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BAUDOUIN COOMANS:
We are very happy, very pleased to have you here for what we know about the tax from the tax working group primary please tangled soil like to emerge from this COVID situation. And in many places, we don’t even use the name anymore of COVID. Hopefully, no new virus coming up. So we hopefully stay tight and hopefully, we may have our first in-person meeting this year. We really hope that this will be possible. We have a great subject today, which is a book cryptocurrency that Derren in the forefront of this subject, which is very interesting people from the older generation like me for example, we have to learn a lot about that and we I’m sure this will be not, will be very interesting for me as well. It’s very interesting. If you go back to the advantage, of course, cryptocurrencies will include the cheaper and faster money transfers and decent systems that don’t fall and do not collapse at the single point of failure. That is a very strong point of, cryptocurrency the disadvantages. And we will probably discuss this include, including the price volatility, the high energy consumption for mining activities, and also the use in criminal activity. Of course, we are accountants and tax people. We don’t know about criminal activities generally. So maybe up to a couple of words, maybe Thomas, you can say a few words also from your side as an introduction.
THOMAS LEE HONGKONG:
Well, hold on. First of all, hello, thank you for arranging this very quick subject topical most up to date, Derren, while you have been working very hard to organize parents’ conferences on Latina, even though we have not been able to see each other for almost three years or more than that. And I look forward to seeing one of you in person, hopefully by the fourth quarter of this year, the subject today is more on X agent. And after that, we learn a lot more, especially in different countries, about how Crypto gains and losses will be allowed. And I know the usual, which we have to face for those crypto traders or those comedies, which January on those courts is the licensing because of regulation of crypto and the becoming a rich subject. So it is something that I look forward to being able to participate in contests because it is a subject which we cannot afford we have to on any startup or any compliance issue or those traders and those who meet protocols. I pass over to Derren to organize this seminar, to learn a lot from you guys. Thank you.
DERREN JOSEPH:
All right. Thank you. Good morning. Or depending on what part of the world you are getting, thank you for sharing some of your time today. I know that everyone is super busy at this time of the year, because for many of us, it is part of tax season, right? But of course, I don’t want this to be like a monologue where someone is standing up on high misdoing knowledge and everyone. I think what I see more as information sharing I certainly would not call myself a student, an expert on crypto. I consider myself a student of Crypto. So there’s so much, I’m still learning. And I am humbled to, to be a coach by people would be the intellect and the experience of cash and here in this room. So please let’s keep it informal, and let’s keep it conversational. So I’ve muted everyone because some of you have had background noise, but at any point in time, you could unmute and you can jump in, right? This is being recorded as you probably heard, the sound is as you logged in. So, which means that if you have colleagues that can make it, or you want to review it, or you want to share it, then you are free to do so. Once it’s recorded, I’ll just upload it somewhere and I’ll, I’ll drop the link in the WhatsApp group and you can do with it. I’d see you as well. Nothing is super confidential. These are just general conversations, nothing too confidential. So I will now share my screen, right? So this is a rough outline of what we’re going to cover, and what we’re going to explore within the next hour or so. So when you, if it’s going to jump in after me, Mitesh and Mikhail. Mikhail is based in London. So it’s kinda late for him. So, he recorded just a video clip. So I play that and then we’ll hopefully have like a Q and A, or more of a conversation at the end of it. All right. So, I mean, what brings us here is really the scale of the opportunity. Like many of us all some of our bigger clients. So some of our more lucrative clients have been in the crypto space. So, you know I’ve been dealing with guys who obviously are crypto investors, but also guys who are doing mining crypto traders in the distinction between the investors and traders, we will explore a little bit later crypto casinos gambling, and it is surprising and lucrative. I had no clue that this space existed and how lucrative it is. And recently within the last day, six or seven months, I’ve actually started accepting payments and Crypto as well using Coinbase. And one of them will pop up, which is one of the more popular exchanges in the US so it’s a huge opportunity. That’s why we’re here. I’m going to have to assume that people have at least a basic understanding of what it is otherwise that we could segue into a whole hour-long conversation as to what the basic principles are from my very simplistic, naive perspective. It’s an asset, but what makes us different is that we’re all familiar as accountants. We are familiar with ledgers, but in our experience or within our world and our ecosystem ledgers have been centralized. So whether you use, you know, we use zero or Makino Intuit NYOB or whatever software you’ve been using, it’s an essential service somewhere, or maybe it’s local on your laptop or your desktop. And that’s the unique record of what the transactions for that particular entity would have been. So I guess what makes this one different? What makes the whole