US Library of Congress Says Most Countries Lack Clear Tax Guidance on Crypto Staking

Out of 31 nations, only five have tax guidance addressing cryptocurrency rewards via staking, a study found.

Feb 4, 2021 at 10:37 a.m. UTC
Updated Sep 14, 2021 at 12:07 p.m. UTC

The U.S. Library of Congress' law division has released a report that shows major differences across global jurisdictions on the taxation of cryptocurrency gains based on how assets are obtained.

The 124-page report penned by foreign law specialists, titled "Taxation of Cryptocurrency Block Rewards in Selected Jurisdictions," was announced Wednesday by U.S. Rep. Tom Emmer (R-Minn.).

Building on the Library's previous research on cryptocurrency regulation, the latest study comprises a comparative analysis of 31 different nations' regulatory approaches to cryptocurrency taxation.

Specifically, the study casts an eye over jurisdictions that tax those who obtain mining block rewards versus proceeds obtained via staking. The report also assesses the tax implications of new tokens obtained via free distributions called airdrops and blockchain splits, or hard forks.

The study found that while tax departments in a number of the 31 countries have published guidance on the taxation of mined tokens, only a handful directly address the taxation of new tokens obtained via staking. An alternative to mining, staking is committing crypto assets for a period to support the functioning of a blockchain network in return for rewards.

The disparity arises because more recently a number of projects have moved from a proof-of-work (PoW) consensus mechanism – aka mining – to a proof-of-stake (PoS) model, and countries are playing catch-up, according to the report.

More guidance needed

Emmer, who is co-chair of the Congressional Blockchain Caucus – a bipartisan group of lawmakers studying blockchain technology in conjunction with industry – said greater guidance was needed to implement a "proper path forward."

"In order for these technologies to thrive and reach their revolutionary potential we must have the knowledge and organizational landscape of the approaches to regulation," said Emmer in a press release on Wednesday.

Out of the 31 nations, 16 have been identified as possessing specific rules or guidance on the applications of various major taxes such as income, capital gains and value-added tax when it came to mined tokens.

Those include Australia, Canada, Denmark, Finland, France, Germany, Israel, Italy, Japan, Jersey, New Zealand, Norway, Singapore, Sweden, Switzerland and the U.K.

Most of the countries listed above provide different tax treatment to small-scale cryptocurrency mining conducted by individuals, often treated as a hobby, then large scale commercial operations.

Meanwhile, the number of countries that address the taxation of tokens obtained via staking stands at just five: Australia, Finland, New Zealand, Norway and Switzerland.

"How nations tax the people who maintain cryptocurrency networks will obviously have a big effect on attracting or repelling innovators and investment," said Abraham Sutherland, legal adviser to the Proof of Stake Alliance. "The results are all over the board."

Sutherland went on to say the "critical first step" is to establish clarity around block rewards and when they are taxed. He said tokens should be taxed when they are sold, not when they are first acquired such as can be the case with new property.

"This will both reduce administrative headaches and ensure that people are not overtaxed."

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