The FT has an article this morning that includes a very good video (if you can get behind the paywall) on why they think that Facebook's Libra ‘currency' is a giant con-trick that will never do what it says on the tin.
The video is worth watching, but the article is also interesting for another reason. In it Dan Neidle of Clifford Chance raises an issue about Libra that I had overlooked. And that is that because since Libra is not a currency as such, because it inot issued by a nation state, it is very definitely an asset on which gains and losses can arise every time that it is exchanged for other goods or currency. The result is that a capital gains transaction has to be undertaken on every such occasion to prove whether tax is owing or not.
Of course, for most users in the UK the chance of a liability is low. But in many other countries, without the absurd annual allowance for capital gains that the UK offers (and that means many significant countries in the EU), the risk of tax being dues is high.
So what Facebook is offering is a so-called currency with a massive tax problem implicit in its use that Facebook can only overcome by suggesting that users evade their responsibility to declare tax potentially due. Which, I think, should make it a non-starter when it comes to acceptability. Just a few tax investigations for this reason would be more than enough to kill it for good. And that's just fine on this occasion.
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Yes I see your point.
But surely would this not apply to all crypto currencies from their inception i.e. from bitcoin right down to the most insignificant including of course the drug dealers crypto of choice Monero?
True
But most have only been used for speculation and so that has been of little consequence
This one is apparently being designed to assist payment of taxi fares
The scenario is, then, very different
A contrary view would be that tax reporting would be particularly simple – as the blockchain is a ledger of transactions. Semantics aside – all reportable transactions would be available and could be simply downloaded. Whether users would wish to do so (or feel compelled is another point).
Ironically this sort of transaction structure is exactly the sort which would excite tax collectors of the future. With a central bank digital sterling as currency, hmrc could simply download the transaction history of the entire currency from the BoE. End of the tax gap?…
I can download my bank account now: who needs blockchain?
I promise you I would not want to calculate gains on all transactions
And this is not blockchain, just for the record
As i understand it the Libra ‘blockchain’ will not be public.
and…(and this is pushing the envelope) – a smart contract could operate on the ledger to deduct tax upon occurrence of the transaction…automatically…
In China now (and bear in mind Facebook is catching up with WeChat et al), their systems already deduct fines from users when facial recognition cameras catch those users jaywalking….
Now would that not be the right amount of tax paid at the right time?…
That would be hard, I suggest. Working out the matching rules would be fun without knowing what the transactions were for
I am not saying it would be impossible – but let’s also imagine why anyone would want to do that when a tax-free alternative was available?
The big issue with Libra is that it will surely undermine the tax base of poorer countries. It’s essentially a currency for Tech companies, how can a government in Africa respond if Uber or another start up begin paying their drivers in Libra?