At the time of this conversation, the global regulatory compliance of crypto assets continued to heat up, and countries have gradually strengthened the exchange and tracking of tax information on on-chain assets, overseas accounts and cross-border transactions. In this conversation, Calix and William combined their respective cross-border tax practice experience and on-chain business experience to discuss hot topics such as global tax compliance of crypto assets, tax arrangements and regulatory games. The two speakers also shared their vision of the ideal Web3 tax system in the future, and combined with real cases, discussed the tax logic in various scenarios such as exchange compliance, DeFi, mining, and airdrops.

Who should pay taxes on cross-border income?

Calix:

William, I would like to ask you a "soul question" first. You are also engaged in mining, and the company sometimes pays bonuses in the form of cryptocurrency. How do you usually fulfill your tax obligations for this kind of income?

William:

This is a very realistic question. I agree with your point: since we are enjoying the infrastructure and business environment provided by a certain country or region, it is reasonable to fulfill our tax obligations. But the actual situation is not that simple. Our company's customers are distributed in multiple markets such as North America, Europe, and the Middle East. This income relies on the conditions provided by multiple places, and it is difficult to attribute it completely to one place.

Although I mainly deal with American clients and most of my income comes from the US market, it is difficult to give a definite answer as to who should pay this tax.

In general, I am willing to pay taxes, but it is not easy to say who should pay the money to for this type of income. After all, the formation of this income does not entirely depend on where I am.

Calix:

Yes, I think your answer really hits the nail on the head. The Web3 project itself is cross-national and cross-regional, and it is difficult to accurately attribute revenue to a certain place. Economic activities are related to both the source of customers and the platforms, networks, and infrastructure used. So who should the tax be paid to in the end is indeed a question worth exploring in depth.

To be honest, although I have been doing tax-related work for many years, I have always been confused about this issue. According to the current tax law, I may be a mainland tax resident and may also be subject to tax obligations in Singapore, but my business is mainly in North America, and sometimes I receive salaries through Hong Kong companies. If I follow the tax law completely, the answer may be clear on the surface, but it is worth pondering which way is more reasonable. For Web3 practitioners, these discussions often go beyond the scope that the traditional tax framework can fully cover.

William:

Yes, I think the core problem is that the evolution of the global tax regulatory system is indeed difficult to keep up with the pace of technological and industry development. Regulators have been trying to catch up, but industry changes and technological innovations are always ahead. This state of "being caught up" may exist for a long time, and there will always be a dynamic balance between regulation and industry.

Case discussion: Tax refund for cryptocurrency trading by individuals in mainland China

Calix:

There are two hot topics in the Chinese Twitter area recently. One of them is the announcement issued by the Zhejiang Taxation Bureau, saying that a person was required to pay back taxes for cryptocurrency trading. Later, we learned through some channels that it was actually after the CRS information exchange that the tax bureau found an abnormal balance in his overseas bank card and asked him to explain the source of the funds. He explained that this part was investment income, so he needed to pay back taxes, and it happened that this investment involved cryptocurrency.

For me, this case is not surprising. After all, this is my professional field, so I think it is normal and representative. William, you have been working on on-chain projects, such as DeFi, mining, etc. What do you think of this case?

William:

It is indeed very representative. We have actually judged very early that cryptocurrency speculation will be included in the scope of taxation sooner or later. But when this really happened to us, especially for many Chinese people, the impact was still quite large. Traditional DeFi or some purely on-chain activities have always been difficult to regulate, and often rely on the self-consciousness of users. There were indeed some regulatory obstacles in the past, which led to the tax department not having particularly strong enforcement power on these relatively niche, decentralized, and difficult-to-trace on-chain activities.

I think the reason why it happened so "timely" now is also related to other trends in the industry. Recently, there have been a lot of news reports showing that some US stock investors have received SMS or phone calls requiring them to pay back taxes, indicating that regulators have begun to more closely track individuals' overseas income, and the first incision is overseas securities investment.