crypto ecosystem different is the decentralized nature of that ledger? The fact that everyone who participates keeps a copy of that ledger, I think there was some conversation around, I went to a Crypto discussion in London some years ago, and someone said, the first time that they heard about it was after nine 11 because there was a certain financial institution I don’t need to get into who it was. That was the Subaru was in one of the towers that collapsed and it was not backed up anywhere else. And they were important to a big transaction between a Japanese bank and a US bank. They went intermediary because big data basically disappeared. There was great difficulty in reconstructing the transaction after the fact. So that’s, you know, that person who’s sharing that example said that’s when they first heard that they saw a use case for a decentralized ledger, so that if any one participant is removed, everyone else has a copy of all the transactions and, and that’s, and that’s what makes this, this, this unique and what’s existing space. Interesting. And I guess it calls in the context of web 3.0, so web 2.0, which is where we are emerging from. We saw the existence of big players. So, you know, whether we’ll in the west, it would be Google or Meta, which is what we call Facebook or Amazon. Now we emerge into a world where it will be more decentralized. And so rather than big behemoths, we will see important players in different niches. And I think in that spirit is where Crypto fits in the idea of everything being decentralized and transparent and participatory as well. I think crypto was really hot in terms of a profit-making opportunity. There was a lot of speculation and a lot of speculative beans up until let’s say the middle of last year. So summer 2021. But since then there’s been more action or there’s been more media attention paid to NFPS. I think from my perspective, one of the distinctions between, I guess the basic coins and the NFTs or the coins, whether it be Bitcoin or Litcoin or whatever they are fungible. So it’s kind of like the money that you have in your wallet. So if you have a dollar and nobody’s tracking that one particular dollar, so the point is that you have a balance and you, and you keep track of the balance of the currency that you hold. What makes NFTs different is that it’s the same principle that sits on a blockchain. Everyone has a copy of who has what and who has transacted with whom, but it’s non-fungible. So that each asset has a unique identifier. And there’s the attention paid, not just to the, but to that unique asset. And of course, like Crypto, to be fair, probably 99% of it has been useless scams or whatever, but there have been, it reminds me of the.com situation in the late nineties, there was a huge bubble. It popped and out of that, the beam substantive players that we understand today, and I think that’s, what’s happening both in the crypto and the NFT space. There was a huge explosion. There was a lot of excitement, but what has been left standing are some important players that we need to keep an eye on. So, okay. So I guess the important thing is to understand the way transactions are recorded and the way transactions are mapped, every, node or every participant in the blockchain, they have a unique identifier, a public, a public address, or public, a prop, a public key.And it, it seems strange that someone would have there the balance, like their wealth publicly available, but that that’s the that seems to be the nature of it. And they are investigators and YouTube tracks scammers. And it’s, it seems relatively easy to do, because you can see where coins and where you can see where the virtual assets move from one point to another, you can see who’s trading with whom, and you can see the balance in various wallets. So you may not be able to tie that back to an individual, which, you can see the public address of a particular wallet. Okay. The idea of a wallet is something that’s interesting from a tax perspective, because there’s a debate going on in, okay. In the US it really doesn’t matter, right? Because if it is in the US, your tax, and you were lighting coming when you can break that without giving up your citizenship, or you’re giving up the residency, but in jurisdictions where you can, which is the rest of the world, and particularly you pay it, we’re seeing a lot of conversation about, okay, where is your wallet? And if it is that you people in the UK you have the election of being taxed on your worldwide income. So you, your tax domiciled in the UK. And then there are people who have the election to be non-domicile. They attack to be a resident in the UK, but they’re not taxed domicile in the UK. So the resident, but the non domiciled in the UK, which means that the income that arises outside of the UK is not taxed. The only stuff that arises inside. So there’s a conversation about, okay, how can they structure their holdings or the location of the wallets, or the access to their wallets so that it won’t be taxable in the UK if they have that status. So, that could be an interesting point of exploration jurisdictions that have that territorial tax regime. So like Hong Kong or Malaysia or Singapore, it’s, I’m sure these things on a determined yet, but I would expect to see court cases and in time regulation that and perhaps guidance from the relevant tax offices as to how permissible is it to legally avoid tax, simply by the way, in which you structure the holding of your crypto assets. So, yeah this is another area of developing conversation as well. To what extent is Crypto a unit of exchange versus a store of value, a unit of exchange. So for example, Bitcoin, Bitcoin is kind of useless when it comes to actually make purchase purchases and big transactions because it’s kind of clumsy, and it takes a long time for a transaction to be concluded