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This week, US President Joe Biden signed the historic $1T bipartisan Infrastructure Investment and Jobs Act. With this commences the economic recovery dealt due to COVID-19. The Act seeks influx of funds into key sectors like transportation, broadband and utilities. The amendment to the tax reporting rules set by the US Internal Revenue Service (IRS) and Treasury Department to crypto transactions from 2023 gives legitimacy to the way crypto transactions will be viewed the world over. Provisions like “Information reporting for brokers and digital” have been amended in the Act to regulate tax enforcement and pay for the spending authorized in the Act.

It mandates reporting of all digital asset transfers from one account/address to another, by a broker. With a significant emphasis on brokers Know Your Customer (KYC) and tax information reporting systems, it has indicated a desire to know the space better.

It controversially defines a “digital-asset broker” as any individual who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. This makes the definition of digital asset broker too broad and could potentially include crypto miners and software developers. Including Miners and software developers will disrupt stable functioning and innovations in the sector. Although, the Department of Treasury has stated that miners and software developers would not come under the purview of brokers. The definition is not sophisticated to make this distinction yet.

The IRS in the US has treated cryptocurrency as a form of property, making regular property tax transactions provisions, applicable. With the Act, greater tax reporting transparency, providing taxpayers reports to their taxable gains and losses made in cryptocurrency transactions are being addressed.  Larger security and curb of cyberattacks through transactional transparency and reporting is an objective set under the Act. All cryptocurrency transactions, conversion into currency or another cryptocurrency, shall now be taxable. The appreciation becomes taxable, depending on the duration for which the owner holds the asset, determining short or long-term capital gains.

Cryptocurrency transactions currently are rife with tax evasions and to a degree facilitate the ills of money laundering. An increased burden on agencies enforcing Anti-Money Laundering (AML) and Counter-Terrorism Finance (CFT). Financial Firms and Exchanges are currently governed under the US Bank Secrecy Act and Anti-Money Laundering Rules.  With the advent of the Act, changes and diligent reporting can be expected in AML and CFT regulations for cryptocurrency transactions above $10K in 2022.

On the domestic turf, crypto sectors gained traction as the Economic Times reported that cryptocurrency may be considered as an asset but not as a currency. This alters the status of cryptocurrency from a medium of exchange to being comparable as shares, gold or bonds. The SEBI is the potential contender to be nominated as the regulator of cryptocurrency. The RBI has tabled its concerns about cryptocurrency security and its effect on macroeconomic resulting in financial instability.

Earlier this year, an inter-ministerial panel on cryptocurrency recommended a complete ban of private cryptocurrency with a recommendation to permit only RBI authorized digital currencies in India. According to blockchain data by Chainalysis, India’s digital currency market rose to $6.6B in 2021 from $923M in 2020. Although, a complete ban may no longer be the inclination, India has warmed up to the possibility of regulation.

For further insights into the cryptocurrency sector please visit: https://tagbenchassociates.com/category/cryptocurrency/

This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein.
Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Sources – Livemint, Economic Times, HIS Markit and CNBC

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