The role of crypto-assets in socio-economic life is steadily growing. The number of transactions involving them, including those between related parties, is increasing. These may be subject to transfer pricing regulations.
Crypto-asset – what is it?
Polish tax legislation contains specific regulations concerning only one category of crypto-assets, namely virtual currencies. Virtual currency is defined in the Anti-Money Laundering and Countering the Financing of Terrorism Act, to which the tax legislation refers (Article 4a 22a of the CIT Act and Article 5a point 33a of the PIT Act). It is therefore a digital representation of value that is not (1) legal tender issued by the National Bank of Poland, foreign central banks or other public administration bodies, (2) an international unit of account established by an international organisation and accepted by individual countries belonging to or cooperating with that organisation, (3) electronic money within the meaning of the Act of 19 August 2011 on payment services, (4) a financial instrument within the meaning of the Act of 29 July 2005 on trading in financial instruments, (5) a bill of exchange or a cheque; and which is exchangeable in economic transactions for legal tender and accepted as a means of exchange, as well as having the capacity to be electronically stored or transferred or capable of being the subject of electronic commerce (Article 2(2)(26)). This definition is explicitly referred to in the CIT Act (Article 4a 22a) and the PIT Act (Article 5a point 33a).
Crypto-asset, on the other hand, is defined by the MiCA Regulation and the Crypto-assets Bill. According to Article 3(1)(5) of the MiCA Regulation, a cryptocurrency is a digital representation of a value or right that can be transferred and stored in electronic form using distributed ledger technology or similar technology. The MiCA Regulation distinguishes the following types of cryptoassets:
- asset-referenced token (ART) means a type of crypto-asset which is not an e-money token and which is intended to maintain a stable value by virtue of being linked to another value or right or a combination thereof, including at least one official currency (Article 3(1)(6) of the MiCA Regulation);
- e-money token – e-money token (EMT) means a type of crypto-asset which is intended to maintain a stable value by virtue of being linked to a single official currency (Article 3(1)(7) of the MiCA Regulation);
- utility token – a utility token (UT) is only intended to provide access to a particular good or service provided by its issuer (Article 3(1)(9) of the MiCA Regulation).
In addition, a distinction can be made between crypto-assets that are neither ARTs, EMTs nor UTs, for example crypto-assets that do not have an issuer that is a legal or natural person and that are created on a public blockchain (blockchain technology), such as bitcoin.
The crypto-asset market is one of the fastest growing financial markets. Crypto-assets are also becoming an increasingly accepted means of payment and are gaining legal tender status in some jurisdictions (albeit sometimes banned in others). Taxpayers are increasingly transacting with crypto-assets, including with related parties.
Transfer pricing – can it apply to crypto-assets?
The transfer pricing regulations do not contain specific solutions for crypto-asssets, in particular excluding transactions involving them from the scope of these regulations. This means