a long time compared to other coins, or even if you transacting within the traditional world of credit or debit card. So then there are other coins that are better suited to actual transactions. Whereas many people see Bitcoin being the premier coin, more of a store value in the way in which we see precious metals. So, anyway, that’s just part of the conversation, but essentially I think there is the consensus of these, of this point in time that crypto is an asset. There are very few jurisdictions that see it as an actual currency, but that’s right now, one would expect that with the passage of time, more and more jurisdictions will begin to see at least some of them as currency. Then, especially since certain governments themselves are getting on board with their own where governments are issuing digital currencies as in the CBDC central bank, digital currency. But for the most part in most, most of the jurisdictions have at least two in which we have had some sort of experience that is considered an asset. So and most of the taxpayers that we would have had, we have dealt with so far have been classified as investors. So, therefore, the question we, and the conversations we have around with around that would be okay, when is it considered to be a taxable transaction? It varies from jurisdiction to jurisdiction naturally, but for the most part, crypto to Fiat, Fiat being a regular traditional currency, like us dollars or euros or Singapore dollars or whatever that is definitely, I think that’s consensus that’s considered to be a tactical transaction, but depending on the jurisdiction, actually crypto to crypto is considered also a taxable transaction. I don’t think it’s a taxable transaction in the UK, but it is a tactical transaction in the US for example. And of course, spending crypto again, that’s a disposal of an asset. So that’ll be a taxable transaction. Given crypto is a gift. Again, it depends on the jurisdiction. It’s not necessarily taxable in the US, but it will be taxable in the UK and Australia under certain conditions. So the gain naturally is the Delta or the difference between what the value is disposal versus, the cost basis. So what you purchased it for, and in terms of that cost basis, now there are depending on what exchange or the platform or whatever it is that you use to acquire the token, there would be additional fees associated with purchasing it and holding it. So that would add to the basis as well In terms of income. And I think probably we’ll get into this in a bit more detail later on if there’s an appetite for it because some of it can get pretty technical. When is it taxes, income? Then, you know, for example, us, when we, when our clients decide to settle their invoices in coins and in crypto, you know, income. So when it’s an exchange for a good or a service, there’s also mining, which I think we’ll get into in a little bit more detail. So the way in which, depending on the, on the coin, the way in which the number of coins in circulation is a least or managed, there’s a, and I’m sure you’d be familiar with it because there’s been a lot of discussion in the media, the complex calculations, and which would require a lot of machines, which is board runs points about energy usage and whatever, but basically by solving these complex calculations, individuals or participants are rewarding, rewarded by being issued points in exchange for the services that they rented. And that’ll be income, add drops, sometimes additional coins issued, and it can be considered as a bonus. So income staking, because of its decentralized nature, participants are invited. There are no requirements. There’s no nobody is being forced, but people volunteer in order to help validate transactions. And that, that process of validation is, is referred to as staking in many jurisdictions. And again, all these, these types of things as treated as income. Now, what I’ll do is I will pause there and I’ll hand over to Boonie up. We’ll jump in and talk about badges of trade.
BOON YIP YEE:
Thank you, Darren. And good morning, everyone. It’s really nice to have everyone today. And some familiar faces. Are we like what Thomas Lee was saying? We hope to meet each other again, soon enough. Okay. So without further ado, let’s discuss a little bit more on the topics of badges of traits. So often being asked is what is actually Crypto. So what happened to the capital of precipitation? How do you deal with it? So often people will ask, is it a capital gain or profits? So it very much depends. Okay. On how you deal with it. And in Singapore, we look at badges of trade. So let us quickly just go through a few of the aspects that are important to determine, right? Crypto is actually again or profits. So firstly, you talk about the line of ownership, right? So one of the badges of trade, so is its line of ownership, right? So it’s often that if you hold for a longer time is more towards a capital intention, right? So you’re holding it okay. For capital gain, right? So lining of ownership is important. So it takes, if you do it in a very quick manner, you buy and sell right. In a short manner, then in this case is very much more of a treat just like an investment in shares. It can be also traded. It can be investments for long-term capital gains. All right. So yeah, the next point is about the frequency of the transactions. So this thing is very much aligned with the nature of the trade. So if you look at a typical trading company, right, so you have a high frequency buy and sell, buy and sell in a very high frequency, right? So aligning with capital in nature, you would probably hold it for a longer time. So you would obviously see a lesser frequency happening, right. So the good point is supplementary work. So if you look at supplementary work is actually what have you done to make it more, let’s say if you doing something, some