Tax Implications of Cryptocurrencies in the Philippines (August 16 2018)
May a transaction involving virtual currencies be subject to tax?
As discussed in the previous article, while the Bangko Sentral ng Pilipinas (BSP) and Securities and Exchange Commission (SEC) have issued guidelines on cryptocurrencies, the Bureau of Internal Revenue has remained silent on the matter.
Yet, despite the lack of BIR guidelines specifically pertaining to cryptocurrencies, persons dealing with digital currencies like Bitcoin are not exactly exempt from taxes.
To explain this, let’s take a look at the nature of taxation.
In the case of Film Development Council of the Philippines vs. Colon Heritage Realty Corporation, G.R. 203754, 16 June 2015, the Supreme Court held that the power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every independent government, and needs no express conferment by the people before it can be exercised. It has even been described as the “power to destroy”. Such is the power of taxation that nobody can escape it, even after death!
Thus, it’s safe to say that spending or investing in Bitcoin may be subject to taxes. However, the tax treatment of a virtual currency transaction will depend on its usage.
Buying a dozen cheeseburgers using Bitcoin would entail income on the part of the burger chain, which may be subject to income tax (and if you eat all twelve yourself you might end up paying your doctor with Bitcoin, in which case a similar situation would arise!) Value Added Tax (VAT) may also be charged, as there was an exchange of goods.
Now, if the burger chain’s cook receives his or her wages in Bitcoin, their income may also be taxable (should their wages go beyond the compensation threshold under the TRAIN law).
Backtracking for a second, it’s also pertinent to ask how you, the purchaser, obtained the Bitcoins in the first place. Should you be a ‘miner’ then you’ll have earned them by solving a mathematical puzzle then adding a block to a blockchain.* If you subsequently sell or use the bitcoins you mined, the value received after deducting expenses may be treated as income.
On the other hand, if the Bitcoins you have were purchased from someone, this may be treated as an investment or property subject to capital gains tax.
As a final note, in the advisories issued in January and April 2018, the SEC advised that violators to the registration and disclosure requirements—where the virtual currencies offered are in the nature of a security—would be reported to the BIR so that the appropriate penalties and/or taxes can be assessed. This further solidifies the BIR’s authority on the taxation of cryptocurrencies. We’ll just have to wait for specific memoranda from the BIR.
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