What is the best VAT treatment for Transactions Involving Cryptocurrencies in Latin America?

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Cryptocurrencies in Latin America?

Adv LLM thesis submitted by Luis J. G. Cerda

Student number: 14062984

E-mail: luis.gonzalez.cerda@student.uva.nl Submission date: 28 06 2022

in fulfilment of the requirements of the 'Advanced Master of Laws in International Tax Law'

degree at the University of Amsterdam

supervised by Giorgio Beretta

co-supervised by Fabiola Annacondia

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PERSONAL STATEMENT

Regarding the Adv LLM Thesis submitted to satisfy the requirements of the 'Advanced Master of Laws in International Tax Law' degree:

1. I hereby certify (a) that this is an original work that has been entirely prepared and written by myself without any assistance, (b) that this thesis does not contain any materials from other sources unless these sources have been clearly identified in footnotes, and (c) that all quotations and paraphrases have been properly marked as such while full attribution has been made to the authors thereof. I accept that any violation of this certification will result in my expulsion from the Adv LLM Program or in a revocation of my Adv LLM degree. I also accept that in case of such a violation professional organizations in my home country and in countries where I may work as a tax professional, are informed of this violation.

2. I hereby authorize the University of Amsterdam and IBFD to place my thesis, of which I retain the copyright, in its library or other repository for the use of visitors to and/or staff of said library or other repository. Access shall include, but not be limited to, the hard copy of the thesis and its digital format.

3. In articles that I may publish on the basis of my Adv LLM Thesis, I will include the following statement in a footnote to the article’s title or to the author’s name:

“This article is based on the Adv LLM thesis the author submitted in fulfilment of the requirements of the 'Advanced Master of Laws in International Tax Law' degree at the University of Amsterdam.”

4. I hereby certify that any material in this thesis which has been accepted for a degree or diploma by any other university or institution is identified in the text. I accept that any violation of this certification will result in my expulsion from the Adv LLM Program or in a revocation of my Adv LLM degree.

Signature:

Name: Luis J. G. Cerda

Date: 28 06 2022

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Table of Contents

List of abbreviations and defined terms used ... V Main Findings ... VIII

Introduction ... 1

1. Chapter I – Framework of the research ... 3

1.1. Identification of the problem ... 3

1.2. Classifications of crypto assets ... 3

1.3. Disregarded Cryptocurrencies ... 5

1.4. Delineation of the transactions involving cryptocurrencies ... 5

2. Chapter II – Analysis of the VAT systems ... 8

2.1. Argentina ... 8

2.1.1. Analysis of VAT system ... 8

2.1.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 9

2.1.3. Tax policy matters ... 9

2.2. Chile ... 10

2.2.1. Analysis of VAT system ... 10

2.2.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 11

2.2.3. Tax policy matters ... 11

2.3. Colombia ... 12

2.3.1. Analysis of VAT system ... 12

2.3.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 12

2.3.3. Tax policy matters ... 13

2.4. Costa Rica ... 13

2.4.1. Analysis of VAT system ... 13

2.4.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 14

2.4.3. Tax policy matters ... 15

2.5. Ecuador 15 2.5.1. Analysis of VAT system ... 15

2.5.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 16

2.5.3. Policy matters ... 16

2.6. El Salvador ... 17

2.6.1. Analysis of VAT system ... 17

2.6.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 17

2.6.3. Policy matters ... 18

2.7. Mexico ... 19

2.7.1. Analysis of VAT system ... 19

2.7.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 20

2.7.3. Policy matters ... 20

2.8. Peru ... 21

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2.8.1. Analysis of VAT system ... 21

2.8.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 21

2.8.3. Policy matters ... 22

2.9. Uruguay 22 2.9.1. Analysis of VAT system ... 22

2.9.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 23

2.9.3. Policy matters ... 24

2.10. Venezuela ... 24

2.10.1. Analysis of VAT system ... 24

2.10.2. VAT outcome of the Transactions Involving Cryptocurrencies ... 24

2.10.3. Policy matters ... 25

3. Chapter III – Compare of the results and policy justifications ... 26

3.1. Exchange of Cryptocurrencies ... 26

3.2. Use of Cryptocurrencies as means of payments ... 26

3.3. Mining of Cryptocurrencies ... 27

3.4. Related services ... 28

4. Chapter IV - Evaluation of the tax policies and proposal of improvements ... 29

4.1. Definition of the evaluation framework ... 29

4.2. Evaluation ... 31

4.2.1. Exchange of Cryptocurrencies ... 31

4.2.2. Use of Cryptocurrencies as means of payments ... 32

4.2.3. Mining of Cryptocurrencies ... 33

4.2.4. Related services ... 33

4.3. Proposal 34 4.3.1. Exchange of Cryptocurrencies and use of them as means of payment ... 34

4.3.2. Mining and related services ... 35

Conclusions ... 36

Appendix I ... 37

Bibliography ... 38

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List of abbreviations and defined terms used

ATR Transaction subject to an additional tax rate of VAT.

CBDC Central Bank Digital Currencies.

Cryptocurrencies A digital representation of value based on DLT technology, whose main purpose is to act as general means of payment.

DLT Distributed ledger technology.

ECB European Central Bank.

EX Transactions exempted from the VAT.

FI Financial institutions.

IMF The International Monetary Fund.

OECD The Organisation for Economic Co-operation and Development.

OTS Transaction out of the scope of the VAT.

PoS Proof-of-Stake. It is a validation system that signs shares of validation rights to users according to the stake they have in the blockchain. In such a system, validators are not called miners but ‘forgers’ or ‘stakers’. Stakes can be measured differently. Forgers or stakers must have a minimum stake in the blockchain to be able to participate in the verification process:

they ‘stake’ their own tokens to have the right to verify a transaction and are credited a transaction fee or new tokens. No mathematical equations are therefore required to verify a transaction. This makes the verification process considerably more energy efficient than a proof of work

mechanism.

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PoW Proof-of-Work. It is a validation system based on mathematical equations, typically hard to solve but whose solutions can be easily checked. Solving the mathematical problem involves computational efforts – resulting in high energy consumption, whereby each validator (called a ‘miner’) makes calculations to verify the transaction and share their results with the network, working on a competitive basis since a reward is credited to the miner who finds the solution first. where computers on the network –

“miners” – compete with each other to solve a complex mathematical puzzle.

TAX Taxable transaction.

VAT A broad-based tax on final consumption collected from, but in principle not borne by, businesses through a staged collection process, whatever method is used for determining the tax liability.

VAT/GST Guidelines

The International VAT/GST Guidelines issued by the OECD in 2017.

