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Depending on the jurisdiction, regulators fix at the legislative level the status of the crypto currency – is it goods or currency, what taxes and when should it be levied (during the mining, during exchange for traditional currencies or payment for goods), elaborate schemes of avoiding the double taxation, ad consider whether to regulate or not the activity of the exchanges.
In world practice, the first attempts at state regulation of crypto currency took place five years ago, and the European Union became a pioneer in this direction. In 2012, the European Central Bank (ECB) recognized bitcoin as a convertible decentralized virtual currency.
So far, not all the world states have decided on the legal status, and not all of those who have already decided on it are liberal. The main legislative activity began in 2014, and every year it is gaining momentum. In parallel with Ukraine right now, Russia discusses plans to regulate crypto-currencies.
In February of this year, lawyers from Axon Partners and ForkLog Research crypto-consultancy company published their own independent report on the status of crypto-currency business in the world and the most favorable jurisdictions for it - "Legal regulation of the crypto-currency business."
Speaking about the world practice, the report says that from the point of view of law and business, the situation in Cyprus, Australia, Great Britain, USA, Canada, and Japan is in a favorable position. Since 2015, crypto-currencies in Australia are not a financial product, and all transactions with them, other than investment, are taxed. A similar situation in Singapore, where taxes are levied on buying and selling, but not long-term investments. Since the end of 2016, the UK has created a "regulatory sandbox" - a place where fintech startups could develop and test their products, interacting with real users. At the time indicated in the report, it contains nine start-ups in the field of crypto-currency.
According to the report, the United States have favorable conditions for conducting a crypto-currency business, while from a legal point of view, the situation is difficult. The country is decentralized, and each state can have its own approach. Within one country, crypto-currency is considered an analogue of money, and property, and exchange commodity. bit coin-ATMs are common in the United States, and there are many places, where real goods can be purchased for a decentralized virtual currency.
The European Union is also generally supportive of the crypto currency, but legislation differs from country to country. In 2015, the European Court of Justice decided not to tax transactions on the purchase and sale of fiat currencies for bitcoins, and this decision is relevant for all countries of the Union. The most loyal EU country could be called Switzerland, where one of the cities (Chiasso) even allowed its residents to pay taxes by bitcoins. Austria is pretty loyal to the crypto-currencies - in February a bitcoin-bank was opened in the country, you can get consultations on issues of crypto-currency, open a purse and exchange for bitcoins of euro or dollars there. The Swedish authorities accepted the bitcoins as indemnification, arguing that the asset is no worse than a car or something similar.
The island state of Vanuatu, which accounts for more than half of its revenues for offshore operations, recently announced the sale of citizenship for the bitcoins. Transactions will be conducted through the Australian Exchange under Australian law.
Some countries with developed economies are opponents of the crypto currency, and some of them restrict certain procedures. So, the authorities of Hong Kong believe that bitcoin can be used for criminal purposes, so they do not take it to the legal field. After the government's decline in the yuan, residents of China became interested in investing in crypto-currencies. In the autumn of this year, the authorities of the country planned to suspend the activities of exchanges and recognized Initial Coin Offering (ICO) outside the law (this entailed a significant decrease in the rate of bitcoin). South Korea also banned ICO (a system of attracting investments in the form of selling a fixed number of new units to investors), but at the same time legalized international transfers of bitcoins.
In general, the issue of security, money laundering and terrorist financing touched the authorities of even those loyal to crypto-currencies countries. The UK, China, Russia, the United States, Ukraine, and others talk about these risks and the need for their regulation.
Russia plans to pass a law on the crypto currency until the end of 2017. At the moment, there are bills that offer from 4 to 7 years imprisonment for mining. Also, they want to add miners to the register and tax them (the amount of tax is not determined), and also to stop the "process of involving citizens in mining", blocking access to relevant Internet resources.
Ukrainian draft laws (there are two of them) give their own definition of crypto-currency, mining and other specific terms; stipulate those who have the right to engage in mining, how the activities of exchanges are regulated, and the attendant moments, such as legal responsibility and specific taxation. The positive point is that Ukrainian lawmakers do not prohibit crypto-currencies. But both projects differ significantly from each other. Bill No. 7381-1, according to experts (about them - further), looks more developed and detailed, compared to bill No. 7381.
Key provisions of bill No. 7381 (dated October 6):
- Crypto currency is the subject of barter, to which the general provisions of the barter agreement apply. The state administration in the sphere of circulation of crypto currency is carried out by the National Bank of Ukraine (NBU). NBU regulates the activity of crypto-exchange exchanges, through which all operations should be conducted. Crypto-exchange service is obliged to monitor all the transactions, identification and personification of the subject of crypto-currency transactions in the order established by the NBU.
- Individuals have the right to own and mine the crypto currency. For mining both own and leased capacities can be used. Mined crypto currency is taxed (the amount is not specified).
- The income received by a currency exchange from transactions is taxed.
