CRYPTO: Taxation on crypto-assets


Previously: Accounting for non-monetary asset? and Valuation of crypto (in the context of IFRS 13).

Levies on Crypto Outside PH Tax Authority

Tax law and crypto have one thing in common. According to a leading crypto digital thinktank, Crypto Research Report, “Most people don’t know the first thing about these topics.”

It further claims that the two subjects represent polar opposites from a cultural or worldview perspective. In the eyes of many people, tax law symbolizes excessive regulations imposed by a central government agency. This is in contrast to cryptocurrencies and the associated blockchain technology, which stand for a decentralized, unregulated and free society not under the thumb of a central power apparatus. The complexity of these two spheres increases if one attempts to integrate cryptocurrencies into the world of the tax code. And for this reason, sovereigns have understandably differing positions on how they tax cryptos.


Below is a quick summary of tax applicability over crypto across the globe as of the date of writing (Ibid.):

Country Classification Income tax(1) CGT(1) VAT(1)
Australia Property /
Germany Private money /(2) /(2)
Switzerland Foreign currency
USA Property /
UK Asset or private money: determined by court on a case-by-case basis /
Japan Legal tender /
China Virtual commodity

1Rates vary across the globe but applicable concepts are almost similar.
Progressive income tax of up to 45% applies if held for less than a year; otherwise, exempt from income tax but subject to CGT.

PH Regulatory Landscape

After realizing the potential of the disruptive crypto and blockchain – in both ends of being chaotic and systematically beneficial – the regulators have since come up with different yet complementary responses.

Monetary Authority: Banko Sentral ng Pilipinas
In February 2017, Bangko Sentral ng Pilipinas (BSP) issued Circular No. 944 which established the regulatory framework for virtual currency (VC) exchanges. It requires VC exchanges to register with BSP as remittance and transfer companies and put in place adequate safeguards to address the risks associated with it which include control measures to counter money laundering and terrorist financing, technology risk management systems, and consumer protection mechanisms. VC exchanges are also required to register with the Anti-Money Laundering Council (AMLC).

Mike Mislos of explained that the above circular only covers the “crypto to fiat conversion” activity and vice versa and does not cover order book style exchanges – i.e., exchanges that allow users to set their own rate via an order book similar to how the stock market operates, as that would be the domain of the Securities and Exchange Commission (SEC). Accordingly, licensed virtual currency exchanges only provide instant conversion rate for crypto to fiat / fiat to crypto and do not allow licensees to do Initial Coin Offering (ICO).

In late December 2017, BSP issued a public advisory in response to certain unscrupulous fraudsters related to ICO. It warned consumers to be more cautious in their VC dealings and reiterated that it does not endorse VCs as a currency or an investment due to its highly-speculative and risky nature. It also highly-encouraged existing and potential VC users to deal only with BSP-registered VC exchanges and to maintain only a sufficient amount of VCs enough to address transaction requirements. Finally, it provided some security tips for VC users.

As of date of writing, BSP has registered a total of 13 VC exchanges which legalize their functionality in the country. (SOURCE: BSP > Directories > List of RTC / VC)

Crypto Valley of Asia and Offshore Virtual Currency Exchanges
Cagayan Economic Zone Authority (CEZA) is a government-owned and controlled corporation that is responsible for the development and management of the Cagayan Special Economic Zone and Freeport. It touts itself as the ‘Crypto Valley of Asia’ which hopes to house fintech and blockchain firms around the world.

In May 2018, it launched its Financial Technology Solutions Business Enterprise (FTSBE) and Offshore Virtual Currency Exchange (OVCE) License Program. The OVCE license allows a licensee to run a crypto to crypto trading in the Philippines but must only service users from outside the country. It, however, does not allow the facilitation of crypto to fiat transactions unless they are registered with BSP.

As of date of writing, CEZA has registered a number of offshore VC exchanges which legalize their functionality in the country – 13 regular licensees (OVCE only) and 24 principal licensees).  (SOURCE: CEZA > List of OVCE licensees)

The ‘principal’ license will allow a business to engage in fintech services and crypto trading services. The ‘regular’ license has two types: i) one that will allow the business to engage in offshore crypto trading services only; and ii) one that allows the holder to engage in fintech services only. Licensees are required to develop anti-money laundering and counter terrorism-financing rules, and to maintain effective data privacy and cybersecurity programmes. They are also subject to the inspection and audit authority of the CEZA.

Being a special economic zone, its trade laws can differ with those of national’s (i.e., SEC). And, whilst SEC has yet to issue a regulation governing order book style exchanges and ICOs, CEZA has already forged its own albeit only of and for non-Filipinos and non-Philippine residents (i.e., foreign ownership in line with the objective of attracting foreign investments and solely for offshore services only).