The logic behind this is also very clear: the intersection between the US stock market and the cryptocurrency world is getting bigger and bigger. From Robinhood to Tiger Securities, Futu, and even Guotai Junan International in Asia, many brokerages are dealing with crypto assets, and the connection between the US stock market and crypto assets is already difficult to separate. Once you want to look at overseas income comprehensively, as long as you check the US stock market, it is easy to include the cryptocurrency world in your field of vision, not to mention that the volume of crypto assets is already not small.

Moreover, this “stock-to-coin combination” is not a short-term phenomenon. For example, in the United States, some companies are trying to tokenize U.S. stocks; in Asia, crypto assets are put into listed companies to drive stock prices, obtain premiums, and promote secondary market performance. There is a profit drive behind this combination. Whether it is “stock-to-coin” or “coin-to-stock”, it will further strengthen the connection between the two, and naturally make “paying taxes for cryptocurrency trading” inevitable.

In general, crypto assets and the stock market are already highly tied together. As this trend continues to develop, the tax issues surrounding cryptocurrency trading will become increasingly rigid, and the room for avoidance will become smaller and smaller.

Calix:

This perspective is indeed quite novel, and I have never thought deeply about it from the perspective of "stock-to-currency linkage" before. After all, for stock investment, everyone is already accustomed to the market where the money is earned and where the tax is paid. Whether it is capital gains tax or business income brought by quantitative investment, the framework is relatively clear.

But when it comes to cryptocurrencies, some regions, especially the mainland, do have a fuzzy area on whether to pay taxes and what taxes to pay. However, judging from the business evolution of stocks and tokens, this deduction path is actually very inspiring and does remind everyone that this is a new issue that requires long-term attention.

The long game of regulation and tax avoidance

William:

Calix, based on your many years of frontline tax practice experience, now that this has been done, do you think that some people will start avoiding cryptocurrencies due to concerns about tax risks? Or will some people still try to avoid taxes despite the risks, or even simply not file taxes and continue to operate heavily in the cryptocurrency circle? What impact will this have on the direction of the entire industry?

Calix:

This is a typical reality. I have always believed that regulation and "anti-regulation" exist all the time. This is not only a characteristic of the cryptocurrency industry, but also the traditional industry. For the tax bureau or any regulatory agency, of course they hope to collect the taxes that should be collected as completely as possible; from the perspective of taxpayers, no matter where they are, everyone hopes to save taxes or reduce the tax burden as much as possible legally. These two demands are inherently contradictory.

From my experience, this dynamic is very much like the contradictions engraved in human nature, always moving forward in a cycle of conflict, balance, conflict, and balance. Especially in recent years, regulatory means have become more and more diverse, and technical means have become more and more digital. Take the mainland as an example. The tax regulatory capacity has indeed improved rapidly in recent years, and the level of informatization has also been enhanced. But at the same time, the means of tax avoidance are also evolving. In the early days, it may only be traditional methods such as cash transactions, concealing income, and money laundering. The "tax avoidance" I am talking about here refers to non-compliant tax evasion.

Later, cryptocurrencies became a new operating space for some taxpayers. For a long time, cryptocurrencies were indeed difficult to track by tax authorities. Even if some regulators have on-chain tracking capabilities, the strength is often not enough when it comes to tax enforcement, so some people did taste the "sweetness" during this period.

But the key to the future is still to look at the scale. For example, in the early days of the cryptocurrency industry (2013 to 2017), many large mining farms and miners actually attached great importance to financial and tax compliance, and compliance was the bottom line of business. However, there are indeed large-scale players who are still willing to take the risk of tax evasion. These two situations have always coexisted.

From the trend point of view, the early "grassroots" stage paid less attention to compliance, and today, more and more large institutions will put compliance first. After all, in mainstream markets such as Hong Kong, Singapore, Europe and the United States, regulatory authorities, especially tax authorities, have a deeper understanding of crypto assets, which is an irreversible trend.

As for individual investors, such as retail investors or Web3 project employees, whether they can comply with the regulations depends more on the actual amount. If the size is too small, it is enough to basically complete some necessary declaration actions. The cost-benefit ratio should also be considered in law enforcement, unless there are some typical cases with "demonstration significance", such as the "more than 100,000 yuan tax" incident discussed on Twitter recently. The amount is not large, but it has a certain warning effect.

