The lack of transparency has been a growing problem for crypto-based companies. For most of them, it is a nightmare just to meet basic regulatory needs like finding an accountant, opening a bank account, getting audited and certified compliant. There is a lack of clearly defined standards and practices for businesses dealing in tokens and cryptocurrencies. The main challenge lies in the fact that most accounting practices and financial reporting guidelines are formulated for traditional FIAT currency based businesses. This regulatory hurdle limits the market penetration and adoption for many crypto projects, as “institutions need to see a focus on compliance, transparency, and governance to comfortably use and transact with crypto” according to Jeff Horowitz, Chief Compliance Officer at Coinbase. For example, a token company usually has trading accounts on several exchanges (not to mention dealings with OTC desks) and will use several wallets for its operational activity. All these service providers have different formats to report transaction information and history due to the aforementioned lack of standards. To just name a few, you’ll have to understand what base and quote currencies are. You’ll have to see that a BUY transaction on Kraken is different from a BUY transaction on Bitfinex, then figure out what Bitcoin UTXO are and how to account for them. Therefore, extracting, consolidating, valuing and classifying all this data for different digital assets coming from many different exchanges with different prices is a nightmare. And now we have a new entrant to add to the confusion - Libra. Given the little information that we have, will it be a new way to evade taxes? How will the transactions be reported? And eventually how will it be taxed? The capacity of evading taxes is related to the possibility of staying anonymous in the network, which is the great advantage of crypto like ZCash or Monero. The Calibra wallet (the first Libra wallet – developed by Facebook) will however ask for KYC on their platform. . But, Calibra won’t be the only wallet provider. If a user wants to buy or sell Libra from the Calibra wallet, he or she will have to share with the company their personal and banking information Since Libra is open-source, anyone can decide to build a Libra wallet and cash-in/cash-out solutions. And it will be the network participant’s responsibility to comply, or not, with the local regulation. Though we would definitely, and strongly, recommended to comply. However, every entity that wants to send Libra through mainstream applications like Messenger or Whatsapp will be exposed to regulations and taxes. So how will Libra be taxed? As per Facebook, Libra will be backed by a basket of international currencies. Its price will be stable relatively to this basket, but will vary relatively to each currency. It paves the way to as the value of your Libra holdings might have increased or decreased from the time you acquired them and the moment you used/sold them. capital gains taxes The impact of this is that Libra holders will have to track the historical prices of the asset relatively to their national currency to be able to compute cost basis and gains & losses. For instance, if you buy 10 000 Libra at €0,95/Libra and use them when it is at €1/Libra, you will have to report a gain of €500. However, it is still not completely clear how these gains are supposed to be reported. Libra argues that given the different nature of the asset (non-speculative, made for payments and money transfers), it will be subject to a (Dante Disparte, Head of Policy and Communications at the Libra Association). In other words, a . To be noted that here, you still have to value every Libra transaction based on the price of Libra. ‘light tax treatment’ Libra transaction history will be considered as regular payments that are not exposed to capital gains Given the giant 'mainstream' participants in the Libra association (VISA, Stripe, Ebay, Uber), we can imagine that more and more big players will start accepting payments in Libra. Thus, even if it won’t be considered as a regular currency, it will more and more look like one. And like every payment in a regular currency, companies will have to implement a invoicing management system. It will be even more mandatory given that companies accepting payments in Libra will still have to account for . This would again mean reconciling the Libra activity with the local currency, valuing every payment in USD/EUR, cashing out some Libra to pay the sales tax, and then showing everything in the accounting reports. sales tax All these options lead to one conclusion: . Atleast not any time soon. We expect that some financial services providers will build basic accounting tools on the Libra network to help the participants benefit from it. This is one of many issues that the Libra team will have to tackle in the near future, once they solve their current issues with Libra fitting the AML requirements asked by US regulators. it won’t be easy to account and reconcile Libra transactions with fiat-based accounting and tax declaration As governments and regulatory bodies catch up to the new business models created by cryptocurrencies, this space is going to see a lot of action in the coming months and years.

Monero

Zcash

Coinbase

eBay

Facebook

Stripe

Uber

Visa

Get Accounting help for your crypto business

Read My Stories

Too Long; Didn't Read

Accounting & regulations for businesses that integrate Libra  

Accounting & regulations for businesses that integrate Libra

About Author

Comments

TOPICS

THIS ARTICLE WAS FEATURED IN

Related Stories

7 Benefits of Virtual Desktop Infrastructure (VDI) for the Accounting Industry

7 Digital Accounting Trends will Affect CPA Firms in 2020

Accelerating Accounts Receivable with Automated Technologies

Accounting Automation and the Impending Crypto Tornado

Accounting Automation is a Prerequisite for Business Growth and Development

An Obsession that Could Cost Thousands of Jobs

7 Benefits of Virtual Desktop Infrastructure (VDI) for the Accounting Industry

7 Digital Accounting Trends will Affect CPA Firms in 2020

Accelerating Accounts Receivable with Automated Technologies

Accounting Automation and the Impending Crypto Tornado

Accounting Automation is a Prerequisite for Business Growth and Development

An Obsession that Could Cost Thousands of Jobs

Light-Mode

Classic

Newspaper

Minty

Dark-Mode

Neon Noir

Minty

HN StartUps