supplementary work to make it more marketable, right. Obviously, it’s more of a trading in nature. Likewise, if you keep it, I mean minimum what can be done say for instance, if you buy a property with minimum work to get it up and running, so your intention is more to the US renting up. Right. And for future capital acquisition. Yeah. That carries weights right. To justify that is capital in nature. Right. So, okay. Often you also look at your motive, right? The motive for holding these assets. So for crypto, what is your intention of holding is very important, your business plan, right? So your intention is to hold it for long-term capital gain. Yes. Obviously, these are investments. So it’s aligned with the Line of ownership actually. Right? So your profit, if you have a profit motive with the intention to buy and sell during, in a very short period of time, obviously that is profit nature. Right. The other point you look at is that as the mode of purchase. So often now, if you own something capital in nature, you will finance it over a longer period than a shorter term. Right? So in trading obviously as a shorter period of financing, that would also carry weight when you look at whether the transaction is to be dealt with in a capital or in a trading aspect. Right. So the subject matter, okay. Nature is also important. So for instance, if you own the crypto specifically, let’s say you are holding out a lot of coins, right. A lot of types of coins for a purpose of capital appreciation, right? So you will see a pattern of a lot more coins being owned and rather a few types. So if you look at you’re concentrating towards a few packs of coins, cryptographic assets, then, in this case, you are, you have more transactions happening, right. Between few coins, then very much too, what’s a trading nature. Right. And I mean, when you sell, okay, obviously you have to look at factors like your circumstances of selling it, right. Is it a point where you, you fall is a way to force to sale, or if you need some financing, you you’re forced to sell it? Then, in this case, you don’t have the intention to sell, but because of certain financing purposes, you have to sell it, then compare with, if you think that the market is good, right. You have to sell it because there’s an intention of profit-taking. Yep. That also decides between trade and capital. Right. Lastly, I would say other factors that are important that you have to look at, what is your intention of holding, right. So probably this would be supported by board minutes. So when you invest in crypto, you probably, if you do it via the company, you would have bought minutes. Right? So to support that all these are important things that you should ready. So for crypto traders is very important to keep proper documentation because all this documentation potentially, okay, we’ll be asked by the inland revenue to support, right. Your intention to hold weight. Whether is it for profit taking or for the capital of PlayStation, right. In Singapore, it’s quite clear. So there is no capital gains tax. So if you are classified, if your cryptos are classified as a capital gain, you need not need to pay tax. Likewise, if it’s trading, obviously you are subject to tax, right? So excuse me. So over the years, there have been a lot of changes in the crypto space regulations have been implemented. So do in Singapore, there are a few rounds of regulations. So we dealt with also companies in the crypto space, crypto exchange, and even crypto trading. So it’s very challenging because is so dynamic, right? And the evolvement of the crypto space is much faster than the regulators. So often they are difficult areas that require high judgment, right. To consider between trading and capital. Right. So yes, I would think that if traders would like to consider crypto having crypto, is it true to go through a series of initial due diligence, right? There are things that you to get yourself ready for, right. In. I mean, you’d want a surprise. You don’t want to be caught like your intention is for investment, but ended up, you have to be texted by, the text men. Right. All right. So yes, in a nutshell, I mean, that is a basis of trade. So what do you Derren?
DERREN JOSEPH:
Thanks for that overview. So just to create context with those who may not be from a common law jurisdiction, this is huge. This is I can’t overstate. How big a deal this is. So if it is you and you pay or the US, depending on how you structure your affairs, the capital gains rate could be at a substantial discount to like ordinary profit or ordinary income. So therefore you are highly incentivized depending on what you’re trying to do to get this thing classified as capital gains. So you want to be seen as an investor and in many cases, but in, I guess, Hong Kong, Malaysia, Singapore, this is a zero-sum game. These people are gonna live or die by this classification because Hong Kong, Malaysia, and Singapore’s capital gain a normal tax rate. So, you know, I’ve had polls and conversations with investors in Singapore. Just want to be super clear because the implications, this is the implications are in the millions of dollars. Now, unfortunately, terms of legislation and legislation tend to be a bit gray in terms of the distinction between that invest in a trader. So what we do is we look at case law and there’s a rich body of case law that originates from the new gains as to that distinction between the investor and the trader. So whether it’s trading profit or capital gains. So you know that these are the four cases being bought right now across the common law world, where people are fighting for things to be classified as capital gains because that’s, this is, this is the front line in tombs of crypto tax controversy, at least in the common law. So what would that be a Passover Mitesh? We’ll talk more about trading it.
