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The Regularization of Cryptocurrencies

The regularization of cryptocurrencies

The European Parliament approved the Regulation on Cryptoasset Markets (MiCA) in April 2023, providing a clear regulatory framework for companies in the sector.

After what seems to be the end of the crypto winter that began at the end of 2021, the boom experienced by bitcoin in recent months, breaking historical price values before its imminent halving scheduled for April, reopens the debate about cryptocurrencies and once again captures the interest of investors.

What has changed concerning the last peak in 2021? The truth is that in recent times, Administrations have put their foot on the accelerator as far as sector regulation is concerned. Within the European framework, last April 2023, the European Parliament approved the Regulation on Cryptoasset Markets (MiCA), which aims to provide a clear regulatory framework that gives confidence to companies in the sector and establishes rules to prevent abuses and whose entry into force in Spain is scheduled for December 2025.

In Spain, the National Securities Market Commission (CNMV) and the Bank of Spain have made progress in supervising and enforcing regulations related to cryptoassets and creating a registry of virtual currency operators. For its part, the Tax Agency has deployed new reporting obligations (forms 172, 173, and 721) that will enable the gathering of more information on transactions carried out in the sector.

Taxpayer difficulties

As far as taxpayers are concerned, complying with the existing regulations and the new reporting obligations can be a real odyssey for many, in which the cost-benefit analysis suggests that more than one person should not comply with them.

Indeed, there are still many information gaps in crypto-asset management and holding platforms, so the effort of an average investor to obtain reliable data on their balances, transactions, profits, or losses, to fill in the required tax forms or the income and wealth tax return is a considerable investment of time and resources.

It is, therefore, necessary to be aware of the problem. The Administration should simplify the reporting obligations about holding virtual currencies, especially if the aim is to bring to the surface assets that taxpayers kept off the Administration’s radar. Thus, for example, the format, content, and presentation of Form 721 make it a real obstacle course for taxpayers, which has led more than one to move their assets to other forms of custody that are outside the scope of the declaration of the form and therefore outside the administrative control.

In the meantime, we can only recommend that crypto-asset holders operate with platforms registered in Spain since at least these platforms usually provide the necessary information to comply with the tax authorities.

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