CRYPTO TAXATION. DECREE ON DEBITS AND CREDITS.

On November 17th., 2021, the Official Bulletin published Decree 796/2021 for the purposes of ruling taxation on cryptocurrencies transactions within the scope of the so-called “checks tax”. Actually, it is a tax on bank debits and credits as stipulated by Law 25.413, governed by Decree Nº 380/2001 and the amendments thereto. The tax rate is 0.6% for bank credits and debits, totaling 1.2% on each transaction (half and half between the parties involved).

Despite this is an accounting tax-related issue, we consider it relevant considering this is the first national tax applicable to certain crypto transactions. In this sense, some legal actions are expected to emerge by the main actors of the crypto environment aiming to stop the expansion of this distorting tax.

Briefly, the tax will apply to:

1. Transactions carried out in the name of/on behalf of third parties (with some exceptions).

2. Settlement of collection transactions of any nature or value whatsoever, even with funds advance (notes discount, factoring, checks for collection, etc.), also with some exceptions.

3. Settlement of collections except when credited in current accounts opened to the name of the beneficiary/principal.

4. Any type of remittance or money transfer (with some exceptions).

5. Payments made by financial entities on their own account or on account of third parties to establishments adhered to credit and/or debit card systems, except when credited in current accounts opened to the name of the beneficiary establishment.

In first place, the new Decree stipulates that this tax will apply to all cash deposits or withdrawals made by legal persons (excluding Micro and Small companies) through those companies committed to the electronic service of payments and/or collections on behalf of third parties. Such companies shall inform all movements of funds to the entities holding the involved accounts (traditional or digital banks) for tax purposes.

The Decree further stipulates that all amounts paid in concept of national, provincial or municipal taxes or taxes of the Autonomous City of Buenos Aires subject to verification will also be levied with the tax in the case of Payment Service Providers (PSP). Previously, taxation only applied to entities governed by the Financial Entities’ Law.

The provisions of the new rule (that amends the regulatory Decree) set forth the following exemptions:

Accounts used exclusively for the operation of companies committed to the electronic service of payments and/or collections on behalf of third parties, of utility bills, taxes and other services; provided such accounts are used exclusively for such purpose and the companies be included within the scope of the “Economic Activities Classifier”.

Human or legal persons qualifying as Micro and Small companies as set forth by the provisions of section 2 of Law Nº 24.467, the amendments thereto and complementary rules. Demand bank accounts used by Payment Services Providers and those acting as such, including movements of funds to keep demand deposits or to comply with the regulations of the Central Bank of the Argentine Republic. Bank accounts used exclusively for the management of payment services of goods and services on behalf of third parties.

Credits and debits through “3.0 payments system” (bank transfers through QR code).

Once exemptions were agreed, the Decree sets forth that the exemptions will not apply to the movements of funds related to any transaction on cryptoassets, cryptocurrencies, digital currencies or similar instruments as defined by the applicable regulations.

In our opinion, this is an unreasonable discrimination towards a large portion of the economy and of many financial transactions. Considering there is no legal definition for cryptocurrency, cryptoasset nor digital currency, we assume this is a serious technical mistake.

The Decree is likely to arise many concerns. By updating the annex of a Decree (with many amendments) ruling the application of law 25.413 (passed in March 2001) and making reference to law 24.467 (passed in 1995, applicable to Small and Medium companies), it is quite clear that the Government is looking at the crypto industry as a source of tax income, without a clear perspective of the planning ahead. The rule intends to be applied to all sort of conventional transactions but no mention is made to peer to peer or P2P transactions, very popular in the market today.

This regulation is intended to levy all crypto transactions carried out through legal platforms operating in Argentina such as Ripio and Lemon Cash -among others- with negative effects over this booming industry which is considered as an employment source and value generation in Argentina. In this way, buyers will be compelled to be charged with an additional tax.

In terms of compliance, transparency and anti-laundering money policies, transactions carried out through mentioned platforms (exchanges) are completely safe and reliable, enabling tax authorities to have control over these legal persons and having access to personal and tax data available. On the contrary, P2P transactions cannot be monitored by controlling agencies, promoting legal and fraudulent transactions as well.

A move like this will lead many users to transact P2P or simply outside the Argentine legal system through foreign platforms –like Binance- for crypto trading. By pretending to collect a rate of 1.2%, the Government fosters the unregulated market and fails to collect personal property tax or income tax (with higher rates) with a subsequent less proportion of taxpayers.

The crypto market should not be tackled with legislation like this since it was formulated as a decentralized and anonymous system operating through blockchain technology. Though it seems utopic, some regulation is foreseen in the future to come. However, Argentinean authorities lack a clear vision of this market resulting in erratic and doubtful legislation. This industry requires a reasonable legal framework for further development beneficial for the State and for the parties involved. Distorting taxation will help to expand a parallel crypto market or will lead traders and users to seek more friendly jurisdictions. In a global market like this, we need to encourage further development and investments in an attractive environment with thriving prospects in the years to come.