Bitcoin and Taxation under Turkish Legislation
Bitcoin is a form of digital currency, created and held electronically. In other words, it is an open source peer-to-peer electronic money and payment network introduced in 2009 by a software developer called Satoshi Nakamoto. Bitcoin is called a cryptocurrency because it uses cryptography-secret code to secure transactions and the idea was to produce a currency independent of any central authority, transferable electronically with very low transaction fees.
How to acquire bitcoin?
There are two ways to acquire bitcoins. One option is to “mine” them yourself, by using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available for everyone. The other way and may be the best way is to purchase them with a conventional currency. Web sites known as exchanges let people trade bitcoins for conventional currencies with other users.
Hundreds of computers that work together to process bitcoin transactions are called "miners" and bitcoin transaction process is called "mining." It's called that because every 10 minutes, on average, a Bitcoin miner wins a computational race and gets a prize and currently that reward is 25 bitcoins, worth around $12,500 and only 21 million bitcoins can ever be created by miners, which are limiting its supply of virtual coins. Bitcoins are stored in files called “wallet” that contain encryption keys, or secret codes and that allow you to transfer your bitcoins to other people.
Bitcoins considering features of this virtual currency contains several upsides and downsides. Firstly, the most important thing that makes bitcoin different to conventional money is that it is decentralized, which means the network for bitcoin transactions is not controlled by one central authority.
In addition, users of bitcoin network are not necessarily defining any personal identity information. Therefore, bitcoin alarms many Government authorities, especially law enforcers, since it has the ability to be used anonymously, bitcoin is considered as a potential instrument for money laundering. Although, bitcoin network stores every details of every single transaction that ever happened in the network in a huge version of a general ledger, called the block chain, it actually does not relieve the concerns of secrecy. For a publicly used bitcoin address, anyone can see how many bitcoins are stored at that address, however it is not possible to reach the owners personal information. Moreover, users can take some measures to keep their transparency by not using the same bitcoin address consistently or by avoiding huge amount of transactions from one single address.
The virtual money bitcoin also does not provide 100% guarantee. Online violations and hackers make bitcoins and users “wallet” very fragile wherefore it is not depending on any regulation or law enforcement.
On the plus side, bitcoin transaction fees are minimal, or in some cases it is free, where banks may charge considerable amounts for such transactions in international transfers. By using bitcoins, it is always possible to send money anywhere and it can be reachable minutes later after the bitcoin network processes the payment. However, bitcoin transactions are irreversible, so once bitcoins are sent, it is not possible to get them back unless the recipient sends.
Is Bitcoin legal or is it a balloon?
Bitcoins are legal in many jurisdictions depending on what purposes they are using for. In Turkey on November 25, 2013 Turkish Banking Regulation and Supervision Agency published a press release by indicating that; bitcoins known as virtual money unit has no guarantees for its collateral and which is not issued by any official or private institution, is not considered as electronic money within the scope of Turkish legislation by its present structure and functioning, and thus its surveillance and supervision are not possible within the frame of the Turkish Law. And Agency also warned bitcoin users that it creates suitable environment for these virtual monies to be used in illegal activities and it contains risks due to its market value which may be extremely volatile, it may be stolen from digital wallets or operational errors due to irreversibility of the transactions made or from the abuse of malignant vendors. Also due to its independent nature from any control mechanism, it not possible to freeze or seize the bitcoin accounts.
US Securities and Exchange Commission clarified that regardless of whether an underlying virtual currency is itself a security, interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to US regulation and those transactions can only be performed by licensed organisations. According to press release on July 23, 2013 over charges man from Texas and his company with defrauding investors in a Ponzi scheme involving bitcoin, SEC was warning investors about the dangers of potential investment scams involving virtual currencies promoted through the Internet and indicating that fraudsters are not beyond the reach of the SEC just because they use bitcoin or another virtual currency to mislead investors and violate the federal securities laws.
According financial experts in Turkey, bitcoin shows the same features and developments of Tulipmania in Holland, Mississippi balloon in France or Enron or Mortgage balloons in the US due to bitcoin has no use value, but only exchange value and because it is has no worth in use other than what others are willing to pay for it, it is always in a bubble. But what is the real value of bitcoin? Bitcoin currency recently saw its top rates over 1000$ and the accelerating value of bitcoin obviously has just started to speed up and its people’s trust on that not the number written on a piece of paper in the end. Considering the supply bitcoins limited to 21 million, the value of a bitcoin might even rise to 1 million dollar if demand increases accordingly.
Taxation of Bitcoins
Turkish Banking Regulation and Supervision Agency has announced that bitcoin is not considered as electronic money thus there is no current regulation regarding tax payments. However, bitcoin transactions with its tradable features and provide income for its users should be subject to tax. In that respect, in 2009, the US Internal Revenue Service (IRS) posted information about the tax applications of using virtual currencies inside virtual economies, arguing that taxpayers can receive income from a virtual economy and could be required to report it as taxable income.
In the UK bitcoins are not treated as money, but will instead be classified as single-purpose vouchers, which could carry a value-added tax liability on any bitcoins that are sold. On the other hand, German government categorised bitcoin as a form of private money and has exempted bitcoin transactions held for over one year from 25% capital gains tax. Finland issued a regulatory guide to bitcoin in September, which imposed capital gains tax on bitcoins, and taxes bitcoins produced by mining as earned income. Sweden’s financial regulator now considers bitcoin as a means of payment, following guidance issued last year. The Israeli Tax Authority is said to be considering a tax on bitcoin, but no statements have been made at the time of writing. However, the Israel Bar Association considers the virtual currency an appropriate form of payment for attorneys. Canada has announced that transactions made for goods or services will be treated under its barter transaction rules, while it’s Transactions in Securities document says that profits made on commodity transactions could be income or capital. Bitcoin has taken another step into the real life after the announcement of University of Nicosia in Cyprus that they decided to accept bitcoins for payment of tuition and other fees. Apparently, University will be the first of doing that in the world.
Bitcoin was only a form of currency when trading on Silk Road, an anonymous marketplace that sell goods including narcotics and was only accessible over the TOR anonymous browsing network and was closed by the FBI in October 2013.
In early 2012, bitcoin was still considered as a hobby for technology enthusiasts, but its impact on the real-world had caught the regulators’ attention. In very deed, when we take into consideration the excessive use of bitcoins nowadays the regulations are inevitable and bitcoin is now not too far from being a practical currency for day-to-day used.