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Executive Summary

This research aims to give a proposal for a harmonized system for the VAT treatment for the Transactions Involving Cryptocurrencies, that may be applicable in Latin America, to enhance the international trade and give tax certainty for investments in the region. The research only covers the decision of whether such transactions shall be taxable or not.

The research starts by defining what exactly shall be understood for Cryptocurrencies and identifies four different transactions that are related to Cryptocurrencies, based on the classifications and definitions given by the OECD, the IMF, and the ECB.

Afterwards, it analyses the VAT systems of 10 countries in the Latin American region to identify the current VAT treatment for such transactions, and the policies behind such treatment. This is made by the analysis of tax law, commercial and civil law and in some cases direct

interpretations of tax authorities.

Next, a compilation and comparison of the results are given, to identify the similarities and differences among the systems and tax policies of the countries.

Subsequently, an evaluation of the different tax policies of the countries is made, to assess and confirm the existence of a problem with the unharmonized systems.

Finally, a proposal of a harmonized system for the taxation of the Transactions Involving Cryptocurrencies is given, based on the general principles given by the VAT/GST Guidelines.

The proposal justifies how it would fix the problem and may create the intended effect of enhancing international trade and giving tax certainty to investments in the region.

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Main Findings

The VAT systems of the Latin American region are not harmonized, not only regarding the Cryptocurrencies but in very basic elements, like the taxation of intangibles. However, these differences have an impact on the taxation of Transactions Involving Cryptocurrencies.

Most of the Latin American VAT systems do not provide specific regulations regarding the taxation of Cryptocurrencies. It is the differences in basic concepts what create the differences.

These differences make the VAT treatment of the transactions may vary, depending only on the countries interacting.

On the one hand, regarding the exchange of Cryptocurrencies and their use as means of payment, the differences are substantial, and their origin is mainly the policy regarding the taxation of intangibles.

On the other hand, the taxation of mining and related services is already harmonized, with some exceptions that do not are relevant.

The overall differences in the VAT treatment may create a distortion in the region, especially regarding the business decisions of the crypto companies, because of the additional burden for the companies or the customers.

A harmonized system of VAT would solve the distortive problem and would enhance the industry. Such harmonized system should consider mainly the neutrality principle.

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Introduction

The current research aims to identify the best treatment for VAT purposes of transactions involving cryptocurrencies in Latin America. In particular, it is assessed whether such transactions shall be taxed, exempted or not covered by the tax. Other aspects of the VAT systems are not assessed in this research.

The transactions identified are the exchange of cryptocurrencies for fiat currency or other cryptocurrencies, and their use as means of payment, mining, and related services.

The first chapter establishes the framework of the research. It settles the problem to be solved and the scope taken, defines the Cryptocurrencies covered by the research, and delineates the transactions involving Cryptocurrencies.

The second chapter makes a concise overview of the VAT systems in various Latin American countries, the VAT outcome of the transactions as delineated in chapter one and the policy reason behind the current structure of the VAT laws. Each subchapter deals with one jurisdiction, and each subchapter has three sections.

The first section analyzes the actual content of the legislation in force in the jurisdiction. It assesses the taxable transactions as defined by the VAT laws, as well as relevant definitions to apply such rules, exceptions, carve-outs, and special legislation regarding Cryptocurrencies.

The principal sources are the VAT laws of each jurisdiction, their regulations, tax, civil and commercial law and in some cases financial law.

The second section analyses the relevant features of the VAT systems and identifies whether the four transactions identified are levied with the VAT or not. This result is summarized in Appendix I.

Finally, the third section lays down the general policy reasons behind the current treatment of the four transactions. The identification of the policy is made according to what is set up in the Laws. This research will not consider statements, discussions, proposals, or additional legislative work not reflected in the legislation.

All the chosen jurisdictions are Latin American and Spanish-speaking countries, and they all have civil law systems.1 This assures that the interpretation made in the research is accurate, because of my background in the language and civil law legal systems.

1 Maxwell, Rebekah, “Guide to International and Foreign Law Research: Legal Systems, A Quick Primer on the World’s Legal Systems”, LibGuides, University of South Carolina School of Law, June 27, 2022,

https://guides.law.sc.edu/c.php?g=315476&p=2108388

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Even though the name of the taxes varies among the countries, all the taxes are “Value Added Taxes”. For these purposes, a VAT is defined as a broad-based tax on final consumption collected from, but in principle not borne by, businesses through a staged collection process, whatever method is used for determining the tax liability.2

The third chapter makes a summary and comparison of the similarities and differences between the VAT systems and the tax policies behind them, as well as the countries’ position toward the taxation of Cryptocurrencies.

The fourth chapter is the evaluative part of the thesis. It contains three subchapters.

The first subchapter gives parameters on which the current VAT systems are evaluated (some aspects of the principle of neutrality) The second makes the evaluation on how the systems comply with the parameters and confirms the existence of a problem. The third one proposes a harmonized system that would solve the problems identified in the evaluation.

2 OECD (2017), "International VAT/GST Guidelines", OECD Publishing, Paris.

http://dx.doi.org/10.1787/9789264271401-en, P. 4.

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1. Chapter I – Framework of the research

1.1. Identification of the problem

The problems that may arise from the VAT systems that are not harmonized have been assessed by the OECD in documents such as the VAT/GST Guidelines.

The organization recognises that the interaction of national VAT regimes can potentially have a major impact in either facilitating or distorting trade and that such interaction creates growing risks of under-taxation and loss of revenue for governments, and of trade distortion due to double taxation.3

The Latin American region does not escape from this problem. The geographical and cultural similarities among the countries in the region make the trade of goods, services, and

intangibles between them a relevant part of the economies of all of them. Therefore, several interactions between the countries occur.

However, there is no intention from the countries to realize any kind of regional integration or a similar effort to harmonize their tax systems, even with all their similarities. Additionally, there is a lack of political or governmental bodies aiming to standardize public policies regarding taxation. Therefore, the risks mentioned are present in the region.

These problems are even greater in the field of Cryptocurrencies because of the nature of these assets, and the lack of special tax legislation and policies about these assets. These issues lead to a greater difference in the tax treatment of the transactions involving Cryptocurrencies.

Therefore, regarding Cryptocurrencies exists a greater risk of affecting trade and causing double taxation exists, because of the lack of harmonization in the VAT systems of the region. Therefore, there is a need to harmonize such systems, regarding the taxation of Cryptocurrencies.

1.2. Classifications of crypto assets

One of the biggest challenges to propose regional standardized tax policies is to agree on the definition of which goods and services shall be covered by such policy. This became even harder considering that this research deals with new technologies.

