Beruflich Dokumente
Kultur Dokumente
Submitted to:
Mrs. Ludivinia F. Victorino, CPA, MBA
Submitted by:
Vincent Allen Paul S. Bitanga
Junnalyn J. Burzon
Mary Ann L. Cruzat
Jessarene Pearl F. Depante
BSACC 5-1
TABLE OF CONTENTS
Title Page i
Table of Contents ii
Introduction 1
I. Nature of Cryptocurrency 2
II. Risks and Rewards of Cryptocurrency 5
III. The Implication of Cryptocurrency to the Field of Accountancy 9
IV. The Future of Cryptocurrency 16
INTRODUCTION
Aside from monitoring social media updates and playing mobile games,
Filipino finance aficionados and tech-savvy millennials are also hooked into the
highs and lows of virtual or digital currencies. Virtual currencies were
traditionally used by players of online games. Later on, Satoshi Nakamoto,
introduced “Bitcoin” as a “peer-to-peer version of electronic cash” that allows for
fast and cheap digital transactions independent of third-party financial
institutions. In a nutshell, these so-called “virtual or digital currencies” may be
acquired using fiat money and be converted back to fiat money or be used for
payment or remittance.
I. Nature of Cryptocurrency
A cryptocurrency is a digital or virtual currency that uses cryptography
for security. A cryptocurrency is difficult to counterfeit because of this security
feature. Many cryptocurrencies are decentralized systems based on blockchain
technology, a distributed ledger enforced by a disparate network of computers. A
defining feature of a cryptocurrency, and arguably its biggest allure, is its organic
nature; it is not issued by any central authority, rendering it theoretically
immune to government interference or manipulation.
Cryptocurrency benefits
Bitcoin Peso
“Bitcoin” has been the newest buzzword in the financial and legal circles
in the past few years. We often hear of people generating significant amounts of
money from investments in Bitcoin, and at the same time people losing money
when the value of Bitcoin drops dramatically within a single day of trading.
As such, VCs may have a significant impact on the way that ordinary
Filipinos do commercial transactions. First, OFWs who send remittances to the
Philippines may benefit from the VC’s minimal processing fees. Second,
according to the Bangko Sentral ng Pilipinas (BSP), 86% of Filipino households
does not have bank accounts due to lack of sufficient capital and proper
identification requirements. The 86% will now have access to the facilities of VC
exchanges which do not require such capital or identification requirements.
Third, being the fastest-growing smart phone market in the ASEAN with over 40
million Internet users, the Philippine economy will definitely benefit from
increased mobile commercial transactions.
Crypto Taxation
The National Internal Revenue Code (NIRC) states that any income of an
individual or corporation, in whatever form, obtained in the Philippines, is
taxable in general. Thus, depending on the type of cryptocurrency transactions,
the Philippine Bureau of Internal Revenue (BIR) may impose an income,
percentage, or other business tax under the NIRC regulation.
The BIR has not presented any clear rules on the taxation of BTC
transactions yet. However, looking at the internal revenue laws, one may know
that any type of income earned shall be taxed unless expressly exempted.
The taxes collected may potentially depend on how the BIR will decide to
classify BTCs. If crypto coins are considered property, they will come under the
capital gains tax.
The BIR may treat crypto coins as securities, as Securities and Exchange
Commission (SEC) does, therefore, they will be taxed as securities as well.
It is likely that fintech companies currently fall under the taxation rules of
any other corporation; therefore, they are subject to regular income tax based on
net taxable income at the rate of 30%.
Crypto Exchanges
The document states that the Bangko Sentral does not plan to perceive
any virtual currency, such as BTC, as a currency, since it is not issued or
guaranteed by the BSP and not backed by any commodity. The BSP intends to
regulate virtual currencies used in financial services such as payments and
remittances.
The document defines virtual currency as a type of digital unit that “is
used as a medium of exchange or a form of digitally stored value created by
agreement within the community of VC users.”
system, but everything on Earth has pros and cons. Hence, embracing the
nature of the cryptocurrency both calls for rewards and risks.
Easy to Use
Decentralization
The issue with these fees is that they often pile up and could
quickly pile up. Transaction fees are very small and only the buyer
gets hit with it.
Do Unlimited Transactions
Fast Transactions
Transparency
Anonymity
Highly-Secured
unless they were hacked. There were many ways to protect one’s
account.
