Facebook’s launch of new currency isn’t obviously the best thing for everyone out there – there’re few analysts, policymakers, lawyers, and experts raising their eyebrows by investigating the depth of Libra stable coin.
Libra May Impose Taxation Issue
The latest report reveals that the UK lawyer “Dan Neidle” investigated the tax issue that Libra can possibly impose on UK users. Dan Neidle is a partner at the law firm Clifford Chance who stated that “Facebook’s Libra would be a novel problem for users, specifically those who followed the law’.
The idea behind Libra currency is that ‘it is backed by a basket of reserve currency’ and henceforth known as Stablecoin. According to the reports, as Libra pegged by global currency, it will impose tax issue which wouldn’t be the case if its value backed against user’s domestic currency. Moreover, in reality, global rates fluctuate and accordingly, it will reflect in the domestic value of user’s Libra holding – this further creates capital gains and losses which is easily traceable for tax authorities when someone makes a purchase with Libra.
Dan Neidle states that;
“In most countries gains will be taxable, meaning consumers will have to file a detailed tax return showing all their transactions and the exchange rate at the time, and pay any tax due,” Dan said. “This seems to us to be a significant barrier to wide adoption.”
In addition, he gave an instance of UK wherein capital gains will be payable only if it exceeds the gain of £12,000 – as such, they’re responsible to report the gain or loss to HM Revenue & Customs (HMRC) for every transaction on capital gains tax liability arose. To note, HM Revenue and Customs or HMRC is a UK Govt’s non-ministerial department, responsible for the collection of taxes and other regulatory regimes.
Mr. Neidle commented that;
“heavy users of Libra are likely to find computing their tax liability a real challenge,”
According to him, this would be a barrier for Facebook to have wide adoption. In his Twitter timeline, he points;
We’ll have a briefing out soon with the details. How big a problem this is in the UK depends on whether you think users who file a self assessment form will be willing to list every Libra transaction. I reckon they won’t, YMMV.
— Dan Neidle (@DanNeidle) July 1, 2019
He kept on adding ‘with such huge compliance burden (if exists), it would be quite difficult for Facebook’s Libra to enter the zone of rapid growth. Mr. Neidle continued;
“I don’t see how Facebook can promote a product predicated on people evading tax, even to a small degree, or how regulators would permit that to happen,”
Facebook Looking Forward To Discuss with Tax Authorities
With lawyer pointing out tax as a potential threat to Libra, reports also revealed the response by Facebook on it. Accordingly, Facebook agreed, if there’s an issue for Libra to be accepted as an asset for tax laws, ‘they are ready to discuss with policymakers’. It stated that;
look[ed] forward to working with policymakers as they clarify the application of existing tax laws to cryptocurrencies, or in some cases to update those laws”.
Meantime, a statement from HMRC was also revealed that any concrete point on tax aspects across Facebook’s Libra is still too early to give – moreover, it hasn’t still approved any crypto asset as a currency within the country for the fact that it has not been issued by a foreign Govt. Also, as far as Libra is concerned, it stated that it had still not met the requirement of treating as a currency.
Any disposal of crypto assets through exchange with different crypto assets, used to purchase goods or conversion into sterling or other currency would gain/losses dealt with on normal lines.
Continuing the point, Facebook’s spokesperson further added;
People will be responsible for filing their taxes in accordance with local laws in the jurisdictions in which they operate. We expect that many wallets and financial services built on the Libra Blockchain will provide people with tools to help manage this.”
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Tabassum is a full-time content writer at Coingape. Her passion lies in writing and delivering apt information to users. Currently, she does not hold any form of cryptocurrencies. Follow her on Twitter at @Tabassumnaiz and reach out to her at Tabassum[at]coingape.com