3 OECD (2017), “International VAT/GST Guidelines”, OECD Publishing, Paris.

http://dx.doi.org/10.1787/9789264271401-en

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Usually, in the policymaking process, it is up to the legislators and political actors to define the specific features to be taken into consideration by a tax policy, such as specific goods and services, specific transactions and arrangements, and types, or sizes of the taxpayers, etc.

This research includes only Cryptocurrencies, not other kinds of crypto assets. For this research, Cryptocurrencies are defined as a digital representation of value based on DLT technology, whose main purpose is to act as general means of payment.

This definition is created to limit the scope of the research, and it takes into consideration several definitions in the field, given by the IMF, the OECD and the ECB.

The IMF defines crypto assets as a digital representation of value, made possible by advances in cryptography and distributed ledger technology.4

A distributed ledger is a database that is consensually shared and synchronized by a network spread across multiple sites, institutions, or geographies. The participant at each node of the network can access the database records and can own an identical copy of it. Any changes or additions made to the ledger are reflected and copied to all participants in a short lapse of time. 5

Among the crypto assets, the IMF identifies the “Bitcoin-like crypto assets”, which are defined as digital assets based on DLT and designated to work as a medium of exchange.6 Examples of these kinds of assets are Bitcoin and Ripple.

The OECD recognizes that crypto-assets are a catch-all term that covers every digital financial asset based on DLT and recognizes three types of crypto assets.

The crypto assets covered by this research are those named by the OECD payment tokens or virtual currencies, defined as crypto assets intended to operate most similarly to traditional fiat currency […] tokens usable as a means of exchange for goods or services, and […] as a store of value and unit of measurement […].7

Finally, the ECB European Central Bank defines virtual currencies as a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.8

4 Sánchez Muñoz, Carlos, et al., “Treatment of Crypto Assets in Macroeconomic Statistics”, IMF, Statistics Department (2018), P. 5.

5 Sánchez Muñoz, ibid, P. 19.

6 Sánchez Muñoz, ibid, P. 5.

7 OECD, ibid, P. 13.

8 European Central Bank, "Virtual Currency Schemes Report" (2012), P. 14.

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Even though the definitions are not the same, they have similar elements. In essence, they differentiate from other crypto assets for being issued or meant to act as a general means of payment for goods and services.

1.3. Disregarded Cryptocurrencies

Additionally, nowadays, the problem for policymakers is not only the classification of a token as a Cryptocurrency but the specific features of them that may imply a different economic effect, thus, different taxation.

For this reason, the OECD identifies the following types of Cryptocurrencies that may imply differences in policymaking, because they have a nature closer to other types of goods.

A. Stablecoins. They are Cryptocurrencies that aim to maintain a stable value relative to a specified asset, or a pool or basket of assets.9 Since other assets back their value, their nature is more akin to securities, i.e., these Cryptocurrencies do not have a value by themselves, but their value comes from the underlying asset.

Regarding stablecoins, the tax policy for their acquisition and use may differ from other cryptocurrencies. The policy applies to them shall be that for the underlying asset, and not as a separate thing.

B. Central Bank Digital Currencies (hereinafter “CBDC”). They are a digital form of central bank money different from balances in traditional reserve or settlement accounts.10 Additionally, we can add the element of being issued and transferred via DLT to be considered as Currencies.

Regarding CBDC, since central banks issue them, we can safely assume that the tax policy applicable to them will be the same as traditional currency issued in the relevant jurisdiction.

Therefore, considering the unique features of these two types of cryptocurrencies, they will be disregarded for the purposes of this research, and the focus will be on those Cryptocurrencies that have value by themselves, and that are issued by independent parties (i.e., not by central banks), because of their innovative nature.

1.4. Delineation of the transactions involving cryptocurrencies

9 Financial Stability Board, “Addressing the regulatory, supervisory and oversight challenges raised by “global stablecoin” arrangements” (2020), P. 9.

10 Cœuré,Benoît and Loh, Jacqueline, “Central Bank Digital Currencies”, Bank for International Settlements (2018), P. 10.

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During the life cycle of Cryptocurrencies, several facts may trigger economic events that may be relevant for tax purposes. The scope of this research is the taxation of transactions

involving Cryptocurrencies. Therefore, the transactions involving them shall be defined.

The OECD identifies the following categories of transactions that may imply tax consequences (hereinafter the “Transactions Involving Cryptocurrencies”):11

A. Exchange of cryptocurrencies. This includes the exchange of cryptocurrencies for fiat currency and vice versa.

B. Use of cryptocurrencies to acquire goods or services, i.e., using them as a means of payment.

C. Mining. It refers to the process in some DLT protocols by which transactions of cryptocurrencies are verified and recorded. In this process, the person or persons making the necessary computer processes to validate the transactions are entitled to a reward. The reward depends on the consensus mechanism used for the protocol.12 In a proof-of-work mechanism,13 the reward is a “mining reward”, paid through new Cryptocurrencies created because of such validation. This payment is made by the protocol itself and cannot be deemed to be paid by any party on the transaction mined.

In the case of proof-of-stake14 mechanisms, the reward is a “protocol transaction fee”, which is paid discounted from the validated transaction and is born by the parties participating in such transaction.

11 OECD, “Taxing Virtual Currencies.”, P. 36.

12 OECD, ibid, P. 14.

13 It is a system “… based on mathematical equations, typically hard to solve but whose solutions can be easily checked. Solving the mathematical problem involves computational efforts – resulting in high energy

consumption, whereby each validator (called a ‘miner’) makes calculations to verify the transaction and share their results with the network, working on a competitive basis since a reward is credited to the miner who finds the solution first. where computers on the network – “miners” – compete with each other to solve a complex mathematical puzzle.” (OECD, ibid, P.12) The two largest Cryptocurrencies by market-value use this consensus mechanism (OECD, Ibid, P.54)

14 It is a system that “… assigns shares of validation rights to users according to the stake they have in the blockchain. In such a system, validators are not called miners – but ‘forgers’ or ‘stakers’. Stakes can be measured differently […] Forgers or stakers must have a minimum stake in the blockchain to be able to participate in the verification process: they ‘stake’ their own tokens to have the right to verify a transaction,and are credited a transaction fee or new tokens. No mathematical equations are therefore required to verify a transaction. This makes the verification process considerably more energy efficient than a proof of work mechanism.” This system is used with the Peercoin blockchain (OECD, ibid. 12)

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D. Related services. The services included are those closely associated with

Cryptocurrencies, such as the provision of digital wallet services and intermediation services by exchange platforms. In this case, the details of the services may vary among any provider and only can be defined in a case-by-case analysis.

