Professor Cassidy Julie at the University of Auckland in New Zealand delivered a keynote speech titled Digital Economy and Public Governance: Regulatory Framework for Cryptocurrencies. She first took bitcoin as the entry point, from the perspective of different countries answered the questions: Are cryptocurrencies a form of tangible or intangible property? Are cryptocurrencies a financial product? What are cryptocurrencies’ GST/ VAT implications in such context? 

For the first two questions, she concluded that China has effectively banned trading in cryptocurrencies, particularly Bitcoin, while Japan, by contrast, has taken the polaristic view that cyroptocurrencies are legal tender and sought to support and foster trading in same. For New Zealand, cryptocurrencies are not currency; not akin to local or foreign currency. To better understand the meaning of cyroptocurrencies, professor Cassidy Julie highlight its unique features. First, cryptocurrencies such as Bitcoin, are entirely digital. Cryptocurrencies have no physical form. Their foundation lies in no more than the data strings that represent each ‘coin’. A second feature of cryptocurrencies is the use of cryptography- the crypto prefix. Cryptocurrencies are “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Third, cryptocurrencies are a form of ‘currency’ that is not issued by a sovereign nation; thereby having no connection to a government or state bank.

For the third question, she have stated the situations in China, Japan and New Zealand. In China, capital gains made from the sale of cryptocurrencies will be assessable under Article 2(9) of the Individual Income Tax Law of the People's Republic of China (2011 Amendment), under the item of “incomes generated from property transfer” and are generally taxable at a flat rate of 20 percent. In the context of cryptocurrencies, the original value (or the cost base) includes the price and any taxes that the taxpayer initially paid for the virtual currency. If the taxpayer cannot provide the evidence regarding the original value of virtual currency being traded, then the taxation authority will determine the original value. Equally as cryptocurrency is deemed to be a commodity in China, the trade between a legal and a digital currency for a consideration would constitute a supply for VAT purposes. In Japan, capital gains from cryptocurrencies is taxed as “miscellaneous income”. The applicable tax rate ranges from 15% to 55% of which the maximum marginal tax rate applies to taxpayers who have annual income of 40 million yen. The tax threshold of “miscellaneous income” is ¥200,000. There are seven bands of taxpayers’ thresholds. Taxpayers who earn ¥1.95 million or less will be subject to tax at 5%. The highest national income tax rate is 45% for taxpayers earning more than ¥40 million. There is an additional 10% housing tax and therefore cryptocurrency investors potentially can pay at the highest tax rate of 55%. A penalty of 20% plus delay fines will apply for those who refuse to pay tax. Japan’s tax authorities are able to trace and identify account holders from reports prepared by currency exchanges. In New Zealand, as they are a commodity, not an exempt financial product, GST should be payable on transactions “Value transfer service”. IRD has recently stated that while it is property, GST does not have to be paid when they are bought or sold but does apply when they are received as payments for normal business arrangements. It has stressed they are not financial arrangements for GST purposes

She highlighted the very different stances that governments may take towards cryptocurrencies. This in turn raises many difficult tax issues. Due to the rapid growth of the digital economy, the taxation of cryptocurrencies presents a great challenge to the existing tax system. One challenge to the application of an income tax system to trades in cryptocurrencies is the difficultly in determining the source of the income. In an era of digital economy, electronic transactions are often characterised by a lack of physical nature. A further issue relates to the valuation of the sales and cost base from the exchange of cryptocurrency. As the price of cryptocurrency is fluctuating, there is a lack of objective valuation method and trading platforms to determine the value of the cryptocurrency.