[2018-12-04] Japan to Force Crypto Exchanges ‘Tell on’ Suspected Tax Evaders

[cybersofts]

The Japanese government is seeking to impose measures aimed at preventing cryptocurrency traders and investors from evading taxes on the income generated from trading these assets.

According to The Mainichi, the measures would see the country’s tax body, the National Tax Agency (NTA), empowered to demand that cryptocurrency exchanges provide information concerning clients who are suspected of tax evasion.

It is understood that the government will introduce the measures as part of the tax reforms that are set to be published in the fiscal year 2019. The measures could be implemented sometime in 2020 after the publication period has elapsed.

Income Tax Act
Currently, the Income Tax Act places profits generated from trading or investing in cryptocurrencies under the miscellaneous income category. The law requires that salaried workers who earn a minimum of 200,000 yen from cryptocurrency trading and investing annually to declare such earnings as income.

It is understood that a high number of individuals in the country made huge profits from trading and investing in cryptocurrencies following the historic bull run of digital assets towards the end of 2017. Last year, more than 300 individuals declared that they had earned a minimum of 100 million yen from trading and investing in cryptocurrencies. But the NTA is of the view that cases of tax evasion in the sector are increasing and that the number reported was too low as CCN has previously reported.

At the moment, cryptocurrency exchanges are only required to provide information on their clients to the NTA voluntarily. But the reforms that the government is seeking to carry out will give the tax body authority to demand such information from the exchanges. This information includes individual identification numbers, addresses and names.

Information Protection Concerns
However, to prevent abuse of the new measures the government will only allow the NTA to demand information on those believed to have made at least ten million yen from trading in cryptocurrencies. Additionally, the information will only be demanded if the NTA has evidence that a particular individual failed to disclose at least 50% of that income.

This comes less than two months since a committee of tax experts in Japan called for the country’s tax filing process to be simplified.

    Japanese Government to Simplify Cryptocurrency Taxation Process https://t.co/3wWcE6cUQV

    — CCN (@CryptoCoinsNews) October 20, 2018

At the time, the committee claimed that the process was complicated and this served to discourage cryptocurrency traders and investors from declaring their digital assets when filing tax returns. But by simplifying the process, the committee argued, tax compliance would be enhanced.


Reference: https://www.ccn.com/japan-to-force-crypto-exchanges-tell-on-suspected-tax-evaders/

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[squatter]

At the moment, cryptocurrency exchanges are only required to provide information on their clients to the NTA voluntarily. But the reforms that the government is seeking to carry out will give the tax body authority to demand such information from the exchanges. This information includes individual identification numbers, addresses and names.

Information Protection Concerns
However, to prevent abuse of the new measures the government will only allow the NTA to demand information on those believed to have made at least ten million yen from trading in cryptocurrencies. Additionally, the information will only be demanded if the NTA has evidence that a particular individual failed to disclose at least 50% of that income.

This sounds pretty awful. I'm curious how the tax authorities will find evidence that any individual failed to report 50% of their cryptocurrency trading income without getting that information from the exchanges. I suppose they could compel banking records, but I wonder what their original basis for investigation would be.

[gentlemand]

Just a wee glimpse of what all exchanges will eventually become - banks with an extra large dollop of uptightness. Perhaps the Bitstamp technique of randomly freezing you even after you're verified and demanding a photograph of the interior of your colon, a time lapse of your life over three years and every single tax and bank record since birth will become the norm everywhere.

I'll be shopping elsewhere by then.

[bbc.reporter]

@gentlemand. Also, bitcoin is be very easy to trace if governments use services like Chainalysis and other blockchain analytics services which is already detrimental to its fungibility.

In any case, the future is in anonymous cryptocoins and decentralized trading. Invest wisely hehehe.

[gentlemand]

@gentlemand. Also, bitcoin is be very easy to trace if governments use services like Chainalysis and other blockchain analytics services which is already detrimental to its fungibility.

In any case, the future is in anonymous cryptocoins and decentralized trading. Invest wisely hehehe.

The price exchanges will pay for their existence will be the shunning of privacy coins.

Again, that's already happening in Japan - https://btcmanager.com/japan-pressures-cryptocurrency-exchanges-to-drop-monero-dash-other-altcoins/

I dunno where this is all going to end up. There'll be some alarming moments along the way. Yes sirree.

