TBW Premium #8: How the taxman keeps tabs on crypto-taxpayers, Argentinian miners...

TBW Premium #8: How the taxman keeps tabs on crypto-taxpayers, Argentinian miners...

Read all about The Big Whale's 8th Premium newsletter.

Hello Whales and welcome to the little newbies who've just joined us in the Web3 deep end 👋


We're launching our Discord!

Many things to report this week, and it's all GOOD news. 🍾

First of all, the Discord is ready. We're launching it today! All annual subscribers and founders will receive an email later today with all the explanations: how to access it, what we want to do with it... We'll be holding our first editorial conference on it on Monday, so don't miss it!

The other good news is that after two weeks at the heart of the Argentinian crypto ecosystem, we've returned to France with plenty in our suitcases. Over the coming weeks, we'll be publishing a number of interviews and reports. Starting today, you'll find a feature on these Argentinians who mine cryptos to escape inflation and... their own currency.

Finally, and because the planet keeps spinning wherever The Big Whale is, we have a number of exclusive reports for you, including on a French blockchain voting project, as well as a lengthy investigation into the taxman's techniques for monitoring crypto-taxpayers.

You've still got one week left to declare your income (until 8 June), so don't forget to do so. For latecomers, our file is here : [THE COMPLETE GUIDE TO THE BIG WHALE]

For the rest of you, happy diving 🐳


Our exclusive news 🗣

👉 Crypto start-ups, collateral victims of the UST crash

As the resounding UST crash continues to disrupt the market, several French start-ups have decided to postpone their launches. This is particularly the case for CryptoSimple, an app that aims to offer yield solutions based on decentralised finance (DeFi) protocols. "We were due to release on 30 May, but given the environment we prefer to postpone the release by a month", explains its co-founder, François-Julien Alcaraz ⌛. Like many other entrepreneurs, François-Julien Alcaraz from Marseilles wants the market to stabilise. It's a vision shared by the Lyonnais of Mon Livret C, a service due to launch at the end of June that aims to offer up to 5% returns. "The UST crash made us reconsider our allocations, and we decided to completely rule out algorithmic stablecoins (like UST)," explains founder Roméo Poncet-Labouche. Should we expect lower returns? He is reassuring: "There are still a lot of protocols and centralised platforms where it is possible to generate interesting returns."

👉 The Argentine right's plan against inflation

How do we get out of the downward spiral of inflation? For more than 20 years and the peso's continuous slide, the Argentine left and right have been clashing over the solutions to be found. To no avail. Just last year, "official" inflation exceeded 70%, and it is expected to reach at least that level in 2022. But the right-wing opposition, which lost the national elections in 2019, thinks it has the solution. According to our information, it is working on a plan to completely "dollarise" the Argentine economy, meaning abandoning the peso and using only the greenback 💵. "That's already partly what's happening today," tries to justify a right-wing Argentine MP. "The dollar is our unofficial currency and that creates a lot of instability", he adds, citing the case of Ecuador, which has been using the US dollar since 2000 and "is doing very well". Argentina's next legislative elections are scheduled for 2023. Perhaps the right will make this solution official in its programme.

👉 The CNIL validates a voting solution on a blockchain

Some people have been talking for years about blockchain as a "miracle" solution for online voting. But the various projects presented have never been convincing, not least because of the lack of confidentiality. Blockchain certainly enables transparent and secure voting, but nobody had yet managed to guarantee the 'secrecy' of the vote. That is, until V8TE came up with a solution. The Bordeaux-based start-up has just been approved by the French Data Protection Authority (CNIL), which has issued it with a certificate of compliance. This is a first for a company that bases its voting system on the blockchain (here Polygon) 🗳️. "The vision of our team and our product is built on the idea of transparency", explains its CEO Guillaume Odriosolo. "We have the three pillars that enable users to have complete confidence in the online voting process," adds the Orange-Le Vote defector. Initially, this solution will be offered to large companies, but V8TE hopes to work with local authorities.

Do you have any information?

Contact us


How the taxman is keeping tabs on crypto-taxpayers 🔍

👉 The news. The tax return campaign is coming to an end.

