Review of end-of-term mark-to-market taxation of crypto assets officially realized ─ National Tax Agency notifies | CoinDesk JAPAN | Coin Desk Japan

On June 20th, the National Tax Agency issued the “Regarding Partial Revisions to the Corporate Tax Basic Notification (Law Interpretation Notification)” under the name of the Commissioner of the National Tax Agency to the directors of regional tax bureaus and the director of the Okinawa Regional Taxation Office.

Until now, under the Japanese tax system, if a company held crypto assets (virtual currency), it would be subject to taxation if it generated unrealized gains at the end of the period. For example, in the United States, MicroStrategy and others are actively investing in Bitcoin, but if they do the same thing in Japan, if they make unrealized gains at the end of the term, they will be taxed even if they have not taken profits. rice field.

Alternatively, if a company launches a crypto asset project, issues crypto assets and owns them, unrealized gains are taxed. It has been pointed out that this tax system is a heavy burden for companies, especially startups, and that it is a factor that causes promising startups to leave Japan.

Related article: 26-year-old Web3 entrepreneur Sota Watanabe: If Japan wins in the world, Japan will change[de-Japan]

Excludes self-issued crypto assets

In this circular, this tax system has been partially relaxed. Crypto assets issued by companies will be excluded from market valuation if certain conditions are met.

It has already been indicated that this revision will be reviewed in the “Outline of Tax Reform for 2023” (decided by the Cabinet on December 23, 2022), and expectations are rising from those involved in crypto-assets in Japan. However, it has been officially realized with this notification.

The specific conditions to be excluded from the target of market value valuation are as follows.

(1) It is a crypto asset issued by itself and has been held continuously since its issuance.
(2) Any of the following transfer restrictions have been attached continuously from the time of issuance of the crypto assets.
(b) Certain measures have been taken as technical measures to prevent transfer to other persons.
(b) that it is a trust property of a trust that satisfies certain requirements;

In other words, even if a company or startup launches a project, issues crypto assets, and the value of the crypto assets rises, the crypto assets held by the company will no longer be taxed.

Remaining issues

However, if you own crypto assets issued by other companies, you will be taxed as before. It can be said that just the relaxation of taxation on self-issued tokens is a big step forward for companies and startups, but from the perspective of the ecosystem as a whole, for example, if a VC invests in a promising project and receives crypto assets as compensation. , the unrealized gains will be taxed at the end of the period.

Regarding crypto asset projects in Japan, it can be said that the hurdles to launch have become smaller, but there are still issues remaining when viewed from the perspective of the entire ecosystem to support and grow.

In fact, Sota Watanabe of Aster Network, who is often taken up as a symbolic example of startups escaping from Japan, tweeted:

The “web3 white paper” of the LDP web3 project team also points out this point as follows.

As a result, domestic investors investing in the web3 business are placed in a significantly disadvantageous competitive environment compared to overseas investors who are premised on book value valuation. Token investment from Japan will not progress, and it may become a hindrance to the development of the web3 ecosystem in Japan.

Since the bankruptcy of FTX, Japan’s regulatory environment has been reviewed, and the current situation is said to be a great opportunity for Japan as the SEC crackdown is progressing in the United States. In order to take advantage of this opportunity and greatly develop the ecosystem, further revisions to the tax system are expected.

｜Text: Takayuki Masuda
｜Image: Shutterstock