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Tax transparency for crypto assets
Blog //12-12-2023

Tax transparency for crypto assets

by Nadine Sutton, Principal Product Manager

As the world of cryptocurrency is evolving, it has also precipitated an urgent need for clear and enforceable crypto tax regulations. Recent legislative changes in the United Kingdom have highlighted this necessity more than ever before.

Adapting to the evolving landscape of digital currencies, the UK government is adjusting its strategy regarding cryptocurrency taxation. The fundamental legislation outlines that tax obligations may result from diverse activities such as purchasing, selling, mining, or utilising cryptocurrencies for transactions. The specific type of tax depends upon the individual's activities and circumstances.

Businesses also receive specific tax treatments based on their crypto activities and involved parties. While these legislative developments offer a clearer framework for cryptocurrency operations, they simultaneously pose the challenge of staying updated and adapting to these changes, highlighting the necessity for both individuals and businesses to remain informed.

In this article, we delve into the complexities of tax transparency for crypto assets, focusing on recent changes and upcoming legislation related to crypto compliance in the UK.

What is meant by transparency in crypto?

With cryptocurrencies, transparency means to disclose all transactions involving all digital assets in a comprehensive, accurate, and timely manner. This includes important details about the transaction like the identities of the parties involved, the exchanged amount, the date/time of the transaction, and other financial implications (such as capital gains or losses).

Several essential conditions must be fulfilled for cryptocurrency to be transparent. Primarily, individuals or entities using cryptocurrencies must maintain meticulous records of all their transactions, including tracking the cryptocurrency's value at the time of each transaction.

To achieve transparency, these records must be readily accessible for scrutiny by relevant authorities, including tax officials and financial regulators. This requires the establishment and upkeep of reliable methods for the storage and retrieval of transaction data.

Being transparent also means providing this data in an accurate and comprehensible manner, which entails speaking in a straightforward manner and giving enough background information so that a third party can understand the purpose and ramifications of the transaction.

Why is transparency important?

The importance of transparency can be seen in the European Union's operation and decision-making processes. By making information about policy creation and budget spending accessible, it instils accountability among EU institutions and public officials.

Such transparency promotes better citizen engagement in the democratic process by providing them with the necessary information to understand and participate in decision-making processes.

This enhanced transparency serves as a robust tool against corruption, leaving no room for illicit activities or misuse of power. The practice of transparency also contributes to better regulation, allowing comprehensive input and scrutiny that can improve legislation and policy quality.

How transparency requirements for crypto have changed

Cryptocurrency transparency requirements have seen significant shifts, primarily due to measures such as the Crypto Asset Reporting Framework (CARF). It was introduced in 2022 by the Organisation for Economic Co-operation and Development with the initiative to monitor crypto-asset transactions.

In Europe, the European Commission has proposed new tax transparency rules that has become noteworthy. It mandates that all service providers facilitating crypto-asset transactions must report these transactions. This development aligns with the global trend towards more regulation and oversight of the expanding crypto market.

In the United States, legislation aimed at increasing transparency in the crypto transactions has been introduced. For instance, the ‘Stablecoin Transparency Act’ seeks to set standards for the quality of assets held in reserves and requires stablecoin issuers to obtain bank charters. These legislative changes have reshaped the landscape of transparency requirements for cryptocurrencies. They serve as a crucial step towards accountability/integrity in this rapidly evolving niche

How transparency requirements for crypto will change

The transparency requirements for cryptocurrencies are set to undergo further changes due to upcoming legislations such as DAC-8. The EU has adopted this directive with the aim of increasing tax transparency on crypto-assets and their reporting. This would assist tax authorities in tracking the trade of these assets and the proceeds gained, thus reducing the risk of tax fraud and evasion.

As per the directive, any service providers facilitating transactions in crypto assets for customers must adhere to updated tax transparency regulations. This step is anticipated to enhance Member States' capabilities in identifying and addressing issues related to tax fraud, tax evasion, and tax avoidance.

Furthermore, the DAC-8 directive includes measures expanding mandatory Automatic Exchange of Information (AEOI) to tax agencies regarding information to be required of any reporting crypto-asset service provider. This law, which supplements the MiCa crypto-asset regulation, will require all service providers facilitating crypto-asset transactions for EU customers to adhere to these new reporting rules.

The DAC-8 legislation may pose a challenge for organisations dealing with cryptocurrencies. With all these developments, it is crucial for CFOs to start thinking about cryptocurrency while ensure greater accountability  with their business’s financial processes.

How will finance departments be affected?

Finance departments dealing with crypto may face several changes, such as:

Modifications in UK crypto tax reporting

The tax reporting requirements for cryptocurrencies are poised to undergo significant changes in the UK. With HMRC issuing fresh guidelines, finance departments will need to adapt their practices accordingly. This adaptation might involve the development of systems to accurately record and report cryptocurrency transactions as well as staff training.

Upgrades in accounting standards

The International Accounting Standards Board (IASB) is presently deliberating on a potential new standard related to the accounting, reporting, and disclosure of crypto assets. Finance departments will need to synchronise their practices with these evolving standards, possibly resulting in changes to the recording of holdings linked to crypto assets.

Legal framework and regulations

A robust legal framework is critical for the effective regulation of crypto assets, covering both private law and financial law aspects. Finance departments dealing with crypto will need to ensure compliance with all relevant laws and regulations. This might require seeking legal advice or recruiting compliance officers who specialise in crypto regulations.

Enhanced due diligence and fiduciary responsibility

Finance departments will likely need to exercise increased due diligence when dealing with crypto assets. They may need to conduct comprehensive research into potential investments or partnerships to understand the associated risks and benefits thoroughly. Additionally, they may need to demonstrate that they are fulfilling their fiduciary duties, which could necessitate additional reporting or documentation.

What you need to do to become crypto compliant

To ensure crypto compliance, businesses must take the following actions:

Conduct a comprehensive risk assessment

The first step in becoming crypto compliant is to conduct a detailed risk assessment. This process involves identifying and analysing the potential risks associated with handling cryptocurrencies. The risk assessment should consider factors such as the type of cryptocurrency, the intended use of the cryptocurrency, and the regulatory environment.

Be aware of crypto compliance

Understanding and actively incorporating the principles of crypto compliance will empower you to attain comprehensive insight into your customer base. This capability allows you to pinpoint and mitigate risks associated with high-risk customers, thwart illicit activities, and cross-check addresses against the Office of Foreign Assets Control's (OFAC) sanction list.

Therefore, it is vital to acquaint yourself with the three fundamental pillars of crypto compliance, namely:

       Know Your Customer (KYC): KYC is a critical procedure to verify a customer's identity, enabling businesses to conduct comprehensive background checks on all clients. Businesses are required to gather, scrutinise, and retain a customer's PII (Personally Identifiable Information).

       Know Your Business (KYB):  Analogous to KYC, KYB allows businesses to perform background checks on any organisation they’re partnering with. This due diligence process focuses on authenticating the Ultimate Beneficial Ownership (UBO) to identify the individual who controls or owns a business.

       Know Your Transaction (KYT): KYT utilises AI/ML (Artificial Intelligence and Machine Learning) to keep a close eye on transaction details. Through this, you can ascertain whether a business’s transactions are legitimate or associated with financial crimes.

Adopting these three strategies will equip your business to conduct a thorough visual examination of each stakeholder and provide you with the advantage of transaction monitoring.

Build your own compliance team

The complexity of the crypto universe necessitates acquiring appropriate skills through relevant experience and ongoing education. For a professional team ensuring crypto compliance, such as a team of Cryptocurrency Compliance Analysts, it is crucial to possess a robust understanding of blockchain technology, cryptocurrencies, and the prevailing regulatory environment. 

Additionally, staying updated with the latest advancements in this dynamic field through continuous learning and training is an integral part of maintaining a high level of expertise.

Invest in compliance technology

Investing in compliance technology can significantly enhance a company’s ability to manage the compliance risks associated with cryptocurrencies. Compliance technology can automate many tasks, such as monitoring transactions for suspicious activities, generating compliance reports, and maintaining compliance records. It can also provide valuable insights to help companies make informed decisions about their crypto activities.

Continuous monitoring and review

Compliance is an ongoing procedure rather than a one-time event. Businesses must consistently oversee their compliance status, assess their undertakings, and implement essential changes in response to evolving regulations or emerging risks. This demands dedication from senior management and a corporate culture that places importance on compliance.

How Advanced can help you with your crypto compliance

Companies venturing into the crypto realm must prioritise compliance with the relevant regulations. This becomes even more crucial in instances where clear legislative guidelines are absent. There's a wide variety of cryptocurrency regulations globally and maintaining compliance manually can be a challenging task.

Our Cloud-based accounting software, Advanced Financials, offers comprehensive functionality that helps finance teams to seamlessly navigate the complex world of financial regulations. This innovative solution can capture and report all finance-related data, reducing the workload for those in the accounting team.

Advanced Financials is automatically updated with the latest regulatory frameworks, helping you to stay complaint in this rapidly changing environment.

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Nadine Sutton

Nadine Sutton


Principal Product Manager

Nadine has over 15 years’ experience working in and with finance teams in the UK, Netherlands and Germany both as an accountant and consultant. Transitioning from accountancy to software implementation and then onto Product Management, she has huge enthusiasm in utilising and developing technology to drive the finance department of the future in her role with OneAdvanced.

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