- Cryptocurrencies are costing governments a huge chunk of revenue as users capitalize on their decentralized nature to avoid taxation.
- Denmark’s Tax Ministry is looking to curb the situation by revamping its old tax laws to include cryptocurrencies.
- Toothless legislation? Users may attempt to dodge the legislation by using privacy coins like Monero and ZCash.
- In other developments, the governor of Denmark’s Central Bank has stated that cryptocurrencies are not a threat to the bank.
The cryptic nature of cryptocurrencies has made it very possible for users to obscure their finances and falsify tax returns. The government has lost out on potential revenue streams due to the rise of crypto and its outdated tax laws that do not account for a technology such as cryptocurrencies to be covered by pre-existing tax brackets. Denmark has followed the lead of the United States and Australia by vowing to update its tax laws to include cryptocurrencies.
The Australian Tax Office announced that it has the capacity to monitor crypto exchanges and calculate the correct amount of tax that a given user is required to remit, as it aims to catch its 600,000 active crypto traders in the tax net. The Danish tax body will revamp its tax laws to tackle the peculiarities of cryptocurrencies to the same end.
Denmark to Tax Digital Assets
Bodskov Morten, Denmark’s Taxation Minister, has stated that it is necessary for the country to revise its tax laws to include the atypical nature of digital assets.
He further stressed that the aim of the changes is to “be vigilant and ensure that our rules are up-to-date and limit errors and fraud.”
Currently, there are an increasing number of incidents involving tax fraud and tax filing errors around cryptocurrencies in Denmark, which the government intends to put an end to with the revisions. Reportedly, two-thirds of cryptocurrency transactions in Denmark are not properly taxed.
The Ministry explained that the current tax codes date back to 1922, and thus don’t account for digital assets. Although the contents of the revised laws are not yet known, the Ministry has stated that it will examine and address the loopholes that have been introduced by crypto.
Between 2015 and 2019, about 16,000 people traded cryptocurrencies, and about 67% of those transactions were inaccurately reported. This year Skattestyrelsen, the country’s tax agency, has already charged 48 people for violating the country’s tax laws.
On the Flipside
- Over policing of cryptocurrencies, though a good revenue stream, may be detrimental to the overall growth of crypto and blockchain in Denmark.
- Some users are already downplaying the impact of the government’s decision as they remain confident of getting around the laws.
An Effective Solution or Just Toothless Legislation?
Debates have already arisen as to whether the proposed legislation will be able effectively to bring crypto transactions in line with current tax brackets.
The government could walk the path of Australia by monitoring its crypto exchanges in order to keep tabs on the users that have made transactions, and apply appropriate taxation.
Cryptocurrencies like Bitcoin and Ethereum, although pseudo-anonymous, can be traced through centralized exchanges, however, users can switch to privacy coins, which are more difficult to trace than regular cryptocurrencies. Following the legislative news in Australia, users switched to privacy coins like Monero and ZCash, pushing their value up over 20% in 24 hours. Users in the countries which follow suit may similarly decide to make the switch to privacy coins.