How to define taxation if Bitcoin is included in the category of property?

According to the Jintou Foreign Exchange Network on July 4, Bitcoin should be defined as a currency, just like stocks, bonds, loans, derivatives and foreign currencies, which are all classified as "currency" or "financial supply" under existing Australian regulations, and transactions between them should not be subject to goods and services tax.

The question of the attributes of Bitcoin has always been a focus of debate outside.

On June 27, the 21st meeting of the Standing Committee of the 12th National People's Congress was held in Beijing. The meeting reviewed for the first time the explanation of the "Draft General Provisions of the Civil Law of the People's Republic of China". The "Draft" stipulates new civil rights objects such as network virtual property and data information, which means that network virtual property and data information including Bitcoin and QQ coins will officially become rights.

In this regard, OKCoin President Xu Mingxing told reporters that although the central bank previously defined Bitcoin as a "virtual commodity", China has not clearly defined digital currency-type network virtual assets at the legal level. The revision of the General Principles of Civil Law this time includes it together with statutory rights in the category of "objects of property rights", which will help protect such property rights.

"This is a respect for the entire era and legal protection for new technologies and new industries," Xu Mingxing told reporters.

Included in property category

There are two articles in the draft that involve online virtual property and data information. Article 104 of the draft stipulates: "Properties include real estate and movable property. If the law stipulates specific rights or online virtual property as the object of property rights, such provisions shall apply." Article 108 stipulates: "Intellectual property rights include data information."

Online virtual property is not a new thing. Xu Mingxing believes that not only Bitcoin, but also QQ coins and equipment in online games are all online virtual property. With the rapid development of the e-sports industry and online live broadcasting in recent years, online virtual property has a tendency to be "popularized". In this case, it is extremely necessary for the law to expand the scope of property rights protection.

Previously, the relevant provisions of the Constitution and the General Principles of Civil Law on online virtual property were relatively general, but did not provide room for interpretation: after the 2004 amendment to the Constitution, the protection of citizens' legal private property was explicitly included in the Constitution. This general provision on legal private property provided great room for the interpretation of civil law property.

The General Principles of Civil Law stipulates: "Citizens' personal property includes citizens' lawful income, houses, savings, daily necessities, cultural relics, books and materials, forests, livestock, means of production that the law allows citizens to own, and other lawful property." It does not explicitly include online virtual property in personal lawful property. However, the law does not have a clear explanation for "other lawful property," which also provides room for its interpretation.

The commodity nature of Bitcoin in China was first established in 2013. At that time, the central bank issued the "Notice on Preventing Bitcoin Risks", which clearly stated that Bitcoin is a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. However, as a commodity trading behavior on the Internet, ordinary people have the freedom to participate in Bitcoin transactions at their own risk.

How is tax defined?

The establishment of Bitcoin's attributes involves the question of what kind of taxes are applicable to it.

If Bitcoin is viewed as a "commodity," then every transaction involving Bitcoin will be taxed, which will result in value-added tax (or consumption tax, sales tax, goods and services tax), etc. If it is viewed as an "asset," then the possibility of taxation should be discussed from the perspective of property tax. If it is viewed as a real currency such as "money," "foreign exchange," or "financial supply," then there is no taxation issue.

Xu Mingxing told reporters that there are currently no clear regulations on the taxation of virtual goods in the country, and users who hold Bitcoin do not need to pay taxes for the time being.

There are also differences of opinion on which tax should be applied to Bitcoin abroad. On March 26, 2014, the Internal Revenue Service (IRS) of the United States officially started to collect taxes on Bitcoin. In Part 4 of this document, Bitcoin, a "convertible virtual currency", is clearly defined as "property" and "taxes on virtual currency transactions in accordance with the general principles of property transactions". However, in the actual taxation process, due to the fluctuation of the value of Bitcoin relative to legal currency, many different transactions have different base prices. Therefore, it has brought considerable difficulties to the IRS's taxation. In addition, the financial regulatory authorities in the United States have also made regulations on the attributes of Bitcoin. The U.S. Securities and Exchange Commission (SEC) defines Bitcoin as a "security" and requires a license to conduct related business. The U.S. Commodity Futures Trading Commission (CFTC) classifies Bitcoin as a commodity like gold and oil, which means that Bitcoin futures and options must comply with CFTC regulations and be subject to supervision, and trading behavior must comply with all commodity derivatives market rules. Some countries are already discussing whether to include Bitcoin in the category of currency.

Recently, the Australian government said in response to a Senate report that consumers should not be subject to double goods and services tax (GST) when using digital currency transactions. Double GST means that users have to pay taxes when buying and spending digital currency. The Australian government also stated that under the current Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) rules, the country should introduce digital currency into the country.

In the above-mentioned report titled "Digital Currency - Game Changer or Small Player", the Australian government stated that it is working with the Fintech Advisory Group to seek improvements to the current GST scheme for digital currency. According to the regulations issued by the Australian Taxation Office in 2014, digital currency is regarded as goods rather than currency in Australia, which means that Australian companies that want to sell digital currency must pay 10% GST, and if digital currency is used for shopping, GST must be paid again.

The Bitcoin industry believes that Bitcoin should be defined as a currency, just like stocks, bonds, loans, derivatives and foreign currencies, which are all listed as "currency" or "financial supply" under existing Australian regulations, and transactions between them should not be subject to goods and services tax.

Xu Mingxing believes that the problem of Bitcoin's identity confusion is mainly because it is an emerging thing, and regulatory authorities in various countries are also exploring the most appropriate regulatory methods.

Bitcoin is bullish

At present, China holds a large number of Bitcoin players and is the country with the largest Bitcoin trading volume. In China, the biggest factor affecting the price of Bitcoin is the legal factor. Every time a relevant law is introduced, the price will fluctuate greatly.

According to OKCoin's public trading data, Bitcoin has been on an upward trend since it went online on October 2, 2013, rising from a low of 672 yuan to a high of 7,995 yuan. After the central bank issued the "Notice on Preventing Bitcoin Risks" on December 5, 2013, Bitcoin fell sharply, from 6,731 yuan to 2,059 yuan, a drop of 69.4%.

Since then, Bitcoin has been generally on a downward trend, with prices hitting new lows until October 5, 2015, when it began to enter an upward channel.

Before the release of the draft of the General Principles of Civil Law on June 27, the price of Bitcoin fell back after digesting the good news of Brexit. After the draft of the General Principles of Civil Law was officially released on June 27, the price of Bitcoin fell back, reversing the decline of the previous day. The price once again went above the 30-day line and hit the pressure level of 4470 again.

The industry generally interprets the newly issued draft of the General Principles of Civil Law as good news. It is believed that the draft clearly stipulates that Bitcoin is protected by law, and provides legal guarantees for the development of the Bitcoin market and related matters of virtual property rights protection. In the long run, due to the clear legal status and bright market development prospects, it is conducive to the development of the Bitcoin industry.