After HMRC stated that bitcoin exchanges were not eligible for financial services exemptions, they were dragged into Treasury’s tech tax.
Online cryptocurrency exchanges have been informed by the tax office that they are subjected to the levy. This is intended to ensure tech companies such as Amazon, Google, and Facebook pay more to the Exchequer.
HMRC stated that crypto-assets are “not financial instruments” and therefore do not qualify for commodities or money. Online exchanges that sell cryptocurrencies such as Bitcoin or ethereum cannot claim exemptions from financial marketplaces.
The digital services tax was implemented last year. It imposes a 2pc sales tax on online search engines, social media platforms, and online marketplaces that generate more than PS500m in global revenue and more than PS25m in UK sales.
This is likely to be phased out following a G20 tax agreement earlier in the year to punish avoidance. However, it will remain in force until a new measure is implemented.
Coinbase, the largest exchange in the world, could be affected by the levy. The company’s UK subsidiary reported sales last year of EUR21.2m (PS18m), but it recently reported that its global revenues had quadrupled. This means that it will likely surpass the UK threshold by 2021.
CryptoUK, an industry group, is lobbying HMRC & The Treasury to raise the issue. They claim it is unfair to treat cryptocurrency differently from other financial assets. They were treated in the US as commodities.
HMRC updated its guidance on digital services tax and stated: “There are many crypto assets, each of which has different characteristics.” HMRC also said that since cryptocurrencies don’t represent money, commodities, or financial contracts, it is unlikely that cryptocurrency asset exchanges will be able to benefit from the exemption for online financial markets.
Director of CryptoUK Ian Taylor stated that this was a blow to cryptocurrency exchanges following the “arduous” licensing system introduced by the Financial Conduct Authority. It would also lead to higher fees for those buying and selling cryptocurrencies.
Both Amazon and Google have passed the digital service tax cost to advertisers and merchants, respectively.
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