LAS CRIPTOMONEDAS: an approach to its recognition in the Chilean legal-tax system

This article is co-authored by Antonio Faúndez, Mario Pino Moya, Pablo Góngora Jercic and Andrés Quintanilla Fernández.

The development of the technological revolution has impacted human relations in its various dimensions. For some years it has reached the financial world, greatly improving the mechanisms for transmitting information, which has favorably enabled the provision of financial services, making it more expeditious and secure. Digital money is a clear result of this process.

Among its first great exponents of the transfer of value through the digital money format we find credit cards, debit cards and even the online payment system mechanisms such as those provided by digital start-ups such as Paypal, among others. All these systems were developed within the state support scheme, that is, they had an authorized impartial third party that provided support regarding their value.

In view of an ideal of freedom and distrust of governments and modern states, computer scientists developed an intangible value exchange unit called Cryptocurrency In Chile, the first pronouncement issued by the tax administration - the Internal Revenue Service - was through the Note No. 963 of May 14, 2018, defining at bitcoins as "a digital or virtual asset, supported in a single digital register called blockchain, deregulated, unintermediated and not controlled by a central issuer, whose price is determined by supply and demand" In the opinion of the audit body, the Cryptocurrencies they are not currencies or currencies, but digital assets, that is, goods or rights with monetary value and that have an existence in the field or virtual or internet spectrum.

Against the value added tax (VAT), the Internal Revenue Service recognizes that bitcoin, like any other digital or virtual asset, lacks corporality, which is why it is not taxed with this tax. On the other hand, in relation to the tax on obtaining an income, its treatment is different.

The Fintech that provide services with cryptocurrencies, have allowed anyone to easily invest in the virtual asset of their choice, ergo, access costs, unlike other intangible assets such as stock traded shares, are low. This has allowed a large number of unsophisticated or non-professional investors to interact in the respective markets, so that their market value is especially unstable. This point is especially problematic when it comes to the tax cost when determining the highest value for income tax purposes.

Practice has shown that the great actors on the matter have generated their fortune through low-cost investments. Clearly, this situation presents problems that range from the way of correctly accounting for these assets, the correct determination of their market value for the purpose of exercising the taxation authority of the fiscal entity, and even the tax result that would affect the payment of taxes of the investor.

In this regard, the Internal Revenue Service has indicated that «Income obtained in the purchase and sale of bitcoins or other virtual or digital assets, is classified in No. 5, of article 20 of the Income Tax Law (LIR), and consequently must be affected with taxes general of this law, that is, with the First Category Tax (IDPC) and the Complementary Global Tax (IGC) or Additional Tax (IA), as appropriate ».

Thus, in order to determine the highest value affected by said tax, the acquisition cost must be compared against the sale price. However, there is no clarity on the way of calculating said acquisition cost, which can generate misinterpretations that affect the principle of legality in the way of determining the taxable bases.

Now, what happens to the companies that dedicate their turn to the development of transactions with these tools? Can you recognize the disbursement of costs and expenses? Among the costs we can find items related to the workforce such as salaries, investments in computers and software related to activities, internet, electricity.

In conclusion, in Chilean legislation there is no express regulation on the tax treatment of Cryptocurrencies, there are currently discrepancies in the way of determining the acquisition cost. Likewise, there is no tax hypothesis regarding the additional tax, leaving an open threshold on payments made or coming from abroad in relation to these digital assets.

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Antonio Faúndez Ugalde
Research Professor at the Pontifical Catholic University of Valparaíso, lawyer and doctor of law. He is also a professor of taxation for the Master in Management of National Taxation at the Pontifical Catholic University of Valparaíso and professor of the Master in Taxation at the University of Chile.

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