Encryption Asset Tax Compliance and Regulatory Game

The global regulatory compliance focus on cryptocurrency assets continues to heat up, with countries progressively strengthening tax information exchange and tracking for on-chain assets, offshore accounts, and cross-border transactions. This article will discuss hot topics such as global tax compliance for cryptocurrency assets, tax arrangements, and regulatory games, and will explore the tax logic in various scenarios including exchange compliance, DeFi, mining, and airdrops, along with real case studies.

Cross-Border Income Taxation Issues

Web3 projects themselves possess the characteristics of being cross-national and cross-regional, making it difficult to accurately attribute income to a specific location. Economic activities are closely related to both the source of customers and the platforms, networks, and infrastructure used. For Web3 practitioners, these discussions often extend beyond the scope that traditional tax frameworks can fully cover.

The core issue is that the evolution of the global tax regulatory system struggles to keep pace with the advancements in technology and industry development. Regulation has been trying to catch up, but changes in the industry and technological innovations are always ahead. This "catching up" state may persist for a long time, and there will always be a dynamic balance between regulation and the industry.

Cryptocurrency Taxation Cases

Recently, relevant authorities announced that an individual was required to pay additional taxes due to cryptocurrency trading. This case is not surprising; in fact, it is a result of the CRS information exchange, which revealed unusual balances in overseas bank accounts, prompting a request for clarification on the source of the funds. This reflects that regulation is beginning to more rigorously track individuals' foreign income.

Cryptocurrency assets and the stock market have become highly intertwined. As this trend continues to develop, the tax issues related to cryptocurrency trading will undoubtedly become more rigid, and the space for evasion will become smaller. This serves as a reminder that this is a new issue that requires long-term attention.

The Long-term Game between Regulation and Tax Evasion

Regulation and "anti-regulation" have always existed; this is not only a characteristic of the cryptocurrency space but also of traditional industries. This dynamic is very much like the contradictions embedded in human nature, constantly moving forward in a cycle of conflict, balance, conflict, and re-balance.

From a trend perspective, the early "grassroots" stage had a low emphasis on Compliance, and as we progress to today, more large institutions place Compliance as a top priority. For individual investors, the ability to comply largely depends on the actual amount of investment. Enforcement must also consider the cost-benefit ratio, unless there are some typical cases that have "demonstrative significance."

The Boundary Between Improper Income and Asset Compliance

Whether or not taxes are paid can at most prove the fulfillment of tax obligations, but it cannot fundamentally prove that the funds are legal in a broader sense. If a sum of money also violates other financial regulatory laws, even if taxes are paid, it does not affect the penalties and tracing by other regulatory agencies regarding the source of these funds.

The issue of "tax" should have been brought to the table for discussion earlier, because one must first acknowledge that an asset is legitimate before talking about taxation. If this money cannot even be effectively confirmed as an asset, it cannot be regarded as a valuable property, and naturally, there is no question of declaring or paying taxes.

Tax Planning Space in the Cryptocurrency Circle for Enterprises and Individuals

For most ordinary people, there is actually very little room for tax planning. The main reason is that income sources are relatively single, mainly consisting of salaries, bonuses, or some small allowances, all of which are fully recorded by the company, making it difficult for individuals to have any additional "optimization" opportunities.

But for high net worth individuals or enterprises, the situation is different. Their income forms and structures are usually more complex, with diverse sources and larger transaction scales, as well as more cross-border tax-related matters. This diversity and complexity inherently bring more room for maneuver.

Potential Tax Obligations and Optimization Opportunities for Mining, Airdrops, DeFi, and Other Earnings

Mining is generally recognized as business income in most regions; airdrops, if simply received but not disposed of, typically do not trigger a tax obligation temporarily, only converting to fiat currency or exchanging coins requires reporting. Staking or DeFi earnings can be considered capital gains in some jurisdictions, and capital gains tax rates are usually lower than business income.

It is unrealistic for ordinary people to engage in large-scale tax planning because all income is under their personal name, making it easy to be classified as business income or a high tax burden category. Relatively speaking, activities like airdrops and forks, if allowed by local policy, may be treated as low tax burden or deferred.

Practical Considerations for Digital Nomad Identity Planning

Cross-border identity planning is something to consider, but in any case, the information and records must be complete, and declarations must be made truthfully. From the perspective of mainland tax law, whether an individual constitutes a tax resident is primarily based on the "183 days" rule, but in more detailed regulations and practical operations, factors such as nationality, household registration, and primary social relationships will also be considered.

In international taxation, there is a "Gabi rule" that considers factors such as your family relationships, economic interests, daily life trajectory, and others to determine the primary tax residence step by step. Even if you don't reside in the mainland for a full 183 days in a year, it cannot be simply assumed that you are entirely "safe."

Vision for Future Encryption Tax System

In the future, a two-tier structure may form:

1. Infrastructure providers (miners, nodes) pay taxes to the physical world;
2. Individual users indirectly pay fees to the network through Gas fees and other means, which are then fed back into the real-world tax system by the network.

With the development of the encryption industry, it may replace some inefficient and opaque parts of traditional finance in the future, and it will inevitably require new legal systems and regulatory frameworks to match. If the legal system becomes more完善 in the future, asset information will be more directly and transparently recorded on the blockchain, and the complex interdependencies in the middle may gradually disappear.