC issued a set of tax-related guidelines for individuals and in November said that companies will be required to declare cryptographic currency transactions in their tax returns and will have to pay several taxes on their cryptographic transactions.
At the time, HMRC also stressed that it “does not consider exchange tokens [Bitcoins and large Altcoins] to be money”.
In the same month, the UK announced that cryptoassets would be treated as property, bringing the legal treatment of tokens into line with public perception.
In the eantime, other countries have also recently announced news on the taxation of cryptoassets. As reported yesterday, the South Korean government is considering a proposal to introduce a tax on crypto-currencies, while the new Russian prime minister seems interested in the government adopting a crypto tax law by spring 2020.