However, two general business models can be shown identified: 1) services where the provider charges commissions to the users and 2) where the providers of the digital services supply Cryptocurrencies used in the platform.

For the purposes of this research, only the first model in which the suppliers charge fees will be analysed. The other models are disregarded because, in such models, the

transactions performed by the supplier are the exchange of Cryptocurrencies.

Considering the above-mentioned, we have enough elements to delineate the scope of this research and to have a clear understanding of what are the Transactions Involving

Cryptocurrencies.

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2. Chapter II – Analysis of the VAT systems

2.1. Argentina

2.1.1. Analysis of VAT system

Argentinean VAT is a general tax with five kinds of taxable transactions: sale of goods, services in general, import and export of goods, specific services, and digital services.15 Argentinean civil law establishes that only the “material” goods can be deemed to be goods for civil and commercial purposes.16

Additionally, the payment in kind is deemed to be a sale of goods, if what is transferred in kind is a good, i.e., there is no payment in kind when the payment consists of services.

Regarding digital services, they were introduced in the VAT law as taxable transactions in December 2017.17 They are defined as “…those rendered through internet, or any other adaptation or application of the protocols, platforms or technology used […] that, by nature, are basically automatized and require minimum human intervention.”18

The legislation also provides a list of examples of what can be deemed to be a digital service, including, among others, any supply of digital products, any supply of software services and the manipulation or calculation of data through the internet and any other electronic

networks.19 The law does not provide further definitions of these concepts.

The relevant exemptions in the law are the sale of fiat currency if it is recognized as legal tender in the issuance country or is a currency officially listed in the stock exchange, pure gold and listed instruments, as well as financial services performed by recognized financial institutions.20

The VAW law also includes reduced rates, but they are not relevant for the purposes of this research.

15 Ley 23.349, Ley del Impuesto al Valor Agregado (Argentinean VAT law), article 1.

16 Ley 26.994, Código Civil y Comercial de la Nación, (Argentinean national civil and commercial code), Article 16.

17 By Ley 27.430 (reform to the Argentinean VAT law), published in the Official Gazette on the 29th of December 2017.

18 Argentinean VAT law, article 3(21)(m)

19 Argentinean VAT law, article 3(21)(m)(2), (6) and (14)

20 “Argentinean VAT law, articles 7 and 8.

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2.1.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. This is a taxable transaction, because Cryptocurrencies are digital products and, according to the definition of the VAT law, any kind of digital product is deemed to be a digital service for the purposes of the VAT.

B. Use of Cryptocurrencies as means of payment. The acquisition of Cryptocurrencies qualifies as a digital service for VAT purposes. Additionally, the payment in kind only is deemed to be a taxable transaction within the definition of the sale of goods, i.e., the tangible nature of the asset is required to qualify as a taxable transaction in the case of payments in kind and barters.

Therefore, the use of Cryptocurrencies as means of payment is out of the scope of the Argentinean VAT.

C. Mining of Cryptocurrencies. Since the definition of digital services is broad enough to cover any service of data processing, software services or any other kind of digital service, mining is a service taxed with Argentinean VAT.

D. Related services. The related services fall within the definition of digital services provided by the Argentinean VAT Law. Therefore, the services are taxed.

2.1.3. Tax policy matters

The tax policy of Argentina regarding Cryptocurrencies was clearly established by the inclusion of digital services as taxable transactions for VAT purposes in December 2017.21 The current policy is to tax all transactions related to digital services and products. This intention is clear by the broad definition and an extensive list of examples of digital services to cover as many products and services as possible, including Cryptocurrencies.

Because of this broad scope of the definition, mining and related services are also taxable transactions for VAT purposes, as digital services.

However, even though the intention of the legislature was to tax every digital supply, the use of Cryptocurrencies as Means of payment is out of the scope of the tax. This fact does not seem to be part of the intention of the policy, but its origin is the rules of taxation of payments in kind and barters, which were not affected by the December 2017 reform.

21 By reform to the Argentinean VAT law, published in the Official Gazette on the 29th of December 2017.

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2.2. Chile

2.2.1. Analysis of VAT system

Chilean sales and services tax includes a general and a special VAT. The general VAT is levied for the sale of goods and rendering of services. The definition of sales includes only the transfer of property of tangible movable property, immovable property, or rights over

immovable property.22

Additionally, an extended definition of “goods and services” applies, which includes several activities such as leasing, importation and exportation, and digital services when they are provided by non-residents in Chile.23

The definition of services is limited to certain activities listed in the income tax law24, which includes, among others, brokerage, financial companies and analogue activities, and

automated processing of data.25

The barters or any other transactions in which the parties transfer mutually the property of tangible goods are deemed to be two supplies of goods, performed by each party.26 The relevant exemptions are all the supplies and other requirements for the production, process, of coins and bills of fiat currency of Chile, acquired by the Chilean Central Bank.

Regarding services, financial services and instruments are exempt from the tax.27

Additionally, the acquisition of foreign currency is exempt, only when performed by the Chilean Central Bank.28

There are no differentiated VAT rates. However, in the same law is established a special tax on goods and services. However, this tax does not have the nature of a VAT for the purposes of this research but is closer to an excise tax.29

22 Decreto ley No. 825, Ley sobre Impuesto a las Ventas y Servicios (Chilean VAT law), article 8.

23Chilean VAT law, Article 8(a),(g) and (n)

24 Chilean VAT law, Article 2(2)

25 Decreto ley No. 824, Ley sobre Impuesto a la Renta (Chilean Income Tax Law), article 20(3) and (4)

26 Chilean VAT law, article 18.

27Chilean VAT law, article 12(E)(10)

28 Decreto supremo No. 55, Reglamento de la Ley sobre Impuesto a las Ventas y Servicios (regulations of Chilean VAT law), article 8(5).

29 Chilean VAT law, article 37.

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2.2.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Cryptocurrencies are intangible goods for Chilean VAT.

Therefore, their exchange is not a taxable transaction. This has been confirmed by the Chilean Tax Authorities in consultations made by taxpayers.30

B. Use of Cryptocurrencies as means of payment. The use of Cryptocurrencies as means of payment is out of the scope of the VAT law because the payment in kind is only

deemed to be a taxable transaction when tangible goods are mutually transferred, and Cryptocurrencies are deemed to be intangible goods for VAT purposes.

C. Mining of Cryptocurrencies. Since the mining process consists mainly in solving complex equations (even when the ultimate purpose is to validate transactions), it can be classified as a service of processing data. Therefore, the mining is a taxable

transaction for Chilean VAT purposes.