[figmentofmyass]

@gentlemand. Also, bitcoin is be very easy to trace if governments use services like Chainalysis and other blockchain analytics services which is already detrimental to its fungibility.

In any case, the future is in anonymous cryptocoins and decentralized trading. Invest wisely hehehe.

The price exchanges will pay for their existence will be the shunning of privacy coins.

Again, that's already happening in Japan - https://btcmanager.com/japan-pressures-cryptocurrency-exchanges-to-drop-monero-dash-other-altcoins/

I dunno where this is all going to end up. There'll be some alarming moments along the way. Yes sirree.

it's an interesting legal conundrum. in most cases, there's probably no legal basis for exchanges to give into this sort of pressure short of new privacy coin-oriented legislation. but i'm sure it'll help reinforce a two-tier exchange system. one tier will contain squeaky clean exchanges like coinbase, who would never touch privacy coins.

the other tier will naturally face more regulatory scrutiny, but there's big financial incentives to fill that niche.

[buwaytress]

Must be something somewhat lost in translation any financial institution, which I believe now exchanges qualify for categorisation as such in Japan, is bound to inform the authorities of any alerts/red flags received, so it's not just crypto exchanges targeted, it's just that exchanges now fall into the same category as others and are merely asked to be compliant.

As gentlemand astutely points out, this is what exchanges are heading towards - banks and financial institutions. Can't say exchanges won't want that either, they're all keen on being "1 stop shops" for crypto consumers.

[Theb]

This is a hard part for crypto exchanges to do even if as of the moment the reports should be voluntarily done. The NTA should have at least provided some guidlines for crypto exchanges on how they would pick the suspected clients in their service. Its just like asking crypto exchanges on who among their users are they suspecting as criminals that are using their services. After that the NTA will launch a formal investigation to that suspected client notifying that they have been picked as suspected money launderers by their own crypto exchange which would be really give a bad impression to their part and their services as a whole.

[bbc.reporter]

@gentlemand. Also, bitcoin is be very easy to trace if governments use services like Chainalysis and other blockchain analytics services which is already detrimental to its fungibility.

In any case, the future is in anonymous cryptocoins and decentralized trading. Invest wisely hehehe.

The price exchanges will pay for their existence will be the shunning of privacy coins.

Again, that's already happening in Japan - https://btcmanager.com/japan-pressures-cryptocurrency-exchanges-to-drop-monero-dash-other-altcoins/

I dunno where this is all going to end up. There'll be some alarming moments along the way. Yes sirree.

That might set up a high liquidity blackmarket for trading monero to bitcoin or fiat hehehe.

Also, some governments will not pressure exchanges in their jurisdiction to delist anonymous cryptocoins, I reckon. Some very corrupt governments might welcome them hehehe.

[Theb]

That might set up a high liquidity blackmarket for trading monero to bitcoin or fiat hehehe.

Also, some governments will not pressure exchanges in their jurisdiction to delist anonymous cryptocoins, I reckon. Some very corrupt governments might welcome them hehehe.

The South Korean government already did what you are saying. Although there are no official reports of them doing it one of their top exchanges, Korbit, had dropped five coins that is centered to anonymity. There is no reason for Korbit to drop voluntarily these popular cryptocurrencies especially Monero and Zcash but they did it anyway and it just shows that they are preparing for future regulations regarding privacy coins. And I do think that the Japanese government's way is a little bit harsher as they are pressuring their exchanges to do so as well when there are other ways of solving their problem. In my opinion the removal of such coins is better than not having to be able to trade other coins at all.

[milewilda]

At the moment, cryptocurrency exchanges are only required to provide information on their clients to the NTA voluntarily. But the reforms that the government is seeking to carry out will give the tax body authority to demand such information from the exchanges. This information includes individual identification numbers, addresses and names.

Information Protection Concerns
However, to prevent abuse of the new measures the government will only allow the NTA to demand information on those believed to have made at least ten million yen from trading in cryptocurrencies. Additionally, the information will only be demanded if the NTA has evidence that a particular individual failed to disclose at least 50% of that income.

This sounds pretty awful. I'm curious how the tax authorities will find evidence that any individual failed to report 50% of their cryptocurrency trading income without getting that information from the exchanges. I suppose they could compel banking records, but I wonder what their original basis for investigation would be.