So overall, large institutions will only pay more and more attention to compliance, because it is a prerequisite for sustainable operations; and for C-end individuals, just like in the real world, it is essentially directly related to the amount of money.

The boundary between illegal income and asset compliance

William:

I think there is another interesting point here. Many people also think that paying taxes is, to some extent, a way to prove the legitimacy of property or income. But in the cryptocurrency circle, to put it bluntly, there are many "leek-cutting" behaviors, which, in legal terms, are some improper financial operations. These behaviors may also bring high returns. So if these people pay taxes according to regulations, does this count as "laundering" the essentially improper money by paying taxes in a sense? This question may be a bit sensitive, what do you think?

Calix:

This is a very good question, and I often think about this boundary myself. I think that whether or not tax is paid can only prove that tax obligations have been fulfilled, but it cannot fundamentally prove that the funds are legal in a broader sense. If a sum of money also violates other financial regulatory laws and regulations, such as relevant regulations of the SEC, or involves financial violations such as fraud, even if the tax is paid, it will not affect the punishment and tracing of the source of the funds by other regulatory agencies.

For example, if the funds involve money laundering, gang-related or gray-related activities, and touch upon international anti-money laundering regulations, or if the person in Hong Kong also violates other laws and regulations such as local customs and the HKMA, then paying taxes in Hong Kong cannot simply mean that the money is not considered "black money." Tax compliance and fund legitimacy are two different levels in law and cannot be simply equated.

William:

I agree. I would like to add that I have always felt that the issue of "tax" should have been discussed earlier, because we must first recognize that an asset is legal before we can talk about paying taxes. If the money cannot even be effectively confirmed as an asset, it cannot even be regarded as a valuable property, and naturally there is no need to declare and pay taxes.

In China, this has always been a rather vague area, mainly because the legality of assets has not been fully confirmed, so it is difficult for people to establish tax habits and supervision is difficult to really promote. But on a global scale, especially in most developed countries and regions, the legality of crypto assets has been relatively clear. As long as the legal status is determined, the local tax bureau will require this part of the income to fulfill the tax obligation.

For many Chinese, if the money is certain overseas taxable income, it is theoretically difficult to completely circumvent it. The fact that it is happening at this point in time is also related to the gap in international systems. In the past, people thought that there were technical barriers and strong concealment on the chain, and supervision might be difficult to track, so they had "illusions" in their hearts. But now a very obvious trend is the development of RegTech (regulatory technology). It is constantly improving the information grasp and data analysis capabilities of regulators, and many service companies are also providing support, which will gradually bridge the information gap between regulators and the industry to a large extent.

Cryptocurrency tax planning space for enterprises and individuals

William:

I would like to ask you a practical question. Since it is difficult for ordinary users to completely "dodge" this tax, is it still possible to do some tax planning through compliance means? From your actual experience, is there much room for companies and individuals to do tax planning in the cryptocurrency circle?

Calix:

Let me first give a rather "heartbreaking" conclusion on this topic: for most ordinary people, the space for tax planning is actually very limited. The main reason is that the income sources of ordinary people are relatively single, mainly wages, bonuses or some small subsidies, which are fully recorded on the company side. Once the company declares truthfully, it is difficult for individuals to have additional room for "optimization".

Therefore, for ordinary individuals, what they can do more is to make full use of the preferential policies already existing in the local tax law, such as exemptions, child support, support for the elderly, marriage deductions, etc. Being able to make full use of these basic exemptions and make solid compliance declarations is already the "optimal solution".

William:

Yes, it does sound like space is limited.

Calix:

But for high net worth individuals or enterprises, the situation is different. Their income forms and structures are usually more complex, with diverse sources, large transaction scales, and more cross-border tax-related matters. This diversity and complexity naturally brings more room for maneuver.

Simply put, different types of income are subject to different tax rates and taxation methods. For example, wages are fully taxed, while capital gains or dividends often have relatively more favorable tax rates or exemptions. Add to that the differences in tax systems between different regions, such as the differences in system design and tax burden between the mainland, Hong Kong, Singapore, the United States or Canada, and there may be "arbitrage space" that can be exploited in cross-border arrangements.