MITESH KATIRA:
Hello, good morning, everyone from India, it has been, always look forward to this kind of program, and I will also look forward to a physical meeting very soon with everyone, a few in the next few months, we’ve come. In this presentation on that topic, I think we have been doing some work on this area together with Derren. And there are things that have come across when we read taking decisions, which kind of activity is considered. So what kind of activities, did this leader, or interested me and how could read these transactions, and how do a real accounting of these transactions? Because there are two, or three levels of challenges when we look at the transactions. So when we look at the transactions in the hierarchy of detail, we always look at whether a particular type of currency that, that client is dealing with is a stowed-off. Well, for example, dealing in artwork NFTs specifically, nowadays meant ours is another area where people are debating and discussing, etc. And also there are transactions with regards to something called what you call the USDA or the Teeter, or you can call the convictions where there are bagged coins, which actually are bagged with the US dollar or with Europe. So they are like more like a sort of wealth. Then there are other currencies that are more like a store of value, like equity or bonds or something like that, which have been received in the ICU. And the third is the medium of exchange, which is like Bitcoin or that’s, which I just use for the medium of exchange. So all these three have to be first studied and understood as to which kind of transaction one is getting into and accordingly, when has to decide that counting when the IFR S or the IAS, which is suitable for this kind of transaction, the other angle is whether the client is a minor, is doing an ICO initial coin offering, or he is an investor or a trader, or he’s an artist coder businessman, who is accepting his compensation in the form of Crypto. So all these four typo activities are to be looked at before deciding which kind of treatment or how the accounting of this kind of transaction is required to be done. So, as we understand, it is very, very important that we decide the correct way of doing that. Counting on the basis of these two parameters, one is which kind of currencies or assets this guy is dealing with. And there is what, what business, these percentages, easy to which type of activity. So if he’s into the, you know, he’s dealing in store of value, then we may consider him as more as a business person when he deals in the store. Well, generally we consider him as the Mr. And when he just transacting in a medium of exchange currency, then we generally consider him as a trader or a speculator for that vendor. And when he’s a miner, we consider him as a business. When he is an ICO, we consider him as a business when he’s just a transit thing. We bifurcate between trader and investor. And of course, when he, the artists or the businessmen, again, we treat him as a business. So that I think there will be three types of treatments. One will be considering someone doing business with crypto. The other would be considering someone as speculating with crypto and considering his gains or losses as speculation or losses on games. And the third would be treating him as cap gains or like any investor. So this is how we look at three types of transactions. And accordingly, we do accounting, some issues that we have been facing in accounting while doing the cryptocurrency accounting availability of information in currency. This is the biggest issue that has been faced while accounting for cryptocurrency customers because the information is always incomplete or not. According to the accountant’s mindset, the accountant always has a mindset of running a ledger with the ability to balance, which the cryptocurrency exchanges generally don’t provide. Another is whether we want to read these kinds of transactions as cash or cash equivalent, intangible asset, or commodity security. These are four types of considerations while we look at IFR S or IAS. So it is very typical that at greater deals in all four types of trying all three types of currencies, that is the deals in split off. Well, it deals in what they call a medium of exchange, and he also deals in the, in the store of value kind of transactions. So it is very complicated to categorize those connections and you gave them different colors while we are doing the transactions. So it is very difficult for us to find out a thin line between all three or four different varieties of transactions that a radar or a business person or an investor gets into thirties functional or reporting currency conversion. It is very typical in a cryptocurrency world that the setup is in some other country, and the reporting has to be done in some other country, and the currency in which the transactions have been on something else. So for example, the transactions happen in Bitcoin, the reporting currency US the dollar, and the person is dealing in a functional world or a country where Euro is predominantly considered to be a functional currency. So these kinds of transactions where there are three-layer, four-layer, currency conversions required are very typical and apparent in the cryptocurrency world. So it is very important that you look at these three-layer, four-layer conversions in a systematic manner, and find out data on the basis of which you will do that. And then from one currency to another currency and third currency and so on. So it is very, very difficult in general parlance. We generally deal with two currencies. One is like a functional currency, and there is like a reporting currency in this kind of situation. You are dealing in three or four layers. In fact, there are situations where you don’t find a direct conversion between the reporting currency and the concurrency in which the transactions are happening. So