This article is the summary of chats we had with CFOs and CPAs working in the digital asset space. Based on their experience on crypto, we asked them what they think the accounting and tax impacts will be on Libra holders.
During a press conference at the White House, the U.S. Treasury secretary Steven Mnuchin said that “cryptocurrencies such as bitcoin or Libra have been exploited to support billions of dollars of illicit activity like cyber crime, tax evasion or human trafficking”
Although people and companies working in the digital asset space are fed up with hearing the same argument again and again (crypto = terrorism, drugs, tax evasion..), no one can’t argue that some illegal activities have been relying on crypto, specially on anonymous coins for several years (even though cash is way more used…)
But what about Libra? Given the few information that we have, will it be a new way to evade taxes? 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 ask for KYC on their platform. 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. But, Calibra won’t be the only wallet provider. 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 fit, or not, with the local regulation. However, every entity that wants to send Libra through mainstream applications like Messenger or Whatsapp will be exposed to tax.
But how will it work?
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 capital gains taxes 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.
Why is it important?
If Libra falls in the current crypto tax frameworks, the impact will be 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 have to report a gain of €500.
What are the other options?
Libra argues that given the different nature of the asset (non-speculative, made for payments and money transferts..) will lead to a ‘light tax treatment’ (Dante Disparte, Head of Policy and Communications at the Libra Association). In other words, a Libra transaction history will be considered as regular payments that are not exposed to capital gains. To be noted that here, you still have to value every Libra transaction based on the price of Libra.
What about companies?