British tax authorities may be cracking the whip on crypto investors.
In a move that mirrors that of their counterpart across the pond, Her Majesty’s Revenue and Customs, the official agency responsible for tax collection, has asked crypto exchanges operating in the UK to provide it with customer details to find tax evaders. Some of the exchanges that have received a letter from the tax authority include CEX.IO, eToro, and Coinbase.
So far, none of the three exchanges has responded to a request for comments on the issue. “These exchanges can retain information on their clients and the transactions that they have completed. These transactions may result in potential tax charges and HMRC has the power to issue notices requiring exchanges to provide this information,” HMRC stated to Coindesk.
What Does HMRC Want
The Coindesk report further elaborates that the HMRC is looking for trading and customer data that is about two or three years old. This means that it is looking for data about investors and traders who entered cryptocurrency markets around the time it peaked in 2017. According to a Coindesk source, long term holders of cryptocurrency, or those who have held crypto in their portfolio since 2012-2013, will not be affected HMRC’s request. Per existing British regulation, long term capital gains tax is applied to profits made from cryptocurrency trading.
Cryptocurrencies have had mixed fortunes in the UK. After proposing a a far-reaching ban on crypto last month, the Financial Conduct Authority (FCA), UK’s financial watchdog, issued guidelines on crypto regulation. An Economic Crime plan unveiled last month also included references to tackle crime related to cryptocurrencies.
Why Crypto Exchanges are Important to Tax Authorities
The pseudonymous nature of cryptocurrency trading makes it difficult for tax authorities to identify traders. Cryptocurrency blockchains have hashed addresses to identify trader and investors, meaning their personal details are not immediately available to authorities. But this information is available with regulated exchanges, such as Coinbase, that enforce KYC (Know Your Customer) provisions for traders.
In the past, Coinbase has fought summons from the IRS to divulge personal details for 500,000 customers. The federal agency wanted names, taxpayer ID, customer details, address, date of birth, and a record of transactions for its customers. The San Francisco-based exchange won a partial victory when a court ordered that the exchange only produce records for about 13,000 users of the exchange.