👉 The background. The OECD wants to extend the automatic exchange of information between exchange platforms and tax administrations.

👉 Why it matters. It will be increasingly difficult to hide your cryptos.

The end of the tax return campaign is fast approaching. Before the evening of 8 June (11.59pm), all French taxpayers must have sent their full details to the tax authorities or face... penalties. And don't think, as some do, that you'll be able to slip through the net! While taxation is not an exact science, the tax authorities have made huge strides in recent years when it comes to cryptos. It now has the means to identify both small and large investors more easily.

As our survey shows, the main lever used by the tax authorities is the bank account, which acts as a kind of financial identity card. "Tax audits are triggered when there are inconsistencies between declarations and the information available to the tax authorities," confirms Alexandre Lourimi, a tax lawyer with ORWL, a firm specialising in disruptive technology law. If you receive a transfer from an exchange platform even though you have not provided the tax authorities with any information about it, you could be liable to penalties of up to €750 per undeclared account. The amount is doubled where the value of the accounts exceeds €50,000.

This is followed by an adjustment on the undeclared capital gains, which can be particularly painful. In the event of deliberate failure or bad faith on the part of the taxpayer, the surcharge is increased to 40%.

Banks are under increasing pressure from regulators to combat fraud and money laundering. They therefore tend to report numerous account movements to TracFin, the intelligence service responsible for, among other things, combating tax fraud, especially when these come from a crypto exchange platform. TracFin then passes the file on to the tax authorities, who trace it back to the fraudster. "The number of intelligence notes sent to the tax authorities is constantly increasing and these could be a privileged source of information", adds Alexandre Lourimi.

Unusually high amounts

Another cluster of clues that can make the authorities sit up and take notice: the amounts you receive in your account. The banks themselves define their alert thresholds, but the first of these often boils down to an 'unusually' high inflow of money. "There is no precise amount, it depends on the individual", notes the tax lawyer. "Someone who earns 10,000 euros a month and receives 15,000 euros in their account from a platform will be less likely to attract attention than someone on RSA who receives the same amount," explains Alexandre Lourimi.

The tax authorities have a specialist team based in Paris, which can intervene itself or help local inspectors who request it. This human effort, based on cross-referencing sources of information, is carried out by the Direction Nationale d'Enquêtes Fiscales (DNEF), a department attached to the Direction Générale des Finances Publiques (DGFIP). If necessary, this team of crypto-experts can use Chainalysis-type tools to trace all crypto transactions that pass through addresses known to the taxpayer (you need to be a very big fish for that, though).

There is also a 'data mining' department at Bercy that scans social networks for potentially compromising information. "A standard of living out of all proportion to one's income attracts attention", warns a person close to Bercy. "But this search activity is mainly automated, it will never replace human work", he insists.

How the tax authorities communicate with exchange platforms

The platforms are not subject to spontaneous reporting obligations to the tax authorities. They therefore do not have to inform the authorities about their users' activity. However, as part of their obligations to combat money laundering and the financing of terrorism, they may, like banks, be required to spontaneously send financial intelligence services, such as Tracfin in France, information that may be used in tax audits (via suspicious transaction reports).

When it is the authorities that directly suspect a taxpayer of being in an irregular situation, they may approach a platform. "If the platform is registered with the Autorité des marchés financiers (AMF), it is obliged to respond to requests for information", insists Alexandre Lourimi. So don't expect to slip through the net if you're a customer of Coinhouse or Paymium: these companies face hefty fines if they refuse.

In the case of foreign platforms, it's sometimes more complicated for the taxman to get answers, even though most of the giants in the sector comply. According to our information, the American platforms Coinbase and Kraken all respond to the French tax authorities, although the large number of requests can sometimes result in lengthy delays. On the other hand, platforms based in Asia or in tax havens may be less cooperative.

"As in the traditional financial sector, the data that is hardest to access is that held by players domiciled in countries that do not cooperate with France on tax matters", insists Alexandre Lourimi. These so-called "non-cooperative" states appear on a list that is constantly being reduced as France negotiates administrative assistance and information exchange agreements.

