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Japan Approves Crypto Tax Reforms Targeting Unrealized Gains

The Japanese cabinet has approved significant tax reforms for cryptocurrency assets, aiming to clarify the taxation of digital currency transactions and unrealized gains for businesses.The reforms are scheduled to take effect from 2024.

Key tax changes for crypto

The reforms introduce specific tax rates and loss carryover deductions for different types of crypto asset transactions. Companies will now be able to deduct losses incurred from crypto holdings against future taxable gains. [1]

Notably, corporations will no longer be taxed on the unrealized gains of crypto assets they hold. Previously, companies had to account for the “paper profit” of cryptocurrency holdings on their balance sheets, resulting in taxation despite no cash inflow. [1]

Crypto industry pushed for reforms

The Japanese Crypto Asset Business Association (JCBA) had been pushing the government for these changes.The JCBA proposed additional measures like tax exemptions for crypto-to-crypto exchanges and a lump-sum tax on converting crypto into yen. The association also suggested introducing a three-year loss carry-over deduction period for crypto assets. [1]

Contrasting with a U.S. Supreme Court case

The reforms contrast with an ongoing U.S. Supreme Court case, Moore v. United States, that questions whether unrealized gains should be taxable. Charles and Kathleen Moore are contesting having to pay taxes on unrealized gains from an investment. [3]

Yale Law Professor Natasha Sarin called the case “really consequential” for taxation law, especially regarding digital assets. [2] The Supreme Court has yet to release its decision. The outcome could influence broader income taxation, including for cryptocurrencies.

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