- General norms apply to the crypto currency (it is like a private property). Miner can dispose of it at his own discretion - change to other crypto-currencies, electronic money, securities, currency values, goods and services.
- The crypto currency cannot be used against Ukraine's national security, for calls for overthrowing the constitutional order, violating the territorial integrity of Ukraine, committing terrorist acts, financing terrorism, laundering funds, circulation of drugs, psychotropic substances, their analogues, precursors, and other unlawful acts.
- The data about crypto-currency transactions are stored in the block-system and are open. The subject of crypto-currency transactions undertakes to store data on all transactions for 5 years.
Key provisions of bill No. 7381-1 (of October 10):
- Crypto currency is considered a financial asset. Crypto-exchange is a legal entity that has the status of a financial institution and provides all types of financial services in the crypto-currency market. Mining can only be done by a legal entity or a sole proprietor.
- The Regulator, a specially created organ, will regulate market of the Crypto currency. The regulator will deal with the issuance of licenses for the operation of crypto-exchanges and crypto-exchange operations, will provide control over their activities; prohibit or stop the activities of financial institutions that provide services in the market of crypto-currencies; establish rules and standards for the provision of services, exercise prudential supervision of financial institutions, etc.
- The state stimulates the activity of miners and the development of the crypto-currency market. Including by financial support of innovative projects in the field of mining, through regulation of electricity prices (preferential tariffs at night), preferential taxation and other forms (in accordance with the legislation of Ukraine on innovation).
- Crypto-exchange can only be a legal entity with a minimum statutory capital of at least 200 thousand USD (not borrowed money, provenance of which can be proved) at the time of obtaining a license. Not less than 51% of the statutory capital should belong to the citizens of Ukraine, and the members of the crypto-exchange can also include state bodies and local self-government bodies, non-profit organizations, and non-residents of Ukraine.
- A financial institution that provides services on the crypto-currency market must have a website in the top-level domain “.ua,” the name must coincide with the registered TM on the territory of Ukraine.
- Anonymous accounts in crypto currency are prohibited.
- Crypto-currency transactions can be carried out only through crypto-exchanges and crypto-currency exchange points. They must pay a fee for pension insurance.
- Mining is prohibited with full or partial use of computer and other means belonging to third parties, without the consent of third parties.
Bitcoin Foundation Ukraine – BFU (a profile Ukrainian public organization consisting of representatives of business and experts in the field of crypto-currencies, in particular, the mining business, start-ups, venture funds, etc.) positively assesses the intention of the Ukrainian parliament consolidate crypto-currencies as part of civil liberties at the legislative level.
At the same time, the organization notes the shoddy nature of both bills, as well as their populism, incompleteness of terminology. It argues that experts in crypto currency have not been involved in elaborating both of the projects.
In particular, in the first draft BFU draws attention to the fact that the definition of the term "crypto-currency" puts it on a par with works of art that have intellectual property rights, and therefore royalties, and terms of copyright protection. Also illogical is the prospect of regulating barter relations (which implies an exchange) by the National Bank. "According to the Ukrainian legislation, the NBU is obliged to ensure the stability of the national currency - hryvnia, the only monetary unit and legal means of payment on the territory of Ukraine," explains Yelyzaveta Belei, a lawyer of the Antika firm.
There are nuances with the definition of crypto currency as a way of exchange. "According to the current rules, the barter agreement is a kind of sales contract and is governed by all the provisions that are designated for sale and purchase contracts. Thus, the parties may face a lot of legal regulations that are not designed for crypto-currencies," Serhiy Papernyk, head of banking and fintech law firm Evris, explains.
BFU experts point out that the second bill contain statements about the stimulation of mining, but there are no mechanisms for its implementation, in matters of taxation, both projects refer to the Tax Code, which is not adapted yet.
According to the lawyer from Evris, bill No. 7381-1 introduces excessive regulation into the sphere of crypto-currency, and the norm that only Ukrainian companies can conduct exchanges, cuts the country from the current world market of crypto-currencies and reduces investment attractiveness.
Both bills ignore ICO. "The recent boom in the ICO says that often tokens are of purely food value, having nothing in common with currencies as such, even the very concept of a crypto-currency may become a thing of the past soon. Multifunctional tokens of more modern block- platforms might replace it, - says Papernyk. - Forgetting about regulation of tokens of other species that can also be shunted and sold, we risk creating a new legal vacuum and a new series of abuses from controlling bodies."
Tetiana Kharebava, Counsel, Attorney, Head of Intellectual Property & IT Law, Antitrust and Competition at Spenser & Kauffmann, insists on the importance of legalizing crypto-currency relations in Ukraine: "Given recent searches at mining companies offices by law enforcement officers, this is a positive step for our country, as it clarifies the relationship between the interested market participants and government agencies."
Representatives of Bitcoin Foundation Ukraine hope that before adoption of laws on regulation of crypto currency, the bills to be discussed with parliamentarians.