Sourcing the Unsourceable: Cross Border Tax Implications of Cryptographic Dealings

The emergence of cryptocurrencies almost twenty years ago has created unprecedented challenges to dozens of tax systems globally and to thousands of bilateral tax treaties. Despite widespread use, tax authorities from all over the world have struggled to develop comprehensive regulatory tax frameworks addressing the unique characteristics of the cryptographic assets including their virtual and decentralized nature, their high price volatility, their pseudo-anonymity nature, and high liquidity. Without exception, most of the OECD Member States have currently only issued guidance on cryptographic taxation based on existing statutes that had been developed in a much less cross-border capital mobile reality and when national economies were not as open and as impacted by cross-border trade, and nonetheless have not yet developed a novel tailored comprehensive tax legislation for taxing crypto dealings. The article examines critical deficiencies in the current tax regulatory frameworks, particularly regarding cross-border taxation both within domestic tax systems of developed countries and within the cross-border tax rules codified in all three bilateral model tax conventions (MTCs). It proposes targeted measures to preserve the crypto tax base as the increasing cross-border mobility of crypto dealings threatens to unjustly undermine countries’ ability to effectively exercise their taxing rights over crypto income and gains.