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Gov't moves to halt tax evasion on cryptocurrency transaction income

A man checks currency fluctuations on a virtual currency exchange site, as a laptop computer screen displays a file recording money laundering transactions, in Tokyo in April. (Mainichi)

TOKYO -- The government is set to establish a system to prevent people who have made large profits from cryptocurrency transactions and the sharing economy from evading taxes on their earnings, those with knowledge of the policy said.

The system would allow the National Tax Agency (NTA) to demand transaction mediation businesses provide information on customers suspected of having evaded taxes on earnings from such deals. The ruling coalition will incorporate the establishment of the system in the tax reform outline for fiscal 2019.

Profits gained from virtual currency transactions are classified as miscellaneous income under the Income Tax Act. Salaried workers who gain at least 200,000 yen a year in such earnings are required to declare them as income.

A large number of people have earned large profits from cryptocurrency transactions after their market values increased sharply in 2017 and 2018. According to an NTA survey, over 300 individuals declared in 2017 that they had earned at least 100 million yen mainly from cryptocurrency deals.

The NTA is poised to take countermeasures against tax evasion on earnings from cryptocurrency transactions because officials suspect that evasion cases are increasing with the growth in such trading.

Under the current system, the NTA can only ask virtual currency trading and other businesses to submit information on their customers voluntarily. In response to the situation, the government will reform the system to allow the taxation authority to demand that such businesses hand over personal information on their customers, such as names, addresses, and 12-digit individual identification numbers.

However, due to personal information protection concerns, the government intends to allow the tax authority to request information only on those believed to have earned at least 10 million yen from cryptocurrency transactions, and only if the authority has confirmed that the customer has failed to report at least half that income.

Businesses would be allowed to appeal such requests.

The new system would also apply to businesses involved in the so-called sharing economy, such as online flea market operators. The NTA would also be allowed to demand information such as bank accounts opened under false names that are suspected of being used for tax evasion.

The United States and other countries have introduced similar systems. This has prompted calls in Japan for the introduction of rules for the provision of personal information on those suspected of tax evasion on their cryptocurrency and other transaction earnings.

The executive branch and the ruling coalition is aiming to introduce the system sometime after the fiscal starting in April 2020, following a publication period.

(Japanese original by Daisuke Oka, Business News Department)

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