Investments in digital assets, such as cryptocurrencies, NFTs, and utility/security tokens, have grown tremendously in the last few years. Blockchain’s decentralisation has not only reduced transaction costs by removing layers of administration, but also significantly accelerated transaction speed. The result is a parallel investment system that unlocks new value and exciting opportunities to innovate. The rapid growth and interest in digital assets is increasingly difficult for entrepreneurs, investors and conventional financial institutions to ignore.

While the advantages of blockchain transactions are appealing, they currently come with many challenges that require legal solutions. The most significant hurdles to digital investments are:

• inconsistent legislation across jurisdictions;
• varying treatment of these investments by regulators, particularly tax authorities;
• properly identifying digital assets’ ownership, the transaction location and its performance location.

This third challenge means that tax authorities often struggle to handle the exponential growth in digital asset transactions in their jurisdiction. Further, it leads to inconsistent treatment of these transactions by tax authorities. The tax implications of purchase, ownership and sale vary widely between jurisdictions, creating a patchwork of ambiguity, complexity and risk that individuals and corporate tax teams must navigate.

Another major challenge for tax authorities is dealing with the fact that digital assets can bypass intermediaries, and often do not have the same tax-reporting obligations as conventional investments.

The recent proliferation of digital assets, which lie outside of the traditional financial system, has led investors and regulators alike to wonder whether cryptocurrency transactions activities can be taxable under today’s current legal regimes. Many jurisdictions are responding to this by attempting to amend the law and cover digital assets with their existing tax frameworks. 

The variety, flexibility and convenience of blockchain transactions can allow for considerable, rapid business growth and financial returns. However, these advantages can draw an investor’s attention away from potential legal risks. If these risks are not identified and tackled as early as possible, investors may find their businesses suspended and sanctioned by authorities. Our team of experienced crypto tax advisors are ideally placed  to safeguard our clients’ digital assets’ operations and tax compliance. 

We combine market-leading legal expertise with in-depth technical knowledge of digital assets, including NFTs and cryptocurrencies, to effectively support our clients. With a strong track record of supporting clients across a range of disputes in various jurisdictions, we are well-placed to provide a full business end-to-end service. International in reach, we work on matters for parties all over the world. Our lawyers are well experienced in tax planning and structuring and are able to assist and advise on all types of digital assets’ transactions and their tax implications.