According to our information, the tax authorities would not bother to initiate checks abroad when the sums involved are modest. "The audit must not cost more than it can bring in, if it is necessary to put a civil servant on it for six months, inevitably it will not be profitable", explains an expert on the subject.

Soon automated information flows

This "tolerance" towards certain platforms could soon come to an end, however. The Organisation for Economic Co-operation and Development (OECD), which brings together 38 countries (including France), is currently working on an extension to cryprot platforms of the spontaneous reporting standards applied to banks.

Since 2014, these standards have enabled the tax authorities of a member country to receive information each year on the financial assets held by its tax residents abroad. So when a resident opens an account abroad, the tax authority in the host country informs the tax authority in the country of origin. The OECD's aim is to extend this system to crypto exchange platforms. Coinbase, for example, would provide the US administration with a list of its customers every year, before the latter would automatically transmit to France the identity of all its residents who use the platform.

"The public consultation has just opened, so it's hard to know when this project will be applied, but it's certain that it will one day concern crypto exchange platforms," assures Alexandre Lourimi. "The mass of information spontaneously available to the tax authorities will increase substantially," stresses the lawyer, "tomorrow it will be very easy to find out who has an account, where, and also potentially the balance on the platforms."

Did Binance provide the list of its French users in exchange for the PSAN? 🤔

A rumour claiming that Binance had provided the tax authorities with a list of all its French customers recently circulated. This 'deal' was allegedly concluded after the Chinese giant obtained registration as a Digital Asset Service Provider (DASP) from the Autorité des marchés financiers (AMF). When questioned, Binance categorically denied this. For lawyer Alexandre Lourimi, "there is no need to negotiate this kind of agreement, as Binance is now registered in France, so the tax authorities can ask it to report on all the users it is interested in, such as all those with a balance of more than €5,000".


In Argentina, mining cryptos to escape the peso

Thanks to particularly cheap electricity, thousands of Argentines are mining cryptocurrencies right in their own homes. We met several of them.

In his taxi, Pedro regularly glances at his smartphone to keep an eye on Buenos Aires traffic, which is fairly fluid on this Thursday morning, and above all the progress of his crypto portfolio. For the past few weeks, this Rosario native has been feverishly waiting for prices to pick up after May's dizzying fall. In the space of a few weeks, the crypto market has lost more than $600 billion in capitalisation, and bitcoin has fallen back below $30,000. "We were kind of waiting for it, but it hurts," testifies this 30-year-old Argentine.

Pedro didn't buy his cryptocurrencies on a platform; he mined them directly at home in his Buenos Aires flat. His setup remains modest: four machines hidden away in a corner of the living room (which can be a tad noisy). But they allow him to mine a bit of everything - bitcoin, monero and zcash - thanks to electricity prices that are almost unbeatable. For Argentines, a kilowatt, which is subsidised by almost 50%, costs 4 cents on the dollar. In France, it costs an average of 17-18 euro cents (20 dollar cents), i.e. five times more! "We have cheap electricity, so I take advantage of it. On average I make a few dozen dollars a month", he points out.

Like Pedro, there are thousands of Argentines mining at home to boost their income and also to protect themselves from inflation, which continues to climb. Rodrigo is one of them. A waiter in the Palermo Hollywood district, near the centre of Buenos Aires, the former economics student invests most of his savings in machines for mining cryptocurrencies. "Any kind," he laughs, adding, "Anything is better than the peso." Last year, Rodrigo mined dogecoin in particular and benefited from the crypto's successive surges boosted by Elon Musk's tweets. Enough to allow him to change jobs? "We're still a long way from that," he chuckles.

Even more so now that the political authorities want to regulate mining. The aim is not to ban the activity, but to regulate it. "It's not normal to use subsidised electricity to mine," slips one industry insider. The government would also like to regain control over an activity that allows some people to escape the peso and the official rate. "We need to find a balance," explains Mariano Mayer, former Argentine minister for SMEs and very small businesses and co-founder of the Newtopia VC investment fund. We still need to convince the miners.

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