As NFTs are becoming more prominent on the world stage, one of the complications that need to be resolved is that of taxes. Because NFTs are so new and digital asset-related taxation policy is complicated on its own, regulators and NFT buyers alike are still figuring out what to do with regard to tax.
Now, just weeks after it released a list of ‘red flags’ to watch out for with NFTs, the J5 has held a meeting to discuss NFTs being used for tax evasion.
A Meeting of the Minds
The J5 stands for Joint Chiefs of Global Tax Enforcement and is an association of the five largest taxation bodies in the world. This latest meeting was held in London and was dubbed ‘The Challenge’.
The goal of the meeting was to discuss emerging threats to taxation around the world, with a focus on the role of NFTs in tax-related crimes. NFTs, and the billions of dollars being spent on them, mean that there is a lot of money in circulation within the industry which might not be subject to the appropriate tax.
Adding to this is the fact that many NFT buyers can sign up on marketplaces without having to provide any traceable information to the platforms. They, in turn, do not always provide such information to the taxation bodies in the regions where they operate.
“NFTs are the modern, digital way of trade-based money laundering. A rising issue is that the platforms involved in the trade in NFTs are not yet obliged to execute KYC measures,” said Niels Obbink, chief and general director, FIOD.
He also added that the nature of blockchain technology means that ‘international cooperation’ will be needed to combat these tax crimes, which the J5 hopes to provide. These sorts of concerns draw parallels to the same that were had about cryptocurrency when it first became popular.
But as Jim Lee, chief of the IRS’s criminal investigation division, explained, as more interactions are had with blockchain by-products, a better understanding can be had of how to handle tax-related issues.
“These Challenges were something new to our organisation when we were first introduced to them a few years ago. But I am confident saying today that we have a good number of cases in our pipeline that we would never have without the work done at these Challenges. It is a model I hope to replicate in other mission areas because of the success and the focus on partnerships,” he said.
Taxman for NFTs
While it is likely that some NFTs are being used for tax-related crimes, it seems law enforcement is fast closing in on this. The increased experience that regulators are having with NFTs and the global sharing of knowledge via organizations like the J5 means that there will be better laws regarding tax.
This, in turn, will increase public and institutional trust in NFTs. Those who buy NFTs can also be rest assured that they are on the right side of the law with their tax dealings.