The US ‘’Responsible Financial Innovation Act’’ Summary 2021
Digital currencies are an inevitable future. For instance, in early November 2021 the total market capitalization of cryptocurrencies peaked at $3.1 trillion before falling back to $2.3 trillion by the end of the year. Therefore, it is crucial to build proper and well targeted regulations for digital assets such as crypto currencies.
The ‘’Responsible Financial Innovation Act’’ (the “RFIA”) or known as the “Lummis Gillibrand Crypto Bill” is a recently introduced legislative proposal to build the US regulatory framework for cryptocurrencies like Bitcoin.
If passed into law it could reshape the crypto market as it provides more clarification of definitions, taxation of digital assets, regulatory body authoritative powers allocation payment stable-coins, responsible consumer protection and so on.
For tax treatment:
Recognition of crypto as an asset class and combined with clarity on taxation are necessary pillars for reshaping the crypto market.
Before the legislative proposal:
- Digital asset miners fall under the broad and unclear definition of “broker” and they are subject to Internal Revenue Service (IRS) tax reporting requirements.
- The IRS asserts that by performing Proof of Work validation services, the fees that miners receive in virtual currency units are ordinary taxable income at the fair market value as of the date they receive the units
- The US government has been silent on the tax treatment of staking activities that support blockchain networks or verify payments.
After the legislative proposal:
- The definition of “broker” is re-defined and provides a clear definition thus taxation treatment for digital assets will be different.
- Cryptocurrency miners defer taxes with respect to such activities until those assets are disposed of.
- Requires more transparency and information on virtual currency transactions while implementing a de minimize rule to exclude gains or losses from cryptocurrency transactions subject to certain conditions.
Comparison of current Mongolian Law on Virtual Asset Service Providers (VASPs) and the “RFIA”:
- Taxation of digital assets has not been clarified in VASP Law except that virtual asset service providers are exempted from value-added tax (VAT).
- The General Tax Authority claimed they will regard any income derived from the vaguely defined Virtual Assets shall be considered an intangible asset and thus will be subject to related income tax, plus VAT.
- The possibility of over-taxation issues or confusion to the VA service providers in Mongolia
- The VASP law itself does not require VASPs to have initial, ongoing disclosure to the official body of the government, thus it is highly recommended to have a disclosure requirement to FRC or any other related official government body.
In brief, although the current legislation on VASP provides a general legal framework for virtual/digital asset service providers in Mongolia however, definitions are vague which can cause uncertainty and confusion. Therefore, Mongolian regulators can use the RFIA as guidance for future amendments to the current legal framework.