And don’t forget, whether it is the continental law system or the case law system, the underlying tax law is expressed through text, and the legal provisions often leave some “gray areas”. For high-net-worth individuals and large institutions, they have sufficient resources and professional consulting teams to study and use these spaces to maximize the optimization of tax burden within the scope permitted by law.

This is why I have always felt that the middle class is actually one of the hardest-working groups: their income seems not low, they work hard in companies or large factories, earn hundreds of thousands of yuan a year, and often work overtime, but their income structure is single, their room for maneuver is limited, and there is very little room for tax savings; in comparison, high-net-worth individuals and large institutions earn more and have more tools at their disposal.

Therefore, no matter which country, the middle class is usually the group that is the focus of taxation - their income exceeds the sensitive threshold, but they do not have enough resources to hedge legally, and are most likely to be "precisely targeted" in execution.

Potential tax obligations and optimization space for mining, airdrops, DeFi and other income

William:

Calix, you just mentioned the income structure issue, which I find very interesting. In the past, everyone's income source was indeed relatively simple, that is, salary and bonus. But the cryptocurrency circle has indeed provided many middle-class and ordinary people with a more diversified income channel, such as mining, airdrops, staking, DeFi income, etc. For example, a mining machine may only cost $2,000, and buying a few machines is affordable for the middle class, which is considered a small "enterprise" behavior. This kind of income brings new complexity. Can you briefly introduce what tax obligations may be involved in different forms?

Calix:

I think instead of just talking to you directly about "how to pay taxes", it would be better to say a little more and see if there is some legal space in these behaviors. Although this topic is indeed sensitive, I think I can still talk about it briefly.

Many ordinary people seem to have more forms of income, but from a tax perspective, the core issue is: the main source of income is generally still you, and there is no multi-layered structure like a trust, company or fund to disperse the tax burden. For example, mining will be considered as operating income in most regions; airdrops, if you just get them but don’t dispose of them, generally will not trigger tax obligations for the time being. Only after they are converted into legal currency or exchanged for currency and actual income is generated, do you need to declare it. Staking or DeFi income can be counted as capital gains in some jurisdictions, and the capital gains tax rate is usually lower than that of operating income, and some regions do not even levy it.

Therefore, there is indeed room for "reasonable definition" in this area, such as whether certain high-tax operating income can be reasonably interpreted as capital gains or other types of income with preferential tax rates according to local tax laws. However, this premise is that the tax law has left gray areas, and supervision during implementation cannot fully and accurately track on-chain activities. Otherwise, once the data is available, the space will be much smaller.

So in essence, it is not realistic for ordinary people to do large-scale tax planning, because all income is registered under the name of the individual, which can easily be identified as business income or high-tax category. Relatively speaking, things like airdrops and forks may be treated as low-tax or deferred if local policies allow. Many people will study how to reasonably convert the high-tax part into a category with a lower tax rate and better treatment. This depends on whether there is enough room for local laws and whether the operation is compliant.

Realistic considerations for digital nomad identity planning

William:

Then I would like to ask another question: There are many people in the cryptocurrency circle who call themselves "digital nomads". In the past, they may not have paid much attention to it, thinking that as long as they did not do any illegal operations, they could just file taxes in China. But do you think that in the future, more people will take the initiative to convert themselves into tax residents of a certain overseas region? For example, they want to achieve "I pay taxes in Singapore, so I don't have to pay them in mainland China" through bilateral tax agreements. Will this path become the legal planning direction chosen by more people?

Calix:

In fact, this is a more legitimate idea, making reasonable use of different tax zones to reduce the overall tax burden. But I would also like to remind you that no matter where you file your tax return, you must keep your deposit and withdrawal, transaction records and other materials, which can serve as key vouchers during tax inquiries to avoid unnecessary trouble. Moreover, there is now a CRS (automatic exchange of tax information for financial accounts) mechanism in the world, and it is difficult to completely "hide" information for a long time. From the general trend, cross-border identity planning can be considered, but in any case, the information and records must be complete, and what should be declared must be declared truthfully.

