Facebook’s new cryptocurrency Libra could face serious tax issues that could hamper its widespread takeup, according to City lawyers.
Earlier this month, the social media giant confirmed plans to launch Libra which is intended to be a new global currency that can improve access to the financial system.
Tax lawyers from Magic Circle law firm Clifford Chance said in a briefing note that Libra could create tax liabilities for users based on its fluctuations against their local currency.
The fluctuation of Libra against local currencies will create a “novel problem for consumers,” the firm said.
“Each time they transact, they’ll be making a currency gain or loss. In most countries gains will be taxable, meaning consumers will have to file a detailed tax return showing all their transactions and the exchange rate at the time, and pay any tax due,” the note said.
“This seems to us to be a significant barrier to wide adoption,” the lawyers argued.
Facebook said in a statement: “People will be responsible for filing their taxes in accordance with local laws in the jurisdictions in which they operate. We expect that many wallets and financial services built on the Libra Blockchain will provide people with tools to help manage this.
“We look forward to working with policymakers as they clarify the application of existing tax laws to cryptocurrencies, or in some cases to update those laws.”
The HMRC does not currently treat cryptoassets as currencies as they are not issued by a foreign government.
Any gains which create a capital gains tax liability must be reported to HMRC.
It said disposals of cryptossets would count as gains or losses to be dealt with along normal lines.
Clifford Chance said for typical UK consumers compliance would be more painful than the tax, given the UK’s £12,000 annual allowance for tax-free capital gains.
It said for consumers in countries such as France and Germany which have much more limited annual allowances, “tax liability is more likely”.