The Taxation of Income from Cryptocurrencies in Various Jurisdictions (Part 3): Brazil
By Seres Baum, WGI – Work Group International
Cryptocurrencies have yet to be regulated in Brazil. While there is no law ruling such topic, chief regulators have created their own rules either to shield themselves or to find tax advantages on it.
The Brazilian Central Bank has issued statements concerning the risks posed by cryptocurrencies and its absence of guarantee by the monetary authorities and has warned that companies that trade in computergenerated currencies are not regulated, supervised, or certified by the Central Bank to operate. Recently, the Brazilian Securities and Exchange Commission issued a statement determining, among other things, that cryptocurrencies could not be considered financial assets and be acquired by investment funds.
A bill of law currently under analysis in the Brazilian Chamber of Deputies pursues to include virtual currencies as a form of payment under the supervision of the Brazilian Central Bank. In October 2018, the Brazilian Internal Revenue released a public consult (to be converted into rules) covering a distinct number of compliance and reporting measures to be accomplished by the exchanges, Buyers and Sellers of cryptocurrencies, as well as confirming the taxation on any Capital Gains derived from transactions with cryptocurrencies. The Court of Justice has received many lawsuits proposed by exchanges (cryptocurrency brokers) against Commercial Banks for having their bank account unilaterally closed down by the banks.
Timeline of Basic National Rules
Brazilian Central Bank (BCB) – Monetary Authority issues the Statement (comunicado) No.25.306/14 clarifying the risks involved in the acquisition of cryptocurrencies.
Brazilian Chamber of Deputies – House of Representatives starts the discussion about the bill of Law 2.303/15. Among other topics, the project would provide for the inclusion of virtual currencies in the definition of “payment arrangements” under the supervision of the BCB and would require individuals and companies to closely monitor deals involving cryptocurrencies for crimes of money laundering or concealment of assets. This project of law is still under discussion.
Brazilian Central Bank (BCB) – Monetary Authority issues the Statement (comunicado) No.31.379/17 alerting about the risks of guard, operations and negotiation of so-called virtual coins.
Following the BCB’s alerts, combined with the lack of regulation, commercial banks started refusing to open new bank accounts for the exchanges. By the end of the year, the two biggest Brazilian private banks unilaterally closed down the bank accounts of exchanges.
Brazilian Securities and Exchange Commission (CMV) – Market Regulator issues the Statement No.1/2018, concluding that, based on the uncertainty, cryptocurrencies cannot be classified as financial assets, and for this reason, its direct acquisition by regulated investment funds is not allowed.
Courts of Justice in many States receive many lawsuits proposed by exchanges against commercial banks, for unilaterally closing their bank accounts. Lower Courts’ decisions have been polarised: some authorising banks to close down exchanges’ bank accounts; others forcing banks to reopen exchanges” bank accounts. A final judgement from the Supreme Court has not been issued yet.
Public Prosecutor sends a confidential questionnaire to the main cryptocurrency exchanges, focusing on understanding their business and how the “cryptocurrency business” as a whole might be used for domestic and international criminal purposes.
Administrative Council for Economic Defense – CADE (Brazilian Antitrust Regulator), provoked by the Brazilian Association of Cryptocurrencies and Blockchain (ABCB), starts an investigation on the six largest commercial banks operating in Brazil.
Brazilian Internal Revenue – RFB (Federal Tax Authority) issues the Public Consult Bill (to be converted in tax rules) that requires all exchanges and direct sellers/ buyers to report on a monthly basis the history of transactions with cryptocurrency, disclosing, among other information, the name, domicile, and TIN.
Risks and Chances
It is worth believing that, in nonregulated markets, cryptocurrencies are comparable to any pet rock - everyone wants to buy one because everyone else has one, not because they are, in any means, intrinsically valued. So, the risks become perceived when a lot of that attractiveness goes away, as we now see with the massive sell-off of many cryptocurrencies. Despite still being under regulation, according to experts, Brazil is a potential market for any crypto-related product.
“Brazilians never miss a tech trend. They’re rarely ever out in front. But when they follow, they follow for real and stick with it. Within Latin America, look for Brazil to be the cryptocurrency ringleader both on the regulatory side and on the development side. As it now stands, more people are opening cryptocurrency trading accounts in Brazil than traditional brokerage accounts.” (www.forbes.com)
“Insurance for cryptocurrency storage will be a big opportunity.” (Christian Weishuber – Allianz’s spokesman).
Outlook or Summary
In August 2018, the news disclosed that the Atlas cryptocurrency investment platform was hacked and the data of over 264,000 clients stolen. Subsequently, the Brazilian Authorities started studies in an attempt to learn more about this business and its potential use in money-laundering. The question is whether they will announce a general veto, as in China, or take a complete regulatory approach, as in Japan.
In anticipation of continued adoption of cryptocurrencies, the Brazilian educational system is taking steps to prepare its students for the upcoming cryptocurrency era. Fundação Getúlio Vargas (FGV), a higher education institution in São Paulo, has announced the first Master’s degree in Cryptofinance. The pioneer course in Brazil follows the lead of top universities in the US, including Duke, Cornell, and Massachusetts Institute of Technology (MIT), who have started to offer classes on the subject.
While facing a lack of general regulation, the only real certainty is that any gain arising from cryptocurrency is subject to Capital Gain.
Seres BaumWGI – Work Group International, Sao Paulo, SP, Brazil
T: +55 11 2372 2376
WGI is a one-stop-shop firm for international business and investment in Brazil. During the last 15 years has assisted clients from 25 different countries in activities going from the setup of new companies to premium services such as business valuation (PPA) and acquisition advisory services.
Seres Baum is an independent auditor accredited by Exchange Commission, Central Bank, and Private Insurance, and a consultant in the tax, corporate, and external investment areas. Seres is the author of books and articles for international vehicles, ITPG Vice Chairman for Latin America, Founder and Managing Director of WGI.
Published: Spring 2019