you are to use one currency to decide whether a reporting currency can be converted into a functional currency, will be converted into a reporting, and how to enter valuation in cryptocurrencies. Another point of concern that always comes to our mind because we are accountants. We want to do a balance sheet as far as transactions are concerned. So it is very difficult for us to find out how we will do the evaluation because in crypto 24, by seven, the transactions happen. It is not like a NASDAQ or a, or a B Bombay stock exchange or a national stock exchange, which has open time and close time and cut off time. And you can find out the rates at the cutoff time, and you can find out the rate at the opening time, or you can find out the average rate during the day because the transaction happened 24 by seven times zones of each client different. So our client has 12 o’clock in the night, and someone has a two o’clock same time. Someone has eight o’clock same time. So it is very difficult to find out a day-end rate for an insight situation. So valuation becomes a bigger challenge and bigger issue while doing the cryptocurrency balance sheet and PNL account. Or you can say the income statement and the reporting statement. So it is very typical in cryptocurrency where you take a GMT plus zero as the basis and do the transaction valuations, on a particular balance sheet or PNL. Then another very typical issue is in the case of securities or stocks, it is very easy to get data from the centralized exchanges here. It is very difficult to get data and let a very important thing is that data is not straightened. So are their fee or a decentralized exchange would, would position the data in a different way and fee. That is a centralized exchange would position our data in a different way. You will find huge discrepancies between the reporting patterns of both these types of currencies and, you know, exchanges. And we will have to take the accountant’s judgment, but deciding on which parameters you will take a call for doing the evaluation. So it is becoming very challenging in the world of typical, where you get different information from different parts of the world from different modes of exchanges and different types of exchanges. When you actually want to do an evaluation, and we will have to rely on one of the modes, which is most predominant, and have to take an accountant’s judgment statement while deciding the evaluation of the paper, then you are to discuss how to calculate the gain and loss in the crypto transaction. One of the biggest areas of concern or issue is the calculation of gain and loss. So when you look at the traders, which are high volume traders, it is generally a barter transaction and not a US dollar transaction or a Euro transaction. So in a barter transaction, when you are buying wheat for rice, or you are buying grain, spore vegetables, there is no gain or loss, right? So it is very difficult to find out whether a transaction to a transaction gain or loss is happening in such scenarios where there is a barter transaction. So in our view, when it is a trader, there is no gain or loss that is happening in the barter, only gain or loss is happening as far as an increase or decrease in the valuation office balance assets on the reporting date is done. So closing evaluation minus opening valuation is generally the gain or loss in the case of the high-volume traders, as far as the capital gains or the persons who are having transactions fewer volume transactions but are acting like investors or businesses. It is a FIFO method that is a first in first out method that is required to be followed. And in those cases, only each and every transaction is converted in dollar rate, which is way difficult as discussed in the crypto scenario because of discrepancies in the data in various exchanges and do the calculation of the transaction to transaction, gain, and loss, which happens very, you know, without, you know, in a very difficult way. And we tried to do it because there are two, or three levels of currency in all. And sometimes currency conversions are not available easily. And lastly, how to account for fees charges, or for transactions or conversions in crypto, it is very typical that the number of transactions and the fees as high as four or 5% to 10%, 15% of the transaction value, there is something called a guest fee. And there is something called the transaction fee, which is very, very high. And the fees typically are not always in the currency. It may be in a different currency. For example, if you are dealing in a Binance smart chain or a Coinbase, then you will find that the Coinbase or Finance margin would have their FICO currency as a different currency. So when you actually do the transactions, you find out that you are doing a transaction of exchanging it to a Bitcoin, but the fee is being charged in BNB. So it is very typical that you have to do a separate calculation for the fees part while you are doing the calculation for the capital gain or a trading loss of profit for the currency part. So we completely are unparalleled in the transactions that are happening. In many cases, the currency is the base for the field, but in most cases, nowadays the exchanges are following fees in their own way that is in BNB or in, for that matter WRX or TRX on the basis of transactions also, you know, models that they are following and they give you discounts if you pay fees in BNB. So it is very difficult for us accountants for us to look at one transaction in three models. One is based on currency, what currency, and then the fee carrots. So, so it is very, very different while we do an accounting of securities is obvious the accounting for the cryptocurrency. Lastly, the availability of information in cryptocurrency that is multiple wallets and exchanges used for doing transactions. Due to the flexibility of the Crypto, the investor tends to use four or five