Libra Could Pose Tax Challenges In Europe

With the idea of pegging Libra’s value to a basket of international currencies, Facebook’s proposed cryptocurrency would bring tax challenges to European users, per tax lawyers. These issues would hamstring the digital currency’s mainstream adoption, the Financial Times reported.

Clifford Chance Partner Dan Neidle said, per the report, “In most countries, gains will be taxable, meaning consumers will have to file a detailed tax return showing all their transactions and the exchange rate at the time, and pay any tax due. This seems to us to be a significant barrier to wide adoption.”

The domestic value of a user’s holdings in Libra would change as worldwide exchange rates move. As a result, capital gains and losses would be created. They would be realized every time a user makes a purchase with the digital currency.

Anyone who fills in a self-assessment tax return in the United Kingdom, for instance, would be expected to note a loss or gain to HM Revenue & Customs for every transaction. However, the tax would only be payable in the event that total capital gains are more than the annual capital gains tax exemption of £12,000.

Neidle, however, pointed out that “heavy users of Libra are likely to find computing their tax liability a real challenge.” Even so, FT reported that the issue would “potentially be even more serious” in places like Spain, Italy or France, where there isn’t a capital gains exemption (or in Germany, which has a much lower limit of €600).

The news comes after it was reported in June that Bank of England (BOE) Governor Mark Carney said Facebook’s newly announced Libra cryptocurrency can’t be the same unregulated type of service as the social media platform.

Carney said, according to reports in June, “The Bank of England approaches Libra with an open mind, but not an open door. Unlike social media … the terms of engagement for innovations such as Libra must be adopted in advance of any launch.”