In February 2019, CEZA released its Rules on Digital Asset and Token Offerings (DATO) a.k.a. ICO – which cover areas around the acquisition of cryptocurrencies, including utility and security tokens – require the creators of all crypto assets, in relation to ICOs, to provide clear offer documents carrying relevant details of the issuer, project, and accompanying advice and certification of experts. Tokens should be listed on the licensed Offshore Virtual Currency Exchange (OVCE), a special exchange set up for this purpose. Participants are required to have confirmed arrangements with CEZA-accredited wallet providers and custodians. Raul Lambino, chief executive officer of CEZA, said the DATO framework is not aiming to stifle the growth in the cryptocurrency sector, but to protect investors and promote innovation. The government-owned regulator will be working in partnership with the Asia Blockchain and Cryptocurrency Association (ABaCA), a self-regulatory industry representative body, whose obligations include executing and enforcing the regulations. ABaCA will also administer a code of conduct among its members, reporting to CEZA any breach or violation relating to the OVCE regulations.

In July 2019, CEZA, ABaCA and First Bullion Holdings, Inc. (First Bullion) jointly announced the certification of the Flourish City Development Limited (FCD) Digital Asset Token Offering (DATO) as the first asset-backed token offering approved by CEZA and ABaCA. Envisioning CEZA as a global sandbox for fintech and other innovations, the first DATO with FCD serves as a test case to study token offerings, monitor transactions and further enact rules and regulations which will develop industries, foster growth, and protect the investing public.

P.S. The extraterritorial destination of offshore services results in the inapplicability not only of BSP Circular No. 994, but also the Securities Regulation Code, which requires registration only for securities that are sold or offered for sale or distribution in the Philippines.

Securities Regulation
In January 2018, SEC issued an advisory on certain companies, individuals or groups of persons enticing the public to participate in ICOs and to purchase the corresponding VC. It advised that, “some of these new virtual currencies, based on the facts and circumstances surrounding their issuance, follow the nature of a security as defined by Section 3.1 of the Securities Regulation Code (SRC).” It claims that under Section 3.1 of the SRC, a security includes an “investment contract,” which is “presumed to exist whenever a person seeks to use the money or property of others on the promise of profits.” In the case of a security, the SEC warned that the VC has to be registered and necessary disclosures made for the protection of the investing public.

In July 2019, only days after CEZA’s first certified token offering, the Securities and Exchange Commission (SEC) issued the proposed ‘Rules on Digital Asset Exchange (DAE)’ which are expected to be finalised on the second half of the year after garnering comments from broker-dealers, investment houses, the investing public and other interested parties. These will function similarly to CEZA’s regulations on OVCE. A quick take-away is the requirement to submit an ‘initial assessment request’ to SEC to determine if the token is a security in the context of SRC and the Php100mn initial paid-up capital in fiat currency.

Republic Act (R.A.) No. 10963 a.k.a. TRAIN law
The first package of Comprehensive Tax Reform Program (CTRP) in the name of TRAIN (Tax Reform for Acceleration and INclusion) came into effect on January 1, 2018 – amending, repealing and adding new sections to R.A. No. 8424 a.k.a NIRC of 1997 (as amended). However, there was no mention of crypto taxation. The other packages of the CTRP, as they currently stand, are not expected to cover crypto as well.

As of date of writing, none can be found in NIRC 1997 and existing Revenue Issuances and Tax Rulings relating or alluding to crypto. Bureau of Internal Revenue (BIR) by far has only issued a Revenue Memorandum Circular pertaining to tax implications of eCommerce and digital transactions.

PH Taxation

Xcept for refunds, tax laws should be construed against the government (i.e., in favour of the taxpayer) particularly in the case of ambiguity; hence, no prescriptive guidance on a subject means the subject is not to be taxed. However, Tax Code was wittingly crafted to tax all earned income. And, unless it is explicitly exempted, it is taxable in practice.

In all occasions, a levy is dependent on its classification. For instance, if it is a property, then capital gains tax (CGT) applies; for shares of stocks, stock transaction tax (STT) applies – unless not listed where CGT applies. In most cases, it follows the accounting classification save for the glaring difference on the treatment of realized and unrealized gains (and losses) where tax rules follow cash movements, i.e., taxable (deductible) only when realized or cash is received.

BIR might have been deferring the issuance of a descriptive ruling since they would like to observe the crypto happenings in the CEZA being the ‘sandbox’ (test environment) prior to drafting a comprehensive tax regulation.

