Very little has been written about the tax implications of Bitcoin and other cryptocurrencies. And that’s a problem for accountants.
You should be monitoring this burgeoning space for the simple reason that it’s becoming more and more popular amongst clients - both corporates and individuals.
Cryptocurrencies are digital currencies, hosted by blockchain technology that uses cryptography to ensure security. Benefits include immutability, speed and cost-efficiency of transactions.
The total value of all cryptocurrencies is estimated to grow from $16.6 billion in 2017 to $1,132 billion in 2025. There are thousands in circulation, although a small handful dominate. These include Ethereum, Ripple, Litecoin Dash and of course, Bitcoin.
This is no tech fad. Central banks in countries such as Sweden and Canada are considering launching their own ‘National Digital Currencies’ in order to reap the benefits. Major financial institutions, including banks, investment managers and consulting firms are investing in the technology, too.
Crypto is here to stay, and accountants should position themselves accordingly.
With financial institutions jumping in at the deep end, it’s safe to say that accountancy firms will soon follow. But how should digital currencies be treated from a tax perspective?
Neither IFRS or US GAAP provide guidance, despite the surge in adoption. Confusion reigns, and there is little consensus across accounting standards, jurisdictions and regimes:
A few months ago, PWC shared its thoughts, speculating as to how cryptos might be treated under IFRS. It concluded that cryptocurrencies would likely meet the definition of an intangible asset that can be sold, exchanged or transferred and has no physical form. But cryptocurrencies are often used for extraordinary purposes - including funding investment initiatives, so it’s unclear that cryptos qualify as intangible assets.
In terms of measurement, PWC argues that fair value is the most relevant basis because cryptos are used as a proxy for currency. Since intangible assets can be measured at fair value if there is an active market, and many cryptocurrencies (particularly those issued in ICOs) are not actively traded, this complicates things further.
Cryptos are bound to play a more important role in both financial services and the real economy going forward. Clearly, there’s a glaring lack of consensus and guidance on how accountants should treat cryptocurrencies and advise clients on this exciting, yet complex space.
At Capitalise.com, we work with UK accountants all day long, helping them to increase revenue and value add by providing financing tools to their clients. We know the challenges you face in staying relevant and competitive. And we know the opportunities that can arise when you keep your finger on the pulse with clients and their needs.
So that’s why we’re calling on accountants everywhere to work together to shape the discourse around cryptocurrencies and lobby financial authorities for guidance. Achieving this will empower accountants to provide a better service to their clients, and it will empower clients to grow and prosper.
For more information on Bitcoins and what they mean for accountants, read our new guide.