different wallets. He uses two, or three exchanges for doing the transaction. He uses two, or three jurisdictions while doing the transaction. And that makes it very complex for us to, as accountants decide how to, you know, view those transactions and create the profit and loss or the income statements in those scenarios. Another thing is, that while it balances on data reporting is very difficult to get. So there is no cost information from the exchange, like in, in the case of banks, typically we ask for cost information as auditor or insurance provider, and we rely on those, those balances. And we use them as control totals or controls for deciding whether we are doing the right accounting or not. But in these kinds of scenarios, it is very difficult to get wallet confirmations from the de-centralized wallets. Like my Thomas, like the first wallet, like BSC that is finance margin wallets, like con Coinbase wallet. They don’t provide us with confirmation. So this is very difficult because they are also settling down. They don’t know the accounting ones is in fact, the entire finance world has been now driven by the technology people. So they look at the transactions in a completely different way as against the contents. And that is actually complicating the situation. When I was doing one of the accounting manuals, I looked at ifrs.org, which is a website on which they decide or discuss various conditions. Typically it is, and accounting models for the same, the IFR is a research paper on these topics, and they are also not conclusive about what is the model or mechanism to be used in this situation. And they actually agree that these are financial transactions carried out by non-financial or technology people. And that is making it typically different than what we look at. In other cases. The third is data about transaction fees, charm, or guest fees. Very, very difficult. Many times the data is completely unavailable. They just give you a rate saying that for USD so much, you can exchange so many Bitcoins, but in the process, they charge you a fee, etc, which is not been shown in any of the transactions. So there are a lot of freedoms fields, which are not clearly shown while doing the transaction with the investors. So investor enters into a transaction. And then when you download the statement, you find out, there is a fee, there is a chart which is hidden, and the transaction looks like there is no fee, but this is, this is something that happens. Then data, our actual currency in which the transactions are carried out. It is very difficult because when you are doing the transaction with a USD to be in finance, sorry, the Bitcoin that time, there is some middle coin that is involved. For example, USDT. So USD first gets converted into USDT and then it gets converted into Bitcoin, but you don’t get that trail while doing the transaction. But while you are actually accounting, you need that trail to do the proper accounting. So that middle currency data is missing in most of the cases, then you have to drill down and find out that information. And most of the exchanges are unresponsive. They don’t do any information on email or anything. So you are too, you’re not struggling to get the right information from the extremities. Lastly, data about conversion rates in reporting currency on a particular date, either discussing that we already did that. It is very difficult, and it is difficult to get that information. As far as IFR is concerned, you can go on the IRS website and look at all these papers, which are being debated and discussed all throughout the journey of IFR is getting you all and the reporting standards, getting you out for cryptocurrency, and you can look at your accounting standards to simulate the transactions that are happening in the cryptocurrency world. With real-world transactions like IAS two for inventory IFRS nine for financial instruments. IAS is for accounting policies and changes in accounting, estimates, and Arabs, which talks about if there is no type information available, use this ISTN 32 ISO 21, and I studied. So these are a few indicative standards that you can look at while you are taking calls about your clients, on how to do accounting and reporting for them. Lastly, as I discussed in the barter model, crypto-asset gains and losses are very, very difficult in the case of traders, and when they follow the barter models, and then it becomes very challenging for you to look at them as inventory or cash or cash equivalent and financial instruments or intangible assets. So with this, I would like to conclude the presentation. Thank you, Derren for giving me the opportunity.
DERREN JOSEPH:
Thank you for being pretty comprehensive. Okay. So I know it may have been a bit overwhelming for some of us. So allow me to kind of give my simple-minded as a simple-minded person, my summary of the takeaways. So we’re accounting firms. What are the three takeaways? What are the three most important things that you want to walk away from walk away with this morning? The first thing is, I think they’ve given the way the ecosystem is structured. There’s clearly a tax planning opportunity by leveraging jurisdictions that have lower or no capital gains taxes. I E your Hong Kong, U Malaysia’s and new Singapore’s. And it’s not so different from the other corporate structures. We have, we know that our wealthy clients, they, they appreciate now that there’s economic substance, you need to set up proper family offices. You need to structure your affairs in a way that makes sense to tax offices in all jurisdictions. So just like they set up their own treasury or their wealth management functions in certain key jurisdictions, the same thing with their Crypto, same thing with the NFTs, we can do it. We can help them do the same thing. We’ve helped clients move or reposition to Estonia Portugal, Dubai recently Cayman islands, the clients need this kind of help together