Florida Law Professor Names Cryptocurrencies “Super Tax Havens”
A University of Florida law professor, Omri Marian says that while cryptocurrencies are already considered taxable assets (under US tax law), the inability of the gov. to monitor blockchain transactions could mean a lot more people opting out of the tax system.
A University of Florida law professor, Omri Marian, who believes that cryptocurrencies are “super tax havens,” says that while cryptocurrencies are already considered taxable assets (under US tax law), the inability of the government to monitor blockchain transactions could mean a lot more people opting out of the tax system.
- Omri Marian, a professor of tax law at the University of Florida Levin College of Law
When we hear that the government wants to “regulate” cryptocurrencies the reason given is always to protect consumers from fraud and money laundering. The fact is, however, that while these may in fact be legitimate government concerns they certainly are not the only concerns, or even the most important.
Under the current system employers are required to report employee earnings as well as company profits. Unless the employer pays in cash there are electronic records of payments which tax agencies like the Internal Revenue Service use to monitor transactions for tax purposes. The United States government lost US$3.09 trillion between 2001 and 2010 to tax evaders under the current tightly controlled system. These losses do not all come from individuals either. In July, Credit Suisse was forced to pay US$779 million in tax evasion cases.
Professor Marian makes the point in his report that the anonymity aspect of cryptocurrencies might soon cause many current tax evaders to move their resources into a more secure location, i.e. the blockchain. He also suggests that not only will individuals become interested but businesses as well as government reporting requirements can be extremely cost intensive. Businesses that are able to cut or even reduce these expenses will not hesitate due to the financial incentive at hand.
Marian also points out that cryptocurrencies already have many of the features of current tax havens with one huge difference: Cryptocurrencies are not reliant on the existence of financial institutions.
Professor Marian also suggests that the government has failed to identify how acute this problem might eventually become. While they have been active in stemming the money tide to offshore tax havens, the government appears to be scratching its head with how to approach cryptocurrencies, which seem to be immune to conventional measures and current legislative activity (or lack thereof) reflects this confusion. The indecision seems to be coming from a lack of a clear definition of what exactly Bitcoin is: property or money.
Currently Bitcoin is considered property for tax purposes which is actually good for Bitcoin investors because it allows them to pay taxes on Capital Gains instead on earnings, which are taxed at a higher rate. If Bitcoin becomes a state-recognized however, the tax rate will probably increase as well.
Interestingly enough, the Swiss government has announced not too long ago that it will be sharing the identities of foreign account holders with their home countries. The fact is, however, that savvy investors already steer clear of European “tax havens” because in most cases privacy laws do not apply to funds that are either obtained illegally or that are being used in an illegal manner.
Until the recent announcement, this caveat did not apply to tax agencies but now that has changed making Swiss accounts no more private than any other bank. As a result, the great majority of tax evaders are moving their accounts to the Caribbean and Central America where banking laws are much more account holder friendly.
If Professor Marian is cor