Abstract
This article challenges the informal and uncoordinated attempts by governments worldwide to hinder technological innovations that could potentially disrupt established monetary systems and undermine the significance of banks, stock exchanges, and financial institutions. The authors argue that the outcome, which effectively sacrifices governments' ability to tax crypto capital appreciation, impedes the widespread adoption of decentralized tokens and is more detrimental than beneficial. Instead of applying outdated tax rules developed a century ago, the article proposes the development of a new regulatory tax framework that takes into account the unique characteristics of decentralized virtual tokens. These characteristics include their pseudo-anonymity, tradability, liquidity for certain tokens, minimal administrative costs, decentralized nature, government non-intervention, high price volatility, and virtual nature.
The article also criticizes the favorable "realization principle" granted by many tax authorities worldwide, deeming it unjustified and unnecessary. It argues that such a tax deferral suppresses the daily use of tokens, discouraging owners from exchanging or disposing of them as a means of payment. The article suggests that governments may be using these measures to protect their fiat currencies and invest in the development of their own digital currencies. However, it asserts that blockchain technology and crypto tokens do not jeopardize nationalism, and governments should welcome them instead of resisting them, as resistance would be futile and against their own interests.
To address these issues, the article proposes taxing the capital appreciation of crypto tokens, regardless of whether it has been realized or not, using a formulaic tax regime based on a risk-free interest rate and the investment in the token. Additionally, the article discusses income tax considerations related to the creation, disposal, and exchange of digital tokens, suggesting a revision of the existing tax regulatory framework to better align with the unique characteristics of crypto tokens and the principles underlying good tax policy.
Recommended Citation
Shanan, Tamir; Narotzki, Doron; and Zaks, Lior
()
"Developing a Novel Conceptual Tax Regulatory Framework for Crypto Tokens,"
Akron Law Review: Vol. 58:
Iss.
1, Article 4.
Available at:
https://ideaexchange.uakron.edu/akronlawreview/vol58/iss1/4