Let me add one more thing. Take Singapore as an example. Recently, a friend of mine asked a similar question. He works in Singapore and his income is settled in USDT or legal currency. He pays taxes normally in Singapore. He asked: Do I need to return to the mainland to file a tax return? In his case, he spends less than 183 days in the mainland each year.

From the perspective of mainland tax law, the core standard for whether an individual is a tax resident is "183 days", but in more detailed regulations and practices, factors such as nationality, household registration, and major social relationships will also be considered. If these contact points are all in China, even if the person is overseas, he or she may be regarded as a Chinese tax resident and need to make a complete reconciliation before deducting the paid taxes. In addition, whether you hold a Singapore EP (Employment Pass), PR (Permanent Resident) or other types of identity may also affect the result. There is no fixed template for these, and you can only analyze them on a case-by-case basis.

William:

Therefore, even if you do not live in the mainland for a full 183 days a year, you cannot simply assume that it is completely "safe".

Calix:

Yes, things are not that absolute. There is a "tie-breaker rule" in international taxation, which looks at factors such as your family relationships, economic interest center, daily life trajectory, etc., and determines the main tax place layer by layer.

William:

Yes, many people will overlook this point. Even if you are overseas and your visa or identity is also overseas, if your main family and social connections are still in China, from the perspective of the "Gabi Rule", you will often be identified as a Chinese tax resident in the end, so you must pay special attention to this part.

Vision of the future crypto tax system

Calix:

Okay, William, finally I would like to ask a more open-ended question, which can be regarded as the end of this conversation.

From your personal perspective, as a practitioner or user who has been deeply involved in the cryptocurrency circle for many years, what kind of tax system do you think will be more friendly to Web3 users? In other words, what is your most ideal and anticipated tax system model?

William:

This question is somewhat of my personal opinion and does not represent the position of any company.

I actually always agree with the crypto-native concept of "sovereign individuals", and I am also more idealistic. I agree with the possibility of "Network State" mentioned by Vitalik Buterin. I believe that at some point in the future, this form will slowly sprout in a corner of the world, and may even become an irreversible trend.

As time goes by, the infrastructure that humans rely on may increasingly shift from the physical world to the digital world. For me, now it may be 80% physical and 20% digital, but in the future, the impact of digital infrastructure on everyone will definitely exceed the traditional physical environment.

Just like the old saying in the Internet circle that “hardware is free, software is paid”, some manufacturers gave away mobile phones for free, but charged for content and services. I think the future may be similar: the “hardware” part of the physical world may be less burdensome, while the “services” in the digital world will be what really need to be paid for.

From this perspective, I agree with a point you made before: blockchain infrastructure relies on physical resources such as electricity, networks, and chips. Miners and nodes consume these resources to provide network services, and they should bear most of the tax responsibilities for the physical world for the money they earn. For individuals on the C end, they enjoy the digital services provided by these nodes and miners, so they pay "service fees" to the network through gas fees and other means, and then miners and nodes fulfill their tax obligations to the real world.

So in my ideal model, it would probably be a two-layer structure:

In the first layer, infrastructure providers (miners, nodes) pay taxes on the physical world;

At the second level, individual users pay fees to the network indirectly through gas fees and other forms, which then feed back to the real-world tax system.

In this way, as the proportion of human digital expenditure continues to increase in the future, the direct tax burden of the physical world will gradually decrease, and the blockchain network will be more like an autonomous micro-tax system, assuming corresponding real obligations through the gas mechanism and distribution structure.

Calix:

I think this is a very imaginative and forward-looking idea. I also believe that with the development of the crypto industry, it will definitely carry more and more assets in the future, and its deep integration with traditional finance will become faster and faster. In the future, it may replace some inefficient and opaque parts of traditional finance, and by then it will inevitably need to match new legal systems and regulatory frameworks.

Many of the views you shared today are very inspiring. When we are doing current business, we actually need to think more about what might happen in the future, and even promote some changes as much as possible. I would like to add a little about the direction of RWA. At present, many assets are essentially put on the chain through layer-by-layer packaging, nesting and contract mapping, and the on-chain and off-chain are still far apart. But this may only be a transitional stage. If the legal system is more perfect in the future, asset information will be more directly and transparently put on the chain, and the complex nesting in the middle may gradually disappear.