By CCN: An international tax evasion authority comprising five major global economic powers is taking cryptocurrency seriously. A year ago, five world powers created the Joint Chiefs of Global Tax Enforcement, or J5, with a particular interest in cryptocurrencies. The J5 Group including tax authorities in the U.S., U.K., Canada, Australia, and the Netherlands is at the helm of 50 investigations into global tax evasion.
The Sydney Morning Herald reported Thursday that of the 50 lines of inquiry, Australia is directly involved in 12. At least one of the subjects of the Australian Tax Office’s investigation is an unnamed international financial institution. Cryptocurrencies and related technologies, however, are a major focus of the tax evasion sweep.
There are still many critics who scoff at cryptocurrency and call it “delusional,” a bubble, a fad. But some of the world’s most wealthy governments perceive a serious threat to their tax revenues alone.
Crypto ‘Tumblers’ and Tax Evasion
Pop music star Shakira is in trouble for tax evasion in Spain, but no one is imputing her case to the entire music industry. | Source: Ruptly via Twitter.
There are many countermeasures like crypto “mixers” that essentially launder tokens. But the openness, transparency, and immutability of many blockchain ledgers might make the authorities’ job easier for them.
Australia Tax Office deputy commissioner Will Day reportedly says:
“At no other time have criminals been at greater risk of being caught. In Australia, they are often intermediaries who are playing a role between the tax evader and an offshore entity.”
The successful use of the blockchain by authorities like the FBI to catch cybercriminals underscores the deputy commissioner’s point.
Higher Tax Rates: Less Tax Compliance
There’s an apparent need for an international tax force with unprecedented information between the revenue authorities of major governments. But that might evince that taxes are just too high. In this case, crypto technology is merely a symptom. It’s a tool that people are using to address a more fundamental economic problem for which governments are the culprit.
In 2013 Modern Economy published a study by economists María Jesús Freire-Serén and Judith Panadés at the Autonomous University of Barcelona. The study found that higher marginal tax rates have a direct correlation with higher tax evasion.
According to the Mercatus Center at George Mason University, it’s not only the rate of taxes but the complexity of the tax code that encourages non-compliance. Ironically that’s something that smart contract applications on the blockchain will likely help to solve.
Legal Tax Avoidance for Crypto Traders
There are legal ways to pay lower taxes on cryptocurrency trading. These are called “tax avoidance.” One is the use of an IRA in the United States for crypto trading.
No word yet on whether the J5 has a dossier on John McAfee.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.