Cryptocurrencies and the incidence of the IOF-Exchange

Charlie Taylor


The advance of technology, by itself, causes concern in several areas of knowledge, but the accelerated change brought about by cryptoactives causes disruptions, which neither society nor States are prepared to face. Faced with the increasingly common use of cryptocurrencies, the difficulties in fitting them into the current legislative structures, especially the tax one, are perceived. It is true that leading nations in this technology are increasingly deepening their knowledge to try to adapt the legislative structure to the new reality, however, Brazil, despite some legislative projects, is still in its infancy in this debate. In this context, the question arises about the possibility of levying the IOF-exchange on transactions with cryptocurrencies when these exercise the payment function. The hypotheses of incidence of the IOF, currently, are credit operations, securities and securities, insurance, foreign exchange, gold-financial asset and operations with derivatives, cf. art. 153, V, of the Federal Constitution of 1988 CF/88. The US argues that cryptocurrencies should be considered property, and therefore subject to capital gains tax. Adopting this position moves cryptocurrencies away from the idea of ​​currency, whether legal or foreign. On a different path, the European Court of Justice understands that cryptocurrencies should receive the same tax treatment as exchanges of foreign currencies. In other words, the European Union (EU) is moving towards the fact that operations with cryptocurrencies are forms of payment, subject to taxes levied on foreign exchange transactions. Finally, Brazil, in a specific statement on the subject carried out by the Federal Revenue Service (RFB), equated cryptocurrencies with financial assets, consequently, operations using such an instrument would be subject to the field of incidence of income tax on the gain of capital. It is identified that the RFB, when conceptualizing cryptoactives, considered all their species (utility tokens, security tokens and cryptocurrencies), however, the position generated several criticisms. This is because not all operations with cryptoactives are the responsibility of the RFB, as is the case, for example, of tokens representing equity interest or virtual currencies necessary for the acquisition of gaming functionality. To be considered currency in Brazil, cryptocurrencies must meet three necessary requirements: means of payment, unit of value/unit of account and reserve of value. In fact, it is true that we cannot define cryptocurrencies as a “legal currency”, mainly due to the lack of provision in the order. However, we can frame it as currency in its broadest sense, more specifically, in the idea of ​​foreign currency. This is because the Brazilian legislation does not define “foreign currency”. Since the cryptocurrency is a form of payment, the only hypothesis of IOF levy capable of fitting the type is the one dealing with foreign exchange transactions — IOF-exchange. Therefore, whenever there are purchase and sale operations of foreign currencies, it will be in front of the national exchange market. In this scenario, the question to be answered is: are cryptocurrencies considered to be foreign currencies or not? Currently, the Central Bank (Bacen) does not recognize cryptocurrencies as foreign currencies. This position makes it difficult to accept the idea that cryptocurrencies would be subject to foreign exchange operations. Although tax issues are not within the scope of Bacen's competence, the fact contributes to the application of the IOF from these operations, which is somewhat harmful when we are faced with the expansion of cryptocurrencies. Especially when taking into account the extra-fiscal nature of the IOF, which would significantly contribute to the first steps towards regulating the cryptocurrency market, since the tax would act in a market where there is no central regulatory body. The fact is that the cryptoactive market is expanding around the globe, being increasingly accepted by the population. And it is precisely due to the increase in use that States are increasingly leaning into the analysis of these operations. The growing concern is justifiable due to the risks that the inappropriate use of technology can entail, but also due to the large financial volume that such operations represent. Once the legal nature of the relationship involving cryptoactives has been identified, it may be sought to fit it into the tax hypotheses provided for in the legal system. Meanwhile, the possibility of cryptocurrencies used as a means of payment to be subject to the incidence of IOF-exchange requires an analysis of the concept of currency. At least at the current stage, cryptocurrencies do not fulfill the necessary requirements for this. And, as they do not enjoy these characteristics, they are also not subject to the incidence of the IOF-exchange. If, in the future, cryptocurrencies are disseminated as a means of payment, it will be possible to characterize them as foreign currency, and thus subject them to the IOF-exchange.

About the authors

Eduardo Muniz Machado Cavalcanti is a Master in Public Law, partner at Bento Muniz Advocacia and Federal District Attorney. Diogo Luiz Araújo de Benevides Covêllo is a lawyer at Bento Muniz Advocacia and is currently taking a master's degree in Economic Law and Development.

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