D. Related services. Even though the supply of Cryptocurrencies is confirmed to be a non- taxable transaction for VAT purposes, the related services fall within the definition of brokerage and processing of data, according to the same authorities.31 Therefore, the related services are taxable transactions for Chilean VAT.

2.2.3. Tax policy matters

There is no specific tax policy regarding Cryptocurrencies reflected in Chilean VAT Law.

The fact that the first two transactions (exchange and use of Cryptocurrencies as means of payment) are out of the scope, is due to the tax policy of only covering as taxable transactions the sale of tangible goods.

Mining and related services are taxable transactions because of the ordinary features of the VAT of being general, and because the transactions do not fall under any exemption.

Even though Chile is a member of the OECD since 2010, they have not fully implemented the OECD’s VAT/GST Guidelines, in respect of the exclusion of intangibles from the scope of the tax.32

30 Sub Direction of Normativity of the Direct Taxes Department of the Chilean Internal Taxes Service, Resolution No. 36, 23rd of April 2019, “Consultas relacionadas a la tributación de los activos digitales o Criptomonedas” (Consultation regarding the taxation of the digital assets or Cryptocurrencies).

31 Sub Direction of Normativity of the Direct Taxes Department of the Chilean Internal Taxes Service, Resolution No. 1371 of 16th of May 2019, “Tributación de una empresa que efectúa compra y venta, envíos y depósitos de Criptomonedas” (Taxation of a company that performs acquisitions and sales, transfers, and deposits of crypto currencies)

32 The VAT/GST Guidelines do not expressly recommend the taxation of intangibles, but it gives as a fact that a general tax as the VAT shall cover them. This can be seen in several statements, such as the following, found in the aims of the document (P. 13): “The Guidelines set forth a number of principles for the VAT treatment of the most common types of international transactions, focusing on trade in services and intangibles”.

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2.3. Colombia

2.3.1. Analysis of VAT system

Colombian sales tax is a tax that recognizes five taxable events: 1) sale of tangible goods, 2) sale or transfer of intangible assets, only when they are related to industrial property, 3) provision of services, 4) import and export of tangible goods and, 5) gambling and similar services.33

The catch-all definition of services includes every activity, labour or work rendered by a person without an employment relationship with the contractor of the service in which an obligation to do something is performed, regardless of the material or intellectual nature of the service, and regardless of how the activity is remunerated.34

Additionally, the sale of fiat currency is expressly excluded from the scope of the tax.35 On the other hand, the intermediation services, trading, and exchange of currency and derivative financial instruments are out of the scope of the tax. The interests and any other return on money are also out of the scope, regardless of the nature of the lenders.36

There are no reduced or increased tax rates that may be relevant for the purposes of this research.

2.3.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Colombian VAT only covers the sale of intangible goods if they relate to intellectual property. Additionally, Colombian Tax Authorities have recognized that all Cryptoassets are intangible assets for the purposes of their tax system.37 Therefore, the transaction is out of the scope of Colombian VAT.

B. Use of Cryptocurrencies as means of payment. Colombian Tax Authorities have confirmed that the use of Bitcoin as means of payment is deemed to be a barter for tax and civil law purposes. Therefore, since such a transaction would be a barter, it would be a deemed supply of Cryptocurrencies, which is out of the scope of the tax, according to the previous paragraph.

33 Decreto Ley 624 de 1989, Estatuto Tributario Nacional (Colombian Tax Charter), article 420.

34 Decreto 1625 de 2016, Reglamento de Impuestos del Orden Nacional (Regulations for the national taxes), article 1.3.1.2.1.

35 Colombian Tax Charter, article 424.

36 Colombian Tax Charter, article 476.

37 Subdirection of Normativity and Doctrine Management of the National Taxes and Customs Direction, resolution 13733 of 30 of May, 2019, consultation about crypto assets and virtual securities.

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C. Mining of Cryptocurrencies. Since the definition of services for Colombian VAT purposes includes every activity in which an obligation to do something is performed, mining is a taxable transaction for Colombian VAT purposes.

D. Related services. Because of the broad scope of the definition of services, the related services are taxable transactions as well. Additionally, the carve-out for intermediation and trading of currency and derivatives is not applicable in this case, because

Cryptocurrencies do not qualify as currency or derivative financial instruments for the purposes of the VAT law.

2.3.3. Tax policy matters

There are no specific provisions in the VAT dealing with the treatment of Cryptocurrencies.

The tax policy of only taxing tangible goods, and intangibles related to intellectual property, leads to the outcome that the acquisition and use of Cryptocurrencies as means of payment is out of the scope of the tax.

Mining and related services are covered by the tax because of the feature of any VAT of being a general tax.

Colombia is a member of the OECD since 2020. It could be expected that the country

implements the OECD’s VAT/GST Guidelines in the following years and include tangibles in the scope of the tax.38

2.4. Costa Rica

2.4.1. Analysis of VAT system

Costa Rican VAT recognize only two kinds of taxable transactions: the sale of goods and the rendering of services.39

For the purposes of the law, the term sale of goods includes any transaction that implies the transfer of the property of good regardless of the legal form used, as well as the importation and exportation of goods.40

Intangibles are taxed as ordinary goods, and they can be sold, exported, and imported for VAT purposes. The intangibles are defined as “those goods or rights that can be

commercialized and valued economically”.41

38 Even though the VAT/GST Guidelines do not expressly recommend the taxation of intangibles, it is implied in the document that intangibles shall be covered by the tax.

39 Ley del Impuesto al Valor Agregado (IVA) No. 6826 (Costa Rican VAT law), article 1(1)

40 Costa Rican VAT law, article 2(1)

41 Reglamento de la Ley del Impuesto sobre el Valor Agregado, No. 41779 (Regulations of the Costa Rican VAT

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Costa Rican Central Bank classifies Cryptocurrencies as assets without a physical representation, i.e., intangible assets.42

Regarding services, they are defined as any transaction not considered a transfer of property or import of goods, which implies obligations to do or not to do. This includes, among others, any transmission of rights.43

All interests and any commission from loans are exempt from the VAT, as well as financial services such as trading and exchange of currency.44 The use of currency as a means of payment is out of the scope of the tax.45

There are no relevant differentiated tax rates in Costa Rica.

2.4.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Since Cryptocurrencies fall within the definition of intangible assets for Costa Rican VAT law, the exchange of Cryptocurrencies is a taxable transaction.