with the tax lawyers, the tat the lawyers have these big ideas and we get to do the heavy lifting and we charge accordingly. So that’s the first one structuring where these assets are actually held. A second thing would be the whole discussion around capital gains. Like what Baudouin was talking about capital gains versus trading profit. That again, huge planning opportunity. And, you know, the landscape is still uncertain. So the tax offices are still, they’re still open to negotiation. They’re still open to taking certain positions because it’s a bit gray right now, but huge planning opportunities and huge client billing opportunities. So that’s number two. And thirdly, we get to Mitesh. I know there are a lot of guys selling software that would help, your clients deal with crypto accounting. If your client is sufficiently sophisticated, the software that’s on sale is all useless. It’s absolutely useless. They must come to an accounting firm. They must, they must, they must, they must. And for me would Mitesh at my side, we’ve been able to win some pretty big clients because they’ve tried the accounting, the tried the Crypto software as being aggressively advertised, and it is not fit for purpose for the sophisticated trader and the sophisticated investor. They are trading across multiple blockchains, multiple exchanges, and multiple jurisdictions, and there’s no software built for that. They need to come to an accounting firm, but as you can tell from what Mitesh explains, it’s not a traditional accounting firm. I’ve logged in to some of the meetings with Mitesh and his team. And they’re talking about programming languages. It’s big data they’re talking about. I’ve heard SQL programming. Maybe I would. Somebody mentioned Python. So they’re doing big data manipulation, especially for our clients that are high-frequency traders. They deal with millions of transactions. It’s just like a commodity trader. So it is, it is not for an accounting firm that is not backed up by that kind of tech expertise. But if you do have it, you are rare. You’re one of the few that can offer that service and you can charge a premium for it. So again, it’s three takeaways. Multi-jurisdictional, tax-planning the whole budgets of trade piece and brunette capital gains versus trading profit. And they have the lifting, the huge data accounting piece that Mitesh, those are your takeaways. Those are the quick wins. That’s how you’re bringing value to your firms. Any questions? I have one. So we did a live stream a few days ago, I think, or was it last week for some remote workers, Digital Nomads in Indonesia and Bali, many of whom are into crypto and Dicky was sharing some of the latest developments from an Indonesia perspective. Dicky, do you know, share some of what’s been happening in Indonesia.
DICKY DARMAWI:
Okay. Thank you, Derren. Good morning, Folks. Everyone hoping to meet you in person very soon. So I’m going to share, I’m going to be fast no more than five minutes. Okay. A couple of weeks ago, the minister of finance published the taxes on the crypto asset in Indonesia. Okay. The crypto characteristics, certainly it’s not the money. It’s not currency. So they will treat it as a commodity. They get to asset or commodity under the commodity futures, trading, ligature regulatory agency, or COFTRA. Okay. So Crypto based on VAT law is a digital presentation and they will consider it as an intangible taxable good. Yeah. It’s not clear now. So they decided that crypto is intangibles. Then it’s going to get VAT backs on trade transactions. Okay. This is the important one taxes on crypto-asset trading transactions are Revit by electronic system trading operators or RESTO, which include exchangers and EVAT. Yeah. Bax is collected by iStore. As long as the seller and the buyer are in the customer zone, it means in the Indonesian zone, Indonesian area, there is the tax going charge on VAT. The VAT will be zero point 11%. If the exchanger is registered in Chopra or zero point 22%, if the exchanger is not registered in Torah, the value of the crypto asset as transactions. Okay. So, so they have to charge this VAT. Okay. If the exchangers are not registered yet in Indonesia, then no need to change this, but sooner or later, the Indonesian tax office will deem the overseas exchangers to be fear trouble, collectors. Okay. On the income tax side, these are only charts for selling. Yeah. So if you’re selling crypto assets, you will be withholding 0.1%. Yeah. If the exchanger is registered in COFTRA or 0.2%, if the exchanger is not registered in COFTRA, you have based on the selling price. Okay. Based on the selling value. Okay. So this can be an investment option to have their wallet crypto wallet in Indonesia. Yeah. It’s divine clearly how much the tax rate will be. I think that’s all the important. Or maybe I, number one, sorry. So there is a mining service tax surface tax on electronic equipment and proficient exchangers. And so the exchanger has to be a packable entrepreneur and pay income tax on the administrative fee. And also there is a transaction verification services on blockchain. So they consider mining a service. Yeah. And the miners are fittable entrepreneurs. Yeah. So the VAB will be 1.1%. It’s quite low. I think it’s very low. And the income received by the miner is also taxed at 0.1%. Okay. I think only that Derren goes back to you. Thank you.
DERREN JOSEPH:
Thank you very much. All right. So it seems as if we’ve come to a natural conclusion, well, Baudouin, I’ll hand it back to you for concluding remarks.
BAUDOUIN COOMANS:
Okay. I think this was a good session, very straight to the point I’ve made. It took a few of the slides that were asked there, and if we are below to share them, we will have very soon an accounting and outsourcing a walking group, a meeting, and really also have one for audit in June. So thank you very much and talk to you soon and see you soon.
DERREN JOSEPH:
Bye-bye
