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James Carter

January 23, 2023

Japan’s Move Towards Corporate Cryptocurrency Taxation

In an effort to halt what it refers to as an “exodus” of crypto-related talent and wealth, Japan is inching closer to altering the country’s stringent cryptocurrency tax laws that apply to corporations.

In the current years, there has been an increase in the amount of pressure that is being applied to reform, with personalities in the sector as well as opposition leaders all advocating for change.

More recently, the Financial Services Agency (FSA), which is the primary financial regulator in the United States, has given indications that it, too, intends to amend the restrictive legislation. However, getting approval from the National Tax Agency is the very last stage in this process (NTA).

However, analysts believe that the NTA is working on a tax reform measure that it wants to publish in parliament within the coming months. This is despite the fact that the NTA has yet to sign that it will make a move openly.

Late in the previous week, the NTA published a set of frequently asked questions (FAQs) that address the issue of crypto taxes.

And even though these did not make any direct mention of any forthcoming reform, Junya Izumi, an associate professor of tax law at the Chiba University of Commerce, pointed out on Twitter that specific pro-reform nuances were included in the NTA’s document. This is despite the fact that these have yet to make any direct mention of any forthcoming reform.

For instance, as the professor who specializes in crypto tax law pointed out, the frequently asked questions (FAQs) seem to indicate that in certain circumstances, currencies that are “locked up” in staking contracts may not be subject to taxation. This is something that the FAQs imply.

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According to the current interpretation of Japanese law, businesses are required to pay tax on “paper profits,” which are defined as increases in the value of tokens relative to fiat currency. For instance, if a corporation were to hang onto a token during the length of a fiscal year and that token’s value increased over the course of that year, the company would be required to pay tax on the increased value of that token. Even if the corporation did not trade its token for fiat currency, this outcome would still be the same.

In some nations, companies are often only obligated to pay taxes if and when they sell the tokens that they possess in return for fiat cash. This is not the case in other nations.

This rule is seen as unfair by a significant number of Japanese businesses, notably those that both issue and keep coins, as well as those that provide staking services.

In an interview with the Japan Times from the previous year, Sota Watanabe, the Chief Executive Officer of Stake Technologies, the firm that developed the Web3 infrastructure, stated that he had “located his company to Singapore in part because of higher taxes.”