Crypto Industry Battles to Exempt NFTs, DeFi From Tax Reporting Rules

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Crypto industry representatives pushed back at attempts to make them report details of non-fungible tokens (NFTs), decentralized finance (DeFi) transactions and retail payments to tax authorities at a meeting of the Organisation for Economic Co-operation and Development (OECD) in Paris on Monday.

International tax standard-setters want to extend existing bank sector rules to stop foreign bitcoin (BTC) holdings from being kept secret from revenue services. And they may end up extending them further than both the existing rules that apply to banking and the money laundering norms currently being applied to crypto by parallel standard-setter the Financial Action Task Force (FATF).

Coinbase’s Vice President for Tax Lawrence Zlatkin told the OECD that its plans, set out in a March consultation, were “overly broad,” because they don’t just look at financial assets used as a means of payment or investment. Zlatkin added that the proposals would merely impose additional burdens on a relatively new and nascent industry.

Under existing rules, known as the Common Reporting Standard (CRS) – whose U.S. equivalent is the Foreign Account Tax Compliance Act (FATCA) – banks are required to identify any account holders who are tax residents abroad and send their details to the appropriate authorities to make sure they aren’t evading tax.

But the industry has argued these requirements are a lot harder to meet for NFTs whose price – unlike, say, stocks or gold – isn’t known at any given time. They also point out that similar nondigital assets, such as paintings, aren’t included in existing rules.

Attempting to include DeFi applications could also be premature, Zlatkin said. “Maybe we should wait until they fit the parameters more readily,” he said, citing DeFi systems that don’t have anyone who could be deemed in control, and maybe don’t even see themselves as having customers. “We should focus on what we know.”

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