Updated Recommendations on Monitoring of Virtual Assets and Virtual Asset Service Providers Published

Опубликовано: 11.11.2021

In October 2021, the Financial Action Task Force (FATF) updated its 2019 Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (VASPs), which serves as a principal instrument established by the FATF to monitor the virtual assets and their providers sector.

The FATF requests countries to assess and mitigate their risks associated with virtual asset financial activities and providers, as well as license or register providers of relevant services through national authorities. VASPs are subject to the same relevant FATF measures that apply to financial institutions.

FATF Recommendations on Combating Virtual Assets Risks

Following the discussions held in the first half of 2021, an updated version of the document now includes more detailed explanations and examples of incorporating the FATF standards into VAs application and VASPs’ practice. The Guidance consists of six parts, which, briefly, concern the following matters:

Part One presents findings of the 2020 FATF’s report on Virtual Asset Red Flag Indicators and the FATF’s Second 12-Month Review of the Revised FATF Standards on VAs and VASPs. It draws attention to the fact that central bank digital currencies are not considered to be VAs, but the FATF Standards apply to them nonetheless, as if they were fiat currency. All varieties of VASPs, regardless of their business model, should be treated by regulatory bodies and standard regulations with an equal approach.

Part Two discusses stablecoins from the point of view of ML/TF risks associated with them. The Guidance stresses the importance of assessing such risks in relation to stablecoins before launch, in an ongoing process of their application and with a future prospect. In addition, the FATF defines risks associated with peer-to-peer (P2P) transactions, which are transactions in VAs that do not involve obliged entities.

Part Three concentrates on the measures that countries may take in order to tackle the risks of P2P transactions. Additionally, the issue of licensing/registration definition and implementation is considered. The Guidance gives a more defined interpretation of the travel rule by including a definition of transaction fees and how the travel rule applies to certain transactions in case of automatic refunds.

Part Four covers the application of the FATF Standards to VASPs and other obliged entities that engage in or provide VA activities under the FATF definition of VA/VASP. This updated section now explains the following:

  • banking and other similar relationships with VASPs;
  • technological solutions enabling VASPs to comply with the travel rule;
  • counterparty VASP identification and due diligence;
  • VA transfers to/from unhosted wallets;
  • key red-flag indicators for VAs.

Part Five provides examples of the risk-based approach to VAs/VASPs used by various countries.

Part Six is a new section of the Guidance expanding on the FATF principles of information sharing and co-operation amongst VASP supervisors.

12-Month Review

The FATF also publishes the “12-Month Review of the Revised FATF Standards on Virtual Assets and Virtual Asset Service Providers”, in which it assesses processes taking place as a result of growth of the virtual assets sector. Main problems the organization outlines in terms of ML/TF risks are increase in the use of virtual assets to collect ransomware payments and to commit and launder the proceeds of fraud; uneven global implementation of the FATF standards; non-compliant or weakly compliant VASPs and tools and methods to increase anonymity.

Problems of Virtual Assets Taxation Worldwide

OECD

A general approach to the issue is described by the OECD in its publication “Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues” (2020). The recommendations it gives for improving tax control are as follows:

  • Clear, regularly updated legislative frameworks for the tax treatment of crypto-assets and virtual currencies, which is consistent with the treatment of other types of assets;
  • Improved compliance: introduction of simplified rules on valuation and on exemption thresholds for small and occasional trades;
  • Developing appropriate tax guidance in response to quickly developing technological developments, including stablecoins, central bank digital currencies, proof-of-stake and decentralized finance.

United Nations

The summary paper of the October 2021 Meeting of the Committee of Experts on International Cooperation in Tax Matters (part of the UN Department of Economic and Social Affairs) states the following: “depending on the domestic tax environment, crypto-assets demand a tax policy response in the areas of income taxes, value-added taxes, property taxes as well as wealth and inheritance taxes. As their relevance increases, crypto-assets may also influence international tax cooperation in terms of what the appropriate treatment should be under double taxation treaties and for transfer pricing purposes.” The committee concludes that VA taxation matter is a highly complex one, as the experts must decide on the following:

  • definition of a taxable event for a virtual asset;
  • “fork coins” (notion when a single token is split into more than one token) make it difficult to establish them as a taxable event;
  • valuation of cryptoassets due to their volatility, which is essential to establish tax consequencesunder income taxes, value-added taxes and property taxes;
  • documentation of cryptoassets and definition of their value for tax purposes.

Virtual Assets Control in Ukraine

Law “On Virtual Currency”

As of September 8, Ukraine adopted the Law No. 3637 “On Virtual Currency” in the second reading. It defines the scope of application of VAs, their legal regime, participants of the market, their rights and obligations, exchange services.

The general principles of state regulation of the turnover of VAs and bodies that carry out state regulation in this field are enlisted. In particular, regulatory roles of the National Bank of Ukraine and National Commission on Securities and Stock Market are outlined. One more important aspect is the introduction of the State Register of Providers of Services Related to the Circulation of Virtual Assets.

However, the Law needs further revision after it has been directed to the President for signature. Having received a number of propositions, it is currently in the course of modification. Sections which are offered for change are those concerning state regulators of VAs (especially National Bank and National Commission).

Amendments to the Tax Code

Another bill in the sphere of digital assets under consideration by the Verkhovna Rada is “On Amendments to the Tax Code of Ukraine to Stimulate the Development of the Digital Economy in Ukraine” (No. 5376). As a result of the last review, the following changes were made to it:

  • Pre-declaredtax rates (personal income tax for experts in the amount of 5%, single social contribution – 22% of the minimum wage) were maintained. In terms of corporate taxes, it is possible to choose between the options of 9% withholding tax or 18% income tax.
  • A transitionperiod has been set for restrictions on working with single taxpayers: starting from 2024, such costs should not exceed 50%, and from 2025 – 20%. Companies that keep the general taxation system and whose annual turnover does not exceed UAH 40 million can work with sole proprietors without restrictions.
  • Invariabilityof tax conditions for 25 years is guaranteed.
  • If a specialistreceives more than 240 thousand euros per year, all income above this limit is taxed by an additional 18% of personal income tax.

 

Sources:

https://www.fatf-gafi.org/media/fatf/documents/recommendations/Quick-guide-RBA-VA-VASPS.pdf

https://www.fatf-gafi.org/media/fatf/documents/recommendations/Second-12-Month-Review-Revised-FATF-Standards-Virtual-Assets-VASPS.pdf

https://www.oecd.org/tax/tax-policy/taxing-virtual-currencies-an-overview-of-tax-treatments-and-emerging-tax-policy-issues.pdf

http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=69110

http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=71663

Read more:

FATF Recommendation on Beneficial Ownership Information Revised https://kac.com.ua/en/novosti/peresmotrena-rekomendatsiya-fatf-po-informatsii-o-benefitsiarnom-vladenii/

Ukraine Introduces Cryptocurrency Control https://kac.com.ua/en/novosti/ukraina-vvodit-kontrol-kriptovalyut/

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