B. Use of Cryptocurrencies as means of payment. Since any transfer of property rights of goods is deemed to be a sale of goods for VAT purposes and the VAT also covers intangibles, the use of Cryptocurrencies as means of payment is a taxable transaction as well.

C. Mining of Cryptocurrencies. Since the activities of mining fall within the concept of performing an obligation to do, mining is also a taxable transaction.

D. Related services. The nature of the related services implies necessarily the existence of obligations to do, made by the providers. Therefore, related services are taxable

transactions too.

It is important to mention that the exemption for trading, exchange and financial servicesdo not apply to related services, because they are related only to fiat currency.

law), article 1(5)

42 Alfaro Ureña, Alfonso and Muñoz Salas, Evelyn, Criptoactivos: análisis e implicaciones desde la perspectiva del Banco Central de Costa Rica (Crypto assets: analysis and implications from the Costa Rican Central Bank perspective) (2019), P. 25.

43 Costa Rican VAT law, article 2(2)

44 Costa Rican VAT law, article 8(3) and (5)

45 Costa Rican VAT Law, article 9(11)

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2.4.3. Tax policy matters

The general policy of Costa Rican VAT is to be a broad-scope tax that covers every supply of goods and services. This policy has the effect that the four Transactions Involving

Cryptocurrencies are taxable transactions according to the current VAT system, even though no specific regulations regarding Cryptocurrencies have been issued.

Costa Rica is the newest member of the OECD, which joined in 2021. However, even though is a new member, its VAT system seems to be already aligned with the VAT/GST Guidelines.

2.5. Ecuador

2.5.1. Analysis of VAT system

The Ecuadorian VAT includes four taxable transactions: the transfer of property, the import of tangible goods, the transfer of intellectual property rights, and the rendering of services.46 The definition of transfer of property includes any transaction in which the property of tangible goods, or intangible goods related to copyright and industrial property is transferred.47 This definition includes barters and payments in kind.

The definition of services includes any services rendered without a labour relationship, in favour of a third party, regardless of the material or intellectual predominance of the service, in exchange for a fee or consideration paid in money, in-kind, or in services, or any other consideration. Additionally, the definition of services includes digital services.48

Digital services are defined as “…those rendered […] through the internet […] that are basically automatized and require minimum human intervention…”. They include, among others, the supply of digital goods and any software services, manipulation, and calculation of data through the internet.49

For the purposes of Ecuadorian law, tangible goods are those that can be perceived by the senses, whereas intangibles are only rights.50

Ecuadorian law does not provide any exemption nor differentiated tax rate regarding financial services or acquisition of currency. The only relevant exemption is the acquisition of gold by the Ecuadorian Central Bank.

46 Ley del Régimen Tributario Interno (Ecuadorian law of the internal tax system), article 52.

47 Ecuadorian law of the internal tax system, article 53(1)

48 Ecuadorian law of the internal tax system, article 56.

49 Reglamento para aplicación Ley de Régimen Tributario Interno (Regulations of the Ecuadorian law of the internal tax system), article 140.1(2), (6) and (14)

50 Codificacion No. 2005-010, Código Civil, (Ecuadorian civil code), article 583.

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2.5.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Since the definition of digital services includes the supply of any kind of digital products, the exchange of Cryptocurrencies is a taxable transaction for the purposes of the Ecuadorian VAT.

B. Use of Cryptocurrencies as means of payment. Since the barters and payments in kind are taxed with Ecuadorian VAT only in the case of transfer of property, and, since the definition of transfer of property only includes the transfer of tangible goods or intangibles related to intellectual property, the use of Cryptocurrencies as means of payment is out of the scope of the VAT in Ecuador.

C. Mining of Cryptocurrencies. Since the mining process consists in solving equations and algorithms, the mining falls within the definition of digital services for Ecuadorian tax law, therefore, mining is a taxable transaction.

D. Related services. Due to the broad definition of services, related services are covered in the scope of Ecuadorian VAT as taxable transactions. Additionally, no exemptions apply to these services.

2.5.3. Policy matters

Ecuadorian policy regarding Cryptocurrencies was established in December 2019, by the introduction of digital services as taxable transactions. Additionally, the definition of services in the regulations of the law was extended in August 2020.51 The result of these

modifications is the clear tax policy that the supply of any kind of digital services and products are taxable transactions, including those related to Cryptocurrencies.

However, due to how the modification was made, by covering these transactions within the concept of digital services, the use of Cryptocurrencies as means of payment is out of the scope of the tax, because this definition does not include barter transactions and payments in kind, and therefore, only the supply of Cryptocurrency is a taxable transaction.

This effect seems to be an unintentional deviation from the general policy of VAT.

The mining and related services are taxable transactions because of the ordinary features of the tax and not because of a specific tax policy regarding these transactions.

51 The taxation of digital services was introduced on the 31 of December 2019, by the resolution No. SAN-2019- 1270 that approving the law “Ley Orgánica de Simplficación y Progresividad Tributaria”, (Organic law of tax simplification and progressivity), and the modifications to the Regulations of the Ecuadorian Law of the Internal Tax System were introduced by resolution No. SAN-2019-1270 issued by the Servicio de Rentas Internas (Ecuadorian Tax Authority)

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2.6. El Salvador

2.6.1. Analysis of VAT system

Salvadorean VAT taxes three kinds of transactions: the transfer of property of tangible goods, the import of tangible goods, and the rendering of services.52

For this purpose, tangible goods only include only those that can be transported from one place to another by themselves or by another external force or energy. Additionally, securities and financial instruments are deemed to be intangible goods.53

The tax covers any service in which a party agree to render a service, and another agrees to pay it.54 The definition of services includes any for-consideration transaction that does not imply the transfer of the property of tangible goods.55

Financial services are exempt when they are performed by regulated financial institutions.56 There are no relevant differentiated tax rates in El Salvador.

Finally, it is important to remark that last 9th June 2021 Bitcoin was recognized as an official legal tender in El Salvador.57

2.6.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Salvadorean VAT only covers the transfer or property of tangible goods. Since Cryptocurrencies are not tangible for Salvadorean VAT Law purposes, their exchange is out of the scope of the tax.

B. Use of Cryptocurrencies as means of payment. Regarding the use of Bitcoin, because it is a legal tender in the country, its use as means of payment is not deemed to be a

transaction for VAT purposes. Whereas, regarding other Cryptocurrencies, since the law only covers the transfer of property of tangible goods, the transaction is also out of the scope of the VAT.

C. Mining of Cryptocurrencies. In this case, we have several possible outcomes.

52 Decreto No. 296, Ley de Impuesto a la Transferencia de bienes Muebles y a la Prestación de Servicios (Salvadorean VAT law, article 1.

