IFRS Interpretations Committee concludes cryptocurrency is not a financial asset
The committee charged with developing International Financial Reporting Standards (IFRS) concluded that cryptocurrency holdings do not meet the definition of cash or a financial asset. Industry insiders expect that the taxation of cryptocurrencies will be influenced by the decision. "Cryptocurrencies not financial assets" According to the Korea Accounting Institute and the Financial Supervisory Service on Monday, the International Financial Reporting Interpretations Committee, which is under the International Accounting Standards Board (IASB), concluded cryptocurrency holdings cannot be considered financial assets. The decision was the result of discussion on how to apply IFRS to cryptocurrency based on a meeting held in London in June. The committee said that while some cryptocurrencies can be used as a means of exchange for goods or services, they do not meet the definitions of cash, whereby every transaction is recorded on a financial statement. The committee also concluded that cryptocurrency does not meet definition of a financial asset, which includes company shares or the right to obtain a financial asset from a trading partner. According to the committee, cryptocurrency differs from cash and financial assets, including bank savings, stocks, Treasuries, insurance and trusts. Categorized as "intangible asset" or "asset in stock" Intangible assets are non-monetary assets that do not have physical form but can be identified. They include business rights, patent rights and trademark rights. Assets in stock refer to products or materials one keeps to sell. Income tax can still be imposed If cryptocurrency is considered an intangible asset or stock asset, the government may impose a surtax, however it is considering imposing an income tax. In that case, income tax may apply on the arbitrage of cryptocurrencies. “We are considering imposing an income tax rather than a surtax on cryptocurrencies,” a spokesperson from the Ministry of Economy and Finance said. “Whether we make it a tax on transfer income or other income will be decided in the process of revising the law.” Apart from trading profit, though, there will be controversies on how to calculate cost related to activities like mining. Would this make it difficult to make financial products out of cryptocurrencies? Profits at cryptocurrency exchanges haven’t been a problem, as they paid corporate tax on commissions they earned. With the recent decision, cryptocurrencies are likely to be categorized as intangible assets. It is difficult to make financial products using cryptocurrencies if they are considered intangible assets. "Even if derivative products using cryptocurrencies are launched, it will be difficult to attract the interest of global investment banks due to high risks," a researcher from the Korea Institute of Certified Public Accountants said. Not the same rule for every country IASB issues IFRS, a standard used by some 130 countries around the world including Korea. In Korea, every listed company has been mandated to follow IFRS since 2012. However, the United States, Japan and China do not follow this guideline. They have their own standards.