Abstract
This paper analyzes the potential for taxing capital gains from cryptocurrency, particularly Bitcoin, and its economic impact. Using data from Chainalysis, it simulates the tax revenue from Bitcoin capital gains in the EU in 2020. The author claims that this is the first paper to empirically assess the tax revenue potential from Bitcoin capital gains in the EU using country-level data.
P88
“This paper investigates the taxation of capital gains from, the economic importance of, and the inherent challenges related to the taxation of cryptocurrencies. Based on novel data from Chainalysis, this paper simulates the revenue potential from taxing Bitcoin capital gains in the European Union (EU). The total estimated Bitcoin capital gains in the European Union in 2020 amounted to €12.7 billion, including €3.6 billion of realised gains. Applying national tax rules for capital gains from shares to capital gains from Bitcoin yielded a simulated tax revenue of about €850 million in 2020. This paper is, to the author’s knowledge, the first to empirically assess the tax revenue potential of capital gains from Bitcoin in the European Union using disaggregated country-level data. The findings indicate that revenue from taxing cryptocurrencies is significant and will continue to increase if the cryptocurrency market continues to grow.”
Structure of the Paper
1. Introduction
2. The Evolution of The Cryptocurrencies Market
3. Who Owns Cryptocurrencies?
4. The Distribution of Bitcoin Capital Gains and Tax Simulation
5. Conclusion
Comment
As the author himself admits, the problem is that it is difficult to determine the distribution of bitcoins at the individual level, because in the end, cryptocurrency service providers often hold a significant share of bitcoins.
The Chainalysis survey on which this paper relies estimates capital gains from Bitcoin by allocating transactions recorded on the blockchain according to the web traffic data of each country to the websites of service providers.
I have no opinion on the reliability of such estimates, but this paper reminds us that research that calculates Japan’s tax revenue potential for cryptocurrency capital gains would be beneficial in advancing discussions on tax audits and separate taxation of cryptocurrency in Japan.
