Israel is calling for a tax on upcoming ICOs for both issuers and investors, opting in a double-edged sword scenario to tighten the noose on regulation as opposed to a more severe approach taken by China and South Korea.
Israel’s Tax Authority, which is comparable to the IRS, has published draft legislation with details of the proposed ICO tax, targeting blockchain companies that turn to the wildly popular token sales to raise funds. While a tax was inevitable, it is also a sign of maturity within the ballooning ICO market, which raised more than $4 billion last year.
One ICO that under the new law may have been subject to the tax is Swiss-Israeli startup Sirin Labs. The startup, which is developing a blockchain smartphone and which issued the SRN tokens, attracting $118 million to its coffers in an ICO at year-end 2017.
The draft makes it clear that it’s addressing utility tokens, which is how the lion’s share of issuers characterize their digital coins as opposed to securities, with tax authority director Moshe Asher emphasizing transparency.
“The Tax Authority is monitoring the technological developments and is working to provide an answer regarding the tax implications of virtual currency transactions and the issuance of digital tokens, thereby increasing the certainty and tax transparency of those operating in the field.”
Similar to a recent declaration by the Tax Authority to treat bitcoin as an asset, ICO tokens are being deemed an asset, and issuing companies behind them as well as the investors who buy the tokens would be subject to the tax. It’s a balance sheet event, with companies being required to report P&L with cryptocurrencies similar to how they would with other assets. The tax may be postponed until the product in development is actually supplied. According to the draft, as translated by Finance Magnates:
“A person whose income from the sale of tokens reaches the level of a business, his income will be classified as a business income and it will be subject to tax rates under sections 121 or 126 of the ordinance.”
Israel’s central bank previously revealed its position on bitcoin, saying that it didn’t recognize the cryptocurrency or altcoins as a legitimate form of payment. Meanwhile, The Tax Authority’s draft legislation addresses bitcoin, saying that transactions involving the cryptocurrency would be treated as barter based on the value of assets.
Israel’s securities regulator previously moved to block bitcoin and other cryptocurrencies from trading on the Tel Aviv Stock Exchange. Taxing ICOs sends a message to issuers that while they may dream of being the next bitcoin, their cryptocurrency similarly will have limitations. Israel is currently pursuing a digital shekel, whose value would be equal to the country’s fiat money.
Public comments on the proposed law are being accepted for two weeks before the rule becomes final.
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