Devin Black

Japan's National Tax Agency is taking a closer look at cryptocurrency

Japan's tax authorities have begun to investigate under-reported crypto gains. According to The Asahi Shimbun, roughly 50 individuals and 30 companies in Japan were found to have failed to properly declare crypto income from the past few years. Investigators focused particularly on entities who seemed to have earned large amounts of money with crypto, concluding that many had made efforts to conceal their gains.

One method used by two companies was to transfer millions of yen of cryptocurrency, billed as "consulting fees," only to then return most of the cryptocurrency to the sender. The fees could then be written off, reducing income tax amount.

These findings came from an investigation into cryptocurrency exchange transaction data requested by investigators at the Tokyo Regional Taxation Bureau. Other countries have been requesting client transaction data from crypto exchanges as well, including the United States where, as an example, Coinbase has sent user data to the IRS. Spain, Australia, and Denmark are a few more examples of countries where tax authorities have requested data from cryptocurrency exchanges.

In Japan, cryptocurrency income is classified as miscellaneous income, a category that is taxed up to 55%. Compared to Japan's taxes on stock profits of a flat 20%, crypto gains are very highly taxed, dissuaded individuals and companies from properly reporting their crypto gains.

Japan has a generally accepting climate for cryptocurrencies. Exchanges are legal and regulated, and crypto is soon to have its own definition as "cryptographic assets." While Japan's tax authorities have reason to crack down on evasion, a tax reform placing crypto taxation rates more in line with other income and capital gains rates would likely prompt better tax compliance.

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