No Inflation
Lack of Knowledge
Strong Volatility
Storing of Cryptocurrencies
On February 6, 2017, the BSP finally broke its silence and issued BSP
Circular No. 944, where it categorically declared that virtual currencies,
including bitcoin, is not a currency, since it is neither guaranteed by a central
bank nor backed by any commodity. The BSP, however, provided guidelines on
regulating virtual currencies for the delivery of financial services, particularly for
payments and remittances. These guidelines could have a material impact on
anti-money laundering and combating the financing of terrorism, consumer
protection, and financial stability. A closer look at BSP Circular No. 944 reveals
that the Philippines does not intend to prohibit bitcoins, although the said
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regulation diminishes the anonymity of the bitcoin owner for relatively valid
reasons. Hence, there is need for a special law, at the least a regulation by our tax
authorities.
One may purchase a bitcoin to speculate the increase of its value and
convert it to fiat currency at a gain, others merely use bitcoins for payment and
remittance. The fact that its value changes every second gives an air of
excitement. There is a catch, though: it is not backed by a commodity or a
tangible object, unlike stocks or bonds. A bitcoin’s valuation is entirely dictated
by the market. As Warren Buffett puts it, bitcoin is a bubble. It cannot be deemed
a real investment, because it is not backed up by any tangible commodity.
In the US, the Internal Revenue Service has already issued regulations
treating bitcoins and similar convertible virtual currencies as “property.” As with
other types of property, first, one acquires property, often by exchanging cash for
the property. Then, one owns the property for a period of time. Eventually, one
might sell, give away, trade, or dispose of the property. As such, income upon the
disposition of the “property” is subject to tax, depending on its holding period if
long-term or short-term. Under this treatment, verifiable documentation from
the acquisition to the disposition stage is a must.
According to the CRA, vendors accepting bitcoins must record the fair
market value of the bitcoin upon receipt and be subjected to the business income
tax. On the other hand, those that use bitcoins for trading, investing, and
speculating may straddle the line between income and capital, which continues
to be a gray area. In Japan, bitcoins and other digital currencies are defined as
“asset-like values that can be used in making payments and can be transferred
digitally.” Initially, Japan subjected bitcoin transactions to 8% consumption tax
and applicable capital gains tax. Effective July 1, 2017, however, the Japanese
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government has lifted the consumption tax to bitcoins, but retained the
applicable capital gains tax.
For one to commence legal action against another party, one has to know
the whereabouts of the other i.e., the name and address, among others. In a
bitcoin transaction, such is not the case. A bitcoin transaction could only amount
to a moral or social agreement, which cannot be enforced by court action, unless
a special law is passed to regulate the said transaction. Some bitcoin platforms,
such as coins.ph, require the bitcoin owner’s personal profile pursuant to know-
your-customer rules.
With the recent “build, build, build” thrust of the administration comes
the need for internal funds. While everyone is busy finalizing tax reforms,
legislators and regulators might want to consider regulating bitcoin transactions
to effectively subject it to tax. After all, the power of taxation being an inherent
power of the state is universal. For reference purposes, the BIR might be
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interested in looking at the tax treatment being used by the US, Canada, and
Japan.
Accounting Issues
Is a Cryptocurrency an Asset?
IAS 7.6 defines cash by stating: “Cash comprises cash on hand and
demand deposits.” Additional detail is provided in paragraph AG3 of IAS 32
which states: “Currency (cash) is a financial asset because it represents the
medium of exchange…” Currency (including foreign currency) is generally
accounted for as cash. The term “cryptocurrency” suggests that it is a currency;
however, this does not mean it is necessarily cash for accounting purposes.
The revaluation method can only be used if there is an active market for
the cryptocurrency. Appendix A of IFRS 13 Fair Value Measurement defines an
active market as a “market in which transactions for the asset or liability take
place with sufficient frequency and volume to provide pricing information on an
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ongoing basis.” An entity wishing to use the revaluation method will need to
establish that an active market exists for the cryptocurrency. If there is an active
market for the cryptocurrency and if the revaluation method is elected as a
policy, the statement of financial position would reflect its period-end fair value.
Under the revaluation method, the accounting for the change in fair value
is more complex: increases in fair value are recorded in other comprehensive
income (OCI), while decreases are recorded in profit or loss. Under IAS 38, there
is no recycling of gains from OCI to profit or loss. However, to the extent that an
increase in fair value reverses a previous decrease in fair value that has been
recorded in profit or loss, that increase is reported in profit or loss. As a result,
the cumulative effect on profit or loss includes the net decrease in fair value of
the cryptocurrency over time. Similarly, a decrease in fair value that reverses a
previous increase is recorded in OCI, resulting in the cumulative effect on OCI
being the net increase in fair value of the cryptocurrency over time.
Is a Cryptocurrency Inventory?