53 Salvadorean VAT law, article 5.

54 Salvadorean VAT law, article 16.

55 Salvadorean VAT law, article 17.

56 Salvadorean VAT law, article 46(f)

57 Decreto No. 57, Ley Bitcoin (Salvadorean Bitcoin Law)”, article 1.

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In El Salvador, for a service to be qualified as such for VAT purposes, it is required a personal element (a party acquiring a payment obligation)

Therefore, in the case of Cryptocurrencies using proof-of-work mechanisms, since the payment is made by the protocol itself, there is no counterparty acquiring such

obligation before the miners. Therefore, in this case, the mining is out of the scope of VAT.

However, in practice, the users always pay fees to the miners for the validation and in most digital wallets the payment of fees shall be made by default.58 In these cases, the personal element is compiled when a fee is paid by the users. Therefore, in such cases, the transaction is taxable.

Regarding the mining of Cryptocurrencies using proof-of-stake mechanisms, the parties in the transaction to be validated by the miners are acquiring the obligation to pay the transaction fee to the miners. Therefore, in this case, mining is a taxable transaction.

D. Related services. The broad scope of the concept of services covers any services of intermediation. This scope covers even the intermediation and exchange of Bitcoin, regardless of its legal tender status in the country. Therefore, in this case, the related services are taxable transactions.

However, in the case of financial institutions performing financial services in which Bitcoin is used as the currency of such service, such transactions may be exempted from the VAT.

2.6.3. Policy matters

Currently, the only specific regulation regarding Cryptocurrencies is only about Bitcoin. The current policy is to enhance the use of Bitcoin, by giving the legal tender status in the country.

However, the tax policy of only taxing tangible goods has the effect that the exchange of any Cryptocurrency has the same treatment for VAT purposes.

Additionally, the remaining part of El Salvador’s tax policy, regarding only taxing intangibles leads to the same effect for VAT purposes for the exchange and use as means of payment of the Cryptocurrencies other than Bitcoin.

Regarding mining, even though we assess that in practice is not common, there are two possible ways to tax the mining, depending on the validation mechanism used by the Cryptocurrency. This possible scenario of no taxation of the mining is due to the policy of

58 OECD, “Taxing Virtual Currencies.”, table 2.3., P. 36.

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requiring a person acquiring the obligation to pay a service, to make such service a taxable transaction.

Regarding related services, they are taxed as any other service, and they do not seem to be affected by the policy towards Bitcoin.

However, in some situations, the related services may be exempted, when the currency used is Bitcoin and the related services are qualified as a financial service provided by financial institutions.

In such a case, the exemption arises from the combination of the general policy towards the bitcoin and the tax policy of not taxing financial services performed by financial institutions.

2.7. Mexico

2.7.1. Analysis of VAT system

Mexican VAT taxes four kinds of transactions: the disposal of goods, rendering of services, rent of goods, and import and export of goods.59 The tangible and intangible goods, as well as services, can be exported and imported for VAT purposes.

For VAT purposes, goods are tangibles when they can be touched, weighed, or measured, and intangibles when they do not have at least one of these features.60

Disposal of goods includes any transfer of property.61

The definition of services includes any obligation to give, to do, or not to do, acquired by a person for the benefit of another, and such obligation is not qualified by the law as disposal or rent of goods.62

The barters and payments in kind can be made through the transfer of goods, rendering of services, and rent of goods. In this case, the VAT is incurred by each of the goods transferred or services provided.63

The sale of national and foreign currency is exempted from VAT.64

59 Ley del Impuesto al Valor Aregado (Mexican VAT law), article 1.

60 Mexican VAT law, article 5-D.

61 Código Fiscal de la Federación (Mexican Federal Tax Code), article 14(I)

62 Mexican VAT law, article 14(VI)

63 Mexican VAT law, article 32, paragraph 2.

64 Mexican VAT law, article 9(VI)

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Anti-Money Laundry Law defines virtual assets as every representation of value

electronically registered and used as a means of payment for every kind of transaction and the transfer can only be made through electronic means. The law also excludes legal tender from being qualified as virtual assets.65

Additionally, the Attorney General for Taxpayer Defence confirmed that this definition can be used for tax purposes.66

Financial services are exempt when performed by financial institutions, including the interests. However, they may also be exempted when certain requirements are met, such as registered collective loans or services provided by soft-regulated financial institutions.67 2.7.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Since Cryptocurrencies are deemed to be goods (virtual assets), the exchange of Cryptocurrencies is a taxable transaction.

B. Use of Cryptocurrencies as means of payment. Since Mexican VAT covers any transfer of goods, including when the transfer is a payment in kind, and even if the transferred goods are intangible, the use of Cryptocurrencies as means of payment is a taxable transaction.

C. Mining of Cryptocurrencies. Because the broad scope of the concept of service includes any obligation that is not qualified as disposals, mining is a taxable transaction for Mexican VAT purposes.

D. Related services. The definition of services covers any service such as the related services, therefore they are taxable transactions Additionally, no exemptions apply to these services.

2.7.3. Policy matters

Mexican VAT policy is to make the scope of the tax as broader as possible. The definitions of goods and taxable transactions are broad enough to cover the four transactions analyzed, without using any specific regulations regarding digital goods or Cryptocurrencies in its tax law.

65 Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita (Anti- money laundry law), article 17(XVI)

66 Procuraduría para la Defensa de los Contribuyentes (Attorney General for Taxpayer Defense), “Ingresos obtenidos relacionados con criptomonedas” (Income related to Cryptocurrencies), (2021), P. 2.

67 Mexican VAT law, article 15(IX), (X) and, (XI)

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Mexico is the oldest member of the OECD among the jurisdictions analysed, which joined in 1994. Mexican tax policy is usually in line with OECD suggestions and in general, is aligned with the VAT/GST Guidelines.

2.8. Peru

2.8.1. Analysis of VAT system

Peruvian VAT recognizes five kinds of taxable transactions: sale of movable goods, rendering of services, construction services, the sale of immovable property, and the import of goods.68 Additionally, both, tangible and intangible goods, can be imported and exported for VAT purposes.

The sale of goods includes any transfer of property regardless of the name given in the contract, including the use of goods for payments in kind or barters.69 For the purposes of Peruvian law, all goods that do not qualify as immovable goods are deemed to be movable goods, i.e., intangibles are also covered by the VAT.70 The definition of services includes any service from which a person receives consideration or income.71

The sale of national and foreign currency, as well as documents representing them, is not deemed to be good for VAT purposes.72

The acquisition of currency is not taxed when performed by Peruvian Central Bank.73

Financial services are also out of the scope of the tax when performed by regulated financial institutions.74 Some interests are not taxed when they comply with certain features such as being loans issued through the stock market.75

There are no relevant exemptions or reduced tax rates in Peruvian VAT.