Absent the implementing rules and regulations, we think the below tax treatment would be compliant with TRAIN Law and NIRC 1997 (as amended) – collectively here forth as ‘Tax Code’:

Income tax / CGT
When crypto is received as a compensation, normal income tax rules apply. Similarly, for businesses that accept payment for goods or services in crypto, there is nothing special to when revenue is recognised or how taxable income is calculated.

The author views the gains resulting from trading activities, including that of exchange of crypto to fiat currency (net gains only) being subjected to CGT similar to the 15% levy on the sale of shares not through the stock exchange – unless held for less than a year similar to Germany’s tax treatment until SEC issues the final DAE rules and of course, BIR’s eventual issuance of specific guidance . Unrealized gains, including foreign exchange gains, are non-taxable.

Income derived from mining crypto may not represent a tax-free capital gain and as such, has to be viewed as a separate commercial activity. Therefore, this activity is subject to income tax which can be reduced by the costs associated with it (e.g., IT-related expenses, electricity, rent, etc.).

Value Added Tax
In all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for (or remunerated by way) cryptocurrency (i.e., same way as any other supplies for VAT purposes). The value of the supply of goods or services on which VAT is due will be the PHP value of the cryptocurrency at the point the transaction takes place.

The author views the trading activities, including exchange of crypto to fiat currency, as VAT exempt transactions consistent with the treatment across the globe.

Borrowing from HMRC (UK’s Tax Authority), ‘income received from crypto mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.’

Other tax matters
Any party considering raising capital by way of an ICO should also consider the tax implications of doing so. Parties acquiring such tokens also need to consider the associated taxation implications.

Withholding tax (as agent) – VCs when provided as compensation or payment for a product or service should be subjected to normal withholding requirements.

In summary: PH individual vis a vis corporate
Without prejudice to the sub-classifications, currencies and tokens (utility, security or asset-backed – or hybrid), below summarizes the tax treatment of earned crypto income:

Taxpayer Income tax CGT VAT
As a part of compensation      
Individual /
Corporate /
As a payment for product or service      
Individual / /
Corporate / /
As a trading gain / exchange      
Individual /(1) /(1)
Corporate /(1) /(1)
As ‘mined’      
Individual /
Corporate /
Acquired via ‘hard fork’ or ‘airdrop’      

1Only realized gains, including effects of foreign exchange, are taxable; speculative gains and unrealized foreign exchange gains are not taxable (similarly, losses are not deductible)

It is also common to come across cases that require extensive declaration and documentation efforts. For instance, PHP are exchanged for BTCs; later on, BTCs are exchanged for ETHs, and these ETHs are then used to take part in an ICO and one receives new tokens (or BTCs are used directly to, for example, pay a restaurant bill).

In the words of Matthias Langer, crypto tax specialist, ‘cryptocurrencies may exist in the digital realm but their tax implications are very real. Detection of cryptocurrency investments is difficult–to–impossible for government tax collectors. Although investments that stay in the digital world may go unnoticed for a few more months, the rising value will ring the alarm for tax agencies. Banks that receive large transactions will ask questions and report suspicious activity. Instead, investors are expected to honestly declare cryptocurrency income and wealth to authorities each year’.


Deloitte’s Bridging the digital gap: How tax fits into cryptocurrencies and blockchain development posits that in a futuristic state, blockchain could revolutionize how tax is calculated with real-time transactions that everyone, including governments, taxpayers and their advisers, could have live access to. This would allow governments to charge tax immediately and may eventually eliminate the compliance and audit issues that all parties face. Looking ahead, the potential uses for these technologies in financial markets and the regulatory benefits surrounding them have the potential to revolutionise how governments and taxpayers conduct their business and pay their taxes. It could potentially mark the end of corporates needing tax advisers to file their tax returns.

Crypto taxes are still in flux. Paying crypto taxes is just like paying any other type of capital gains or income tax, except for one big factor: it is generally up to you to compile the information yourself. This means going through your trades, recording the necessary data, and planning to do it all again next year. Further, there is a lot of dip-dive to do on the nitty-gritty of crypto let alone the tax implications. Exceptional IT affinity, solid technical understanding of blockchain transactions and a balance between restrictions and free-hand are all needed to advance well. But just like anything tax-related, the sooner you start preparing for filing season, the less difficult it will be – and several sort of penalties may be avoided.

Next article: AUDITING CRYPTO.

Disclaimer: Opinions expressed in this article are that of the author and information provided are for general conceptual guidance for public information and are not substitute for expert advice. Contact for more information and if you want to avail professional services. Find us on Facebook!

Founder and President/CEO at akawnTHINK | Financial Coach | Mentor at EY UK Foundation's Smart Futures Programme | EY London Digital Ambassador

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