IAS 38.3 notes that it does not apply to intangible assets held for sale in
the normal course of business and that such intangible assets should be
accounted for in accordance with IAS 2. Cryptocurrencies within the scope of
IAS 2 would be measured at the lower of cost and net realizable value under the
general inventory model required by IAS 2. As a result, decreases in net
realizable value would be recorded in the statement of profit or loss while
increases in net realizable value in excess of previously recorded decreases
would not be recorded.
Other Considerations
IAS 38 specifically excludes certain intangible assets from the scope of the
standard. Cryptocurrencies are not listed among the assets scoped out of IAS 38.
There is, however, a scope exemption in paragraph 7 of IAS 38 for expenditures
on the exploration for and development and extraction of oil, gas and mineral
deposits or similar non-regenerative resources, and insurance contracts because
these “activities or transactions are so specialized that they give rise to
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accounting issues that may need to be addressed in a different way.” The view
has been expressed that a cryptocurrency may be a “nonregenerative” resource
because it is limited to a certain number of units and is “mined.” However,
cryptocurrencies are clearly different from oil, gas and minerals and therefore
are not “similar non-regenerative resources.” The view has also been expressed
that IAS 38.7 can be applied by analogy to cryptocurrencies.
However, the IASB has explicitly limited this scope exception to particular
circumstances. Accordingly, it appears it is not appropriate for preparers to
extend the exception in IAS 38 to the accounting for cryptocurrencies. Paragraph
19 of IAS 1 Presentation of Financial Statements allows that “in extremely rare
circumstances” management may conclude that compliance with a requirement
in an IFRS Standard would be so misleading that it would conflict with the
objective of financial statements. Application of IAS 1.19 is not appropriate in
accounting for cryptocurrencies.
In February 2018, it became known that the Philippines was set to create
the “Crypto Valley” in the Cagayan Special Economic Area at Santa Ana, Cagayan.
The information was published about several partnerships with Japanese-led
companies and funds, which were to help bring regulations, technical solutions
and practical implementations to players, driving development. This is inspired
by the presence of a Crypto Valley in another country which is a global hub for
virtual currencies.
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In the end of April 2018, Reuters published the report, showing the
activation of the efforts to attract crypto platforms to the zone. The aim of the
hub is to encourage the promotion of Blockchain technology within the country
and allow various stakeholders in the region with access to the right technical
education. These entities would be able to carry out Initial Coin Offerings,
operate crypto exchanges and deliver any other services concerning
cryptocurrencies.
Programs such as university tours, hackathons, workshops, forums, and
conferences will be done in the hub. The industry leaders need to encourage and
educate citizens on how to purchase cryptocurrency from those individuals who
walk the talk and who will share their experiences. Politicians and financial
leaders also need to come onboard with cryptocurrency or get business owners
to accept it in their business. Media can also help in the education of blockchain
technology.
As of July 2018, the Bangko Sentral ng Pilipinas (BSP) have granted only
two licenses to Betur Inc., which operates Coins.ph, and Rebittance Inc. of SCI
Ventures, which operates Rebit.ph. Both Coins.ph and SCI Ventures had given
remarks about their support for multiple currencies other than bitcoin in the
past. In the present, Coins.ph supports BitCoin Cash, Ethereum, and BCH while
SCI Ventures announced their upcoming support for Bitcoin Cash, Ethereum, and
Ripple.
References:
https://philippine.bc.events/news/taxation-of-cryptocurrencies-in-the-
philippines-how-are-virtual-currencies-regulated-93106
https://bitpinas.com/cryptocurrency/what-is-cryptocurrency
https://www.investopedia.com/terms/c/cryptocurrency.asp
https://ccoingossip.com/advantages-and-disadvantages-of-
cryptocurrency
https://www.bworldonline.com/philippine-cryptocurrency-transactions-
steady
https://www.accountingdepartment.com/blog/bid/384341/accounting-
in-the-world-of-cryptocurrency
https://www2.deloitte.com/us/en/pages/audit/articles/impact-of-
blockchain-in-accounting.html
https://www.grantthornton.com.ph/insights/articles-and-updates1/line-
of-sight/bitcoins-transforming-your-phones-to-wallets/
https://www.vantageasia.com/cryptocurrency-law-philippines/
https://www.manilatimes.net/philippines-stepping-into-the-future-of-a-
crypto-nation/431911/
https://medium.com/noahcoin/the-philippines-and-cryptocurrencies-
future-to-come-2d8f4c3fc8ce
https://medium.com/noahcoin/the-philippines-and-cryptocurrencies-
future-to-come-2d8f4c3fc8ce