This is also the thing comes to my mind on how they would make such investigation for them to point out for those people who do able to violate or tax evasion.
I already somehow expected for this thing to happen which even a certain country is fully positive or adopted crypto but such decisions and pressures can really be given anytime
by means of exchangers yet these are the ones that can able to monitor which can fasten up to trace those who evaded.

[bbc.reporter]

That might set up a high liquidity blackmarket for trading monero to bitcoin or fiat hehehe.

Also, some governments will not pressure exchanges in their jurisdiction to delist anonymous cryptocoins, I reckon. Some very corrupt governments might welcome them hehehe.

The South Korean government already did what you are saying. Although there are no official reports of them doing it one of their top exchanges, Korbit, had dropped five coins that is centered to anonymity. There is no reason for Korbit to drop voluntarily these popular cryptocurrencies especially Monero and Zcash but they did it anyway and it just shows that they are preparing for future regulations regarding privacy coins. And I do think that the Japanese government's way is a little bit harsher as they are pressuring their exchanges to do so as well when there are other ways of solving their problem. In my opinion the removal of such coins is better than not having to be able to trade other coins at all.

However some governments will not demand for exchanges under their jurisdiction to delist anonymous coins. Once everyone finds out the need and the importance of fungibility is for cryptocoins, something which bitcoin does not have, think where everyone will be running.

[timerland]

The Japanese government is seeking to impose measures aimed at preventing cryptocurrency traders and investors from evading taxes on the income generated from trading these assets.

According to The Mainichi, the measures would see the country’s tax body, the National Tax Agency (NTA), empowered to demand that cryptocurrency exchanges provide information concerning clients who are suspected of tax evasion.

It is understood that the government will introduce the measures as part of the tax reforms that are set to be published in the fiscal year 2019. The measures could be implemented sometime in 2020 after the publication period has elapsed.

Income Tax Act
Currently, the Income Tax Act places profits generated from trading or investing in cryptocurrencies under the miscellaneous income category. The law requires that salaried workers who earn a minimum of 200,000 yen from cryptocurrency trading and investing annually to declare such earnings as income.

It is understood that a high number of individuals in the country made huge profits from trading and investing in cryptocurrencies following the historic bull run of digital assets towards the end of 2017. Last year, more than 300 individuals declared that they had earned a minimum of 100 million yen from trading and investing in cryptocurrencies. But the NTA is of the view that cases of tax evasion in the sector are increasing and that the number reported was too low as CCN has previously reported.

At the moment, cryptocurrency exchanges are only required to provide information on their clients to the NTA voluntarily. But the reforms that the government is seeking to carry out will give the tax body authority to demand such information from the exchanges. This information includes individual identification numbers, addresses and names.

Information Protection Concerns
However, to prevent abuse of the new measures the government will only allow the NTA to demand information on those believed to have made at least ten million yen from trading in cryptocurrencies. Additionally, the information will only be demanded if the NTA has evidence that a particular individual failed to disclose at least 50% of that income.

This comes less than two months since a committee of tax experts in Japan called for the country’s tax filing process to be simplified.

    Japanese Government to Simplify Cryptocurrency Taxation Process https://t.co/3wWcE6cUQV

    — CCN (@CryptoCoinsNews) October 20, 2018

At the time, the committee claimed that the process was complicated and this served to discourage cryptocurrency traders and investors from declaring their digital assets when filing tax returns. But by simplifying the process, the committee argued, tax compliance would be enhanced.


Reference: https://www.ccn.com/japan-to-force-crypto-exchanges-tell-on-suspected-tax-evaders/

Not surprising. As gentlemand said, this will be the future of pretty much all regulated exchanges.

Exchange regulation has really tightened up just over the last year or so, probably due to the crazy bull market that was happening. Governments worldwide obviously don't want to miss out on any taxes that are generated through the profits made through cryptos, which is exactly why KYC, AML and reporting are so stringent now.

And this trend of mass regulation should continue well into the future, and don't expect it to slow down. As far as we can tell, you could well be handing over your income tax return in a few years time when you're getting verified for an exchange because of regulations. Reporting for tax evasion itself isn't harmful, but what constitutes as suspected tax evasion? Does that mean that all personal details can be reported?

[bbc.reporter]

@timerland. Have you forgotten what the essence of bitcoin is and why it was invented? I reckon the future will be of decentralized exchanges and more circumvention of financial regulations. We are only in the beginning stages hehehe.