The introduction of the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) has established a new standard for the automatic exchange of information (AEOI) in tax matters and led to a high level of tax transparency. These two complex and comprehensive instruments are an effective way to combat tax evasion on a global basis.
Due to the recent increase in the use of innovative financial products, the Organisation for Economic Cooperation and Development (OECD) announced that the CRS will be expanded in 2021 to cover cryptoassets and virtual currencies. However, until there is formal guidance in this regard, the question remains as to whether and to what extent FATCA and the CRS apply to cryptoassets and virtual currencies and Swiss companies that develop, use, exchange or invest in such digital assets.
FATCA and the CRS adopt a similar approach with regard to the classification of entities.
Until there is formal guidance on the treatment of cryptoassets and virtual currencies for the purposes of FATCA and the CRS, Swiss companies must comply with the current regulatory framework that was enacted without digital assets and innovative financial products in mind.
All Crypto companies that are active in the field of cryptoassets and virtual currencies must consider the potential impact of FATCA and the CRS. In addition to a company's general operations, a company's fundraising method may also trigger reporting obligations under FATCA or the CRS since raising capital using initial coin offerings or initial token offerings may involve trading, investment or custodial activities.
Under The FATCA And CRS Regimes.
If the respective investments in cryptocurrencies or assets and taxable income derived therefrom have not been properly declared in the individual tax return, the taxpayer must be aware that the exchanges or intermediaries involved may need to report the respective investments to the competent tax authorities sooner than the taxpayer thinks.
On January 12, 2021 we posted IRS Cryptocurrency Enforcement Risk In 2021- What To Do NOW? where we discussed that A high-stakes game of chicken moves to the next level in 2021. Over the past several years, the Internal Revenue Service has repeatedly warned that taxpayers who violate the law while using virtual currency, including cryptocurrency, will be pursued for civil and, potentially, criminal penalties. The second leg of the campaign — enforcement — is in full swing and primed to increase in 2021. The IRS is auditing taxpayers and has sought to obtain information about at least one taxpayer from other virtual currency exchanges, like the Luxembourg-based Bitstamp Ltd.
Taxpayers should check whether it is still possible to correct the tax return or file a Voluntary Disclosure in order to avoid any criminal proceedings and penalties, as well as administrative costs.
Read more at: Tax Times blog