2.8.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Since Cryptocurrencies are ordinary movable goods for VAT purposes, the exchange of Cryptocurrencies is a taxable transaction.

68 Decreto Supremo No. 055-99-EF, Ley del Impuesto General a las Ventas e Impuesto Selectivo al Consumo (Peruvian VAT law), article 1.

69 Decreto Supremo No. 29-94-EF, Reglamento de la Ley del Impuesto General a las Ventas e Impuesto Selectivo al Consumo (Regulations of Peruvian VAT law), article 2(3)(a)

70 Decreto Legislativo No. 295, Código Civil, (Peruvian Civil Code), article 886(10)

71 Peruvian VAT law, article 3(c)(1)

72 Regulation of the Peruvian VAT law, article 2(8)

73 Peruvian VAT law, article 2(f)

74 Peruvian VAT law, article 2(r)

75 Peruvian VAT law, article 2(t) and (u)

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B. Use of Cryptocurrencies as means of payment. Since Peruvian VAT taxes any transfer of property of any kind of good, tangible or intangible, the use of Cryptocurrencies as means of payment is a taxable transaction.

C. Mining of Cryptocurrencies. Since the definition of services includes any service in which consideration is received, mining is a taxable transaction for Peruvian VAT.

D. Related services. Since the related services also fall within the definition of services from which a consideration is paid, such services are a taxable transactions.

2.8.3. Policy matters

Peruvian VAT policy also consists in have a broad-base tax, which taxes as many goods and services as possible, regardless of the legal form of the transactions and the nature of the goods.

The definitions of goods, services and taxable transactions are broad enough to tax the four transactions analyzed, even without specific regulations for the taxation of Cryptocurrencies.

2.9. Uruguay

2.9.1. Analysis of VAT system

Uruguayan VAT taxes four categories of transactions: the mobility of goods, rendering of services, import and export of goods and the value added to immovable property.76 The tax does not differentiate between intangible and tangible goods and all of them are covered by the tax.

For the purposes of the VAT Law mobility of goods includes any transaction for

consideration in which the objective is the transfer of the property of goods or the right to economically dispose of those goods as the owner of them.77

Services include any rendering of services for consideration (other than a transfer of property) in which the counterparty receives an advantage or benefit in exchange for such

consideration.78

76 Ley Nº 18.083, Ley de Reforma Tributaria (Uruguayan law of tax reform), title 10, article 1.

77 Uruguayan law of tax reform, title 10, article 2(A)

78 Uruguayan law of tax reform, title 10, article 2(B)

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The acquisition of foreign currency is exempted from the tax.79 Financial services are exempt when they are performed by regulated financial institutions. Some interests are exempt, such as credit card interests, mortgage interests, and interests arising from securities.80

There are no relevant differentiated tax rates in Uruguayan VAT.

2.9.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Since the VAT taxes any transfer of property of any good, tangible or intangible, the exchange of Cryptocurrencies is a taxable transaction.

B. Use of Cryptocurrencies as means of payment. Because Uruguayan VAT taxes any transaction in which the objective is the transfer of goods, regardless of the legal form used, and regardless of the nature of the good, the use of Cryptocurrencies as means of payment is a taxable transaction.

C. Mining of Cryptocurrencies.

In Uruguay, there is more than one possible outcome because of the requirements in the taxation of services, that the recipient of the service shall obtain an advantage or benefit that justifies the payment of the consideration.

Then, regarding the mining rewards in proof-of-work mechanisms, the payment is not directly linked to the persons receiving the advantage or benefit of the mining but is the protocol itself that makes the payment. Therefore, due to the lack of the personal element, in the mining of Cryptocurrencies using proof-of-work mechanisms when the reward is paid by the protocol, the transaction is out of the scope of Uruguayan VAT.

However, as was already mentioned, in practice the mining of proof-of-work

mechanisms most times implies the payment of a fee by the parties of the transaction mined. Therefore, in such cases, when the miner receives a fee from the beneficiaries of the mining, the mining is a taxable transaction.

Regarding protocol transaction fees, the personal element is always fulfilled since the consideration for the miner and the benefit of the parties in the transaction are directly linked. Therefore, in respect of Cryptocurrencies using proof-of-stake mechanisms, the mining is a taxable transaction.

D. Related services. In the case of related services, the consideration paid to the providers can be directly linked with the advantage or benefit received by the users. Therefore, the fees for such services are taxable transactions for Uruguayan VAT.

79 Uruguayan law of tax reform, title 10, article 19(1)(A)

80 Uruguayan law of tax reform, title 10, article 19(2)(A) and (E)

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2.9.3. Policy matters

The VAT policy in Uruguay is to keep a broad-based tax. The definitions of goods and taxable transactions are broad enough to make the four transactions taxable for VAT purposes.

However, regarding the mining in proof-of-work systems, the services are out of the scope, due to the policy of requiring an additional personal element in the definition of services.

2.10. Venezuela

2.10.1. Analysis of VAT system

The Venezuelan VAT taxes five categories of transactions: sale of tangible goods, import of goods and rendering of services.81 Services can be imported and exported for VAT

purposes.82

The law excludes from the VAT the sale of intangible goods. Intangible goods include, for the purposes of the VAT, rights, representations of money, and any other right, other than

property rights over tangible goods.83

Services are defined as an independent activity in which the core obligations are obligations to do.84

Additionally, the lending of money (not the interest), and financial services provided by financial institutions are also out of the scope of the VAT.85

Additionally, in January of 2020, the VAT law of the country was amended, to introduce an additional levy of the VAT, in the cases of any transaction that is paid by cryptocurrencies and any foreign currency.86

2.10.2. VAT outcome of the Transactions Involving Cryptocurrencies

A. Exchange of Cryptocurrencies. Cryptocurrencies are intangible by nature; therefore, the exchange of cryptocurrencies is out of the scope of the VAT.

81 Ley que establece el Impuesto al Valor Agregado (Venezuelan VAT law), article 1.

82 Venezuelan VAT law, article 3.

83 Venezuelan VAT law, article 16(2)

84 Venezuelan VAT law, article 4(4)

85 Venezuelan VAT law), article 16(3) and (4)

86 Venezuelan VAT law, articles 27, third paragraph and 62(1), as amended by decree published in the Venezuelan official gazette on January 29, 2020.

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References

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