Taxing the Zeroes and Ones

Having looked at VAT last week, and corporate taxes prior to that, it's time to branch out in this week's column, looking at the innovative solutions being put in place by both national governments and international bodies to capture revenues in an increasingly digitalized world.

We begin (unusually) with Russia, which – being especially keen currently to maximise its tax revenue - has announced the approval at first reading in the Duma of a bill on the taxation of digital financial assets.

The bill provides for a VAT exemption for digital financial assets that are used as consideration when purchasing goods and services, as well as an exemption for the service provided by exchanges.

Gains arising from trading in cryptocurrencies will be liable to tax when virtual assets are converted into fiat currency, with an allowance for trading losses during the same tax period.

Russian companies that facilitate the trade in digital assets will be liable to income tax at 13 percent, while income tax of 15 percent will apply to non-resident businesses.

In Indonesia, meanwhile, the tax authority recently listed a number of companies that have been added to the scope of its digital VAT regime for non-resident suppliers of electronic services.

The requirements are set out in Finance Ministerial Regulation No. 48/2020. Indonesia has phased in the regime since it was first introduced in August 1, 2020, to expand its coverage to an increasing number of relatively smaller businesses.

On the international level, in a communique issued after their May 18-20 meeting, leaders of the G7 group of countries emphasized the importance of addressing risk relating to the rise in the use of cryptocurrencies and of stablecoins in particular. Stablecoins are virtual currencies pegged to the value of currency or metals.

The G7 members – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States – announced that: "The G7 supports work by the Financial Stability Board (FSB) to monitor and address financial stability risks arising from all forms of crypto-assets, and welcomes increasing global cooperation to address regulatory issues associated with the use of crypto-assets, including in cross-border payments."

"In light of the recent turmoil in the crypto-asset market, the G7 urges the FSB, in close coordination with international standard-setters, to advance the swift development and implementation of consistent and comprehensive regulation of crypto-asset issuers and service providers, with a view to holding crypto-assets, including stablecoins, to the same standards as the rest of the financial system."

The leaders also, in the communique, reaffirmed their commitment to implementing the two-pillar tax plan proposed by the OECD to address the tax challenges of the digitalized economy.

Until next week!