Taxation

The worldwide growing adoption of crypto and decentralized finance (DeFi) ecosystems around the globe (some of them reaching 9-digits market cap) have resulted in policymakers and supra-national institutions’ alertness to regulate the market, either seeking to take it over, frame it or rejecting its adoption.

I. Supra National General Regulatory Approach on Digital Assets
First, it’s important to highlight the pivotal role of supra-national powerful institutions controlling and benefiting from the financial system the cryptocurrency is in the process of replacing. This is a powerful force that can change the whole crypto environment for better or for good.

These institutions are currently working close to governments and regional policymakers to function as international regulatory bodies building up standardized regulations on multiples subjects. They are clearly committed to regulate, restrict, or take control of the digital assets market by providing guidelines, recommendations, or quasi-mandatory
propositions to its members. 

Among such organizations, it’s worth to mention the Bank of International Settlements (BIS), the Financial Act Task Force (FATF), the International Monetary Fund (IMF), the World Bank, the World Economic Forum (WEF) and Wall Street itself.

A deep understanding of the supra national bodies’ role in the digital assets regulations falls outside the scope of this article, but we might cover the subject in articles, studies or reports regarding crypto regulation in different jurisdictions to be released soon.

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II. Global Approach on Drafting Crypto Assets Regulation

Most of the policymakers in developing countries are indeed seeking to strike a balance between systemic risks, while enabling future innovation to win the race to become a global crypto/blockchain hub.

In general, the 7 (seven) fundamental priorities the policymakers/governments take into consideration when drafting crypto regulations for their respective jurisdictions tend to cover the subjects below:

1. Consumer protection
2. Anti-money Laundering/KYC
3. Securities regulation and market manipulation
4. Tax
5. Financial stability
6. Trademark/Copyright (usually applied for NFTs regulation)
7. Intellectual Property (usually applied for NFTs regulation)

III. EU approach on Digital Assets
So far, the EU has only issued/approved three relevant Directives/Guidance regarding crypto regulation that should be mandatory for all member states: (i) the consumer protection issue (item II, a above), i.e., the exchange of client data between virtual asset service providers (VASPs)1 and (ii) the anti-money laundering issue (Item II, b above), through the implementation of the Fifth Anti-money Laundering Directive (AMLD 5) in 2020 2.

Moreover, any token may be classified as a security token in the EU and comply with any existing regulation regarding securities in the EU, as long as it falls into the scope of a financial instrument according to the less prescriptive classification given by the Markets in Financial Instruments Directive II (MIFID II).

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Due to this regulatory gap left in the EU level, a few member states have already enacted multiple domestic law on crypto assets which are currently regulated by their respective National Competent Authorities (NCA)3, covering some of the topics stated in item II, (a) to (g) above.

Thus, when it comes to crypto regulation, EU became a patchwork pinpointed with disagreeing views and several differences on policy statements among local governments, which in some degree may generate intricacies and
increased costs for players.

On the 30th of June 2022, the European Commission has approved the Cryptocurrency Markets Proposal (MiCA) regulation, covering issuers of uncollateralized cryptocurrencies, stablecoins, trading venues and wallets in which
the assets are held. This means that all member states will have to change any domestic legislation regarding crypto assets enacted so far to comply with MiCA, which will be in full force by 2024.