Cryptocurrency platforms potentially in scope of the UK DST
New HMRC DST guidance notes cryptoasset exchanges and platforms are unlikely to qualify for the exemption for online financial marketplaces.
New HMRC DST guidance notes cryptoasset exchanges and platforms are unlikely to qualify...
HMRC recently issued updated Digital Service Tax (DST) guidance stating that cryptoassets are unlikely to meet the definition of financial instruments, commodities or foreign exchange. This means that exchanges dealing in such assets are unlikely to qualify for the exemption for online financial marketplaces. Accordingly, such exchanges/platforms will need to revisit whether they meet the definition of an online marketplace and whether they could be subject to the DST on their applicable revenues.
As a recap, the UK DST applies where a group has worldwide revenues in excess of £500 million which arise in connection with an in scope digital services activity and its UK digital services revenues are in excess of £25 million. In scope activities include the provision of an online marketplace. There is an exemption for online financial marketplaces, where the majority of the online marketplace’s revenues arise in connection with the facilitation of trading of financial instruments, commodities or foreign exchange.
While HMRC’s pre-existing guidance on the financial services exemption states “The exemption is intended to be broad and to encompass all types of financial services activity,” HMRC have a long-held view that cryptoassets are not money/currency. Therefore, to an extent, the new DST guidance in relation to cryptoassets was to be expected.
As the cryptoasset industry continues to grow and evolve, and as applicable case law starts to be created, whether HMRC’s interpretation will endure is uncertain. We already see tax authorities taking different views on how a cryptoasset should be classified. Therefore the treatment of cryptoassets for UK DST and UK tax more widely will continue to be uncertain and may ultimately be decided through the courts.
Who is this important to?
For now, as well as cryptoasset exchanges it would be sensible for other finance platforms operating in the cryptoasset space to consider how they operate and whether they could be caught by the rules, i.e. based on their activities are they an online marketplace and, if so, do they meet the revenue thresholds for DST to apply?
Care will also need to be taken by more traditional financial services groups that are entering into the cryptoasset space to assess whether they could have a marketplace that would not meet the exemption for online financial marketplaces in light of HMRC’s latest guidance.