Maurice:

Welcome back to C&F Talks, where I have the opportunity of speaking to one of the speakers at a forthcoming event. Today, I have with me Dr Max Bernt who is the Managing Director for Europe at TaxBit. Max is going to be speaking at our Digital Assets Innovation Summit, which has been held as part of City Week, on the 2nd of July at the Royal Garden Hotel, London. Max, welcome.

It's a pleasure, thank you for having me.

It's great to have you with us.

As somebody who's deeply involved in crypto tax compliance and reporting, do you think that the regulatory approach of different jurisdictions such as the EU, the US and Asia are converging or diverging when it comes to crypto assets and digital assets? And do you see a path towards greater alignment, or will we continue to have a fragmented regulatory environment?

Maurice, thank you very much. It's a very good question. So maybe to taking a step back, I would first start talking about crypto tax space is actually a quite broad topic, right?

We're talking about two different bubbles here, how I like to call them. On the one hand, de facto taxation in individual jurisdictions, meaning ultimately what does an individual taxpayer has to pay taxes on gains they make from crypto assets, right? This is bubble one, it's a de facto taxation.

And then there's bubble two, which is really about information reporting. So ultimately the question, what's the sources that the government has to actually audit individuals or where they retrieve information from to actually have the knowledge of individuals holding crypto and potentially making gains that could be taxable? So, when you ask me about like global harmonisation and where I see like more trend towards harmonisation or where I actually see jurisdictions moving away from each other, first bubble when it comes down to de facto taxation of crypto assets, there is still very, very different approaches on how to actually tax crypto, right?

You have jurisdictions that would see crypto gains as being part of income. You would have jurisdictions that would see crypto assets being part of capital gains. You have jurisdictions that see a crypto-to-crypto asset transactions or a simple swap as a taxable event, whereas in other jurisdictions you have crypto-to-crypto being non-taxable and actually only an effective cash out or like payment for a good, like when you purchase a car, for example, would be seen as a capital gain.

So very, very different approaches when it comes down to bubble one, the de facto taxation. However, something we have seen in line with all the AML reporting requirements that have been put in place by international standard setting bodies such as the Financial Action Task Force ever since 2016, is that in the space of information reporting, so simply put, how much information does the government receive from institutional players, there is a trend towards a global harmonisation and this comes in the form of OECD standards.

So being more specifically back in 2018, the OECD member states saw that more and more individuals are making significant gains from crypto assets. So, they and most of them were still depending on individuals actually declaring that they have made gains from crypto assets. Otherwise, they wouldn't have known that this individual even holds crypto.

So, what they have been negotiating in line with the CRS, with the common reporting standards that have been in place for a while and the FATCA regime of the United States, is to create an institutional information reporting requirement for crypto asset service providers. And this institutional information reporting requirement was finally adopted in October 2023, where the OECD member states and all other jurisdictions that adhere to this standard agreed on the so-called crypto asset reporting framework or in short CARF, which is basically CRS for digital assets, but not account based but transaction based. So, what does that mean?

Simply put, service providers operating in different jurisdictions in different countries across the globe. And we are talking about over 65 jurisdictions here. So we truly a global standard, including all the major crypto hubs like the UAE, the UK, the European Union, the United States, Brazil, and so on and so forth. Singapore, Hong Kong are in as well.

They all will need to comply with a minimum standard on how to report on their customer activities. So basically what they will need to do is from start of 2026, or in some jurisdictions from 2027 onwards, they will need to start collecting tax identification numbers for all of their customers, and also start tracking all of their transactions.

And by the end of the year, so start of 2027, they will then need to aggregate all of this data per asset and per in outgoing transfers, et cetera, and also have quite a sophisticated way of how they need to flag these transactions and then report this to the local tax administration. So, for example, if I'm a UK London based entity servicing clients, I need to collect self-certifications from all of my clients about like asking them for the tax identification numbers. And then also combine this with all the transactions that they conduct in 2026, file this in the right format and submit it to HMRC.

And HMRC is then sharing this data with all participating jurisdictions to the relevant tax administration. So, for example, if I'm a Swedish taxpayer and I use a UK based provider, the UK based provider would report to HMRC in the UK, and then HMRC would share this data with the Swedish tax administration, because I'm a Swedish taxpayer, right? And I submitted this data.

So, what does that mean? We see a very, very strong trend towards harmonisation when it comes down to the bubble of information reporting, whereas when it comes down to the actual taxation and how these assets are ultimately taxed is a very, very different topic. And there is not really any harmonisation in the making right now, not even the European Union.

Interesting. So, there is a fair degree of international cooperation.

But of course, all eyes are on the US now. How are Trump's presidency and the tariff policy influencing the global digital asset market and the international regulatory landscape, do you think?

That's also a very good question, because the answer to that is probably very, very complex, right? There's like, you cannot say it either like positively affects it or negatively. It's really the subject area we are looking into.

But generally speaking, when we look at the impact that the new administration, the United States had on the crypto market overall, we see, of course, that crypto adoption has increased, that there is a strong push for institutional adoption coming out of the United States as well. We had the United States government now proclaiming that they will introduce a proof of reserves within the United States using crypto assets as well. More specifically, also like five top digital assets.

So, I think it's XRP, ADA, Bitcoin, Ether, not Solana, I'm not 100% sure which one it is, but these are like the top crypto assets that are being used as backing, so to say also for the jurisdiction itself. So, these are quite significant changes, right? Tariff policy has affected the whole global landscape in the financial markets.

I would say while some years ago and also during the last bull run, the crypto asset market was quite decoupled from the traditional financial market, it has more and more merged. So right now, what we are seeing is that if there's a bull run in crypto, for example, if the price of Bitcoin is rising, then usually the stock markets are rising as well. So, it's not that volatility of the market has decreased, but this is not as a result of the actions of the US administration, but as a result of the increasing institutional adoption, which brings more stability to crypto assets in general.

Yeah, yeah. Yeah, I think that's definitely true. There is more of a correlation, isn't there, between Bitcoin and stock market movements?

But what's your opinion about the UK's draft legislation for regulating crypto assets and also about the upcoming UK-US Financial Regulatory Working Group?

Regarding the UK’s draft right now, first and foremost, I must say I'm not a UK lawyer, right? I'm actually an Austrian-based lawyer, so I don't have a very strong opinion about UK’s draft regulating crypto assets.

However, what we see, more broadly speaking, is that also the UK, in a similar vein like the European Union, with its markets and crypto asset regulation, is providing a comprehensive fundamental framework for crypto service providers to operate in. And what people often confuse is crypto with gambling, right? When we talk to a person on the street and we talk about crypto, they think about the speculative side of the whole business. But what has become increasingly clear is that through the institutional adoption, we see a trend of using blockchain for also traditional financial instruments like bonds.

Also, stablecoin payments have drastically increased across financial institutions. And this is where the UK is also now going in a direction where they provide more clarity on this, because ultimately, for me as a financial institution, as an established player in the UK, I need certain clarity and legal certainty in order to, first of all, get projects using blockchain through my compliance department, and also to get the security and stability on my side that I will be able to operate this project in the years to come.

Regarding cross-border collaboration with the US, I think that is something very, very good, right? I think that there should be a very close collaboration in Europe in general, not just the UK, with the United States government as well. And this is really because what we are seeing with crypto and with DLT-based assets in general is that it's leading to more and more decentralisation of the market, meaning also that the borderless phenomenon that crypto is requires a borderless approach in regulation and also in collaboration on how we want to actually deal with this.

Very good. Such an interesting topic, and clearly these markets are growing rapidly and becoming standardised. Sadly, Max, we've run out of time.

But for our viewers, if you'd like to come to the event, the Digital Assets Innovation Summit being held on the 2nd of July as part of City Week, further information is available on our website, www.cityandfinancial.com.

Max, I look forward very much to seeing you at the event itself. Thanks for your time today.

Thank you very much.