Seven strategies for tax-contaminated cryptocurrencies
How to be washed clean of past sins
Cryptocurrencies have the character of highly liquid and movable digital assets. However, the honeymoon period with the tax authorities, if any, is long over, and hunting digital coin owners have already started.
The viewpoint of Thailand’s Revenue Department on the taxation of digital asset transactions is outlined in the article “Seven official statements on digital asset taxation in Thailand“.
Blockchain transactions are semi-anonymous aka. “pseudonymous.” While each transfer of value on the ledger is publicly viewable, the parties to the transaction are known only by a string of numbers serving as a public key address. Each identification of the investor to a public exchange results in a paper trail on all previous and future transactions involving such wallet.
Presumably or actually tax neutral cryptocurrency assets and transactions can found themselves in the taxable area of the local jurisdiction. This surprising result can base on a professional tax analysis, a policy shift of the revenue department, or a change in tax laws. The cryptocurrency owner has in these three cases to decide whether the detection risk is remote and, more important, whether he is willing to engage in tax evasion.
The PUGNATORIUS group provides professional advice to avoid or end tax evasion by tax planning schemes. This result can be achieved, as the case may be, by these seven strategies:
#1. Declare and pay: In some cases, it might be the advisable tactic to clean-up tax contaminated coins by declaring and paying the taxes as the basis for future tax planning strategies.
#2. Relocation of the coins: A tax burden might be avoidable by a simple relocation of the cryptocurrencies from an exchange to a private wallet or vice vera, within the jurisdiction or offshore.
#3. Relocation of the owner: If the coin owner changes his residence by moving to another jurisdiction, e.g. to Thailand, might eliminate an already existing foreign tax burden.
#4. Transfer: Cryptocurrencies might be transferred from private ownership into a corporation or vice vera, to take benefit of different tax rates or taxation systems. Also, a silent sale of the coins might under certain conditions a prudent behavior to avoid the negative effects of a change in law or policy change.
#5. Crypto-to-crypto: A restructuring of the coin depot is another tool to react to tax-relevant developments and insights.
#6. Separate or mix: A meaningful wallet restructuring might be to separate coins or to consolidate cryptocurrencies under the same public key, to influence capital gain calculation and proper accounting.
#7. Trustee: To set-up a trustee structure might get the coin owner out of the line of fire.
How to retain or recover the privacy in cryptocurrency transactions is discussed in the Medium Article “Blockchain & Bitcoin: Public Key Management“.
As a matter of taxpayer compliance, cryptocurrency transactions require a sophisticated public key management. It has to be carefully monitored, which transaction results in the direct or indirect disclosure of a paper-trail between the public key and the identification of a coin owner. Forward-thinking to an unavoidable international cryptocurrency information exchange agreement (CIEA), interactions with exchanges and individuals locally and internationally have to be taken into consideration.
Professional services in Thailand’s Fin-Tech sector
PUGNATORIUS Ltd. offers mainly these seven legal and tax services:
- Thai crypto-compliant company formations
- Regulatory-avoiding and tax-efficient cross-border structuring
- Digital asset and financial services licensing
- Blockchain and ICO advisory services
- Thai and cross-border tax structuring
- Cryptotransaction support services
- Legal opinions and professional statements