Majority of Countries Need far Clearer Tax Guidance on Crypto Staking: US Library of Congress
While there have been some impressive progress in the furthering relationship between cryptocurrencies and state governments, there is still a ways to go. According to the United States' Library of Congress, this assessment published a thorough 124-page report this month. Titled ‘Taxation of Cryptocurrency Block Rewards In Selected Jurisdictions,' the report was put together by the Library's specialists in foreign law and was announced by U.S. Congressman, Tom Emmer.
Having been built on top of the Library's already meticulous research on cryptocurrencies and regulation, this latest publication offers readers a comparative study of 31 different countries. Specifically, the study observes these countries' regulatory approaches, especially towards the tax frameworks set up for those obtaining financial rewards from mining blocks via staking. Along with the regulatory frameworks, the study also makes a thorough assessment of the broader tax implications of new tokens obtained through cycles of free distribution like blockchain hard forks or airdrops.
So what were the findings of this report? While many of these countries' tax departments had laid out guidance on taxation related to mined tokens, only a select number has provided specific guidance on the taxation of new tokens obtained through staking.
Associated with Proof of Stake-based mining, staking is the process by which users support the continuous functions of a blockchain network by staking their assets in return for rewards/dividends. A growing number of new and existing projects have emerged relatively recently. They have given preference or pivoted to a proof of work consensus mechanism, with countries racing to catch up with developments.
More Guidance to Find the ‘Proper Path Forward' – Tom Emmer
Sitting as a Congressman, Emmer also serves as the Co-Chair for the Congressional Blockchain Caucus, a group of politicians and lawmakers who advocate for the study and application of blockchain. Along with the report, Emmer provided his own analysis of the current landscape adding that greater guidance was needed for these governments to find the ‘proper path forward.'
“In order for these technologies to thrive and reach their revolutionary potential, we must have the knowledge and organizational landscape of the approaches to regulation.”
Out of the 31 nations identified and studied, the Library of Congress found that only 16 of them had clear guidance on the applications of taxes when it came to tokens:
- United Kingdom
To some extent, the Library of Congress found that these countries provided specific tax treatment for smaller-scale cryptocurrencies mined by individuals more so on a small scale as opposed to larger-scale operations by companies.
Even then, only five of these countries have specific tax frameworks established for digital tokens obtained via staking – Australia, Finland, New Zealand, Norway, and Switzerland. Proof of Stake Alliance Legal Advisor Abraham Sutherland said,
“How nations tax the people who maintain cryptocurrency networks will have a big effect on attracting or repelling innovators and investment.”
In general, Sutherland concludes, “the results are all over the board.” He adds that each of these countries needs to establish a greater clarity around block rewards as the “critical first step. According to Sutherland, one of the appropriate measures must be on the taxation of these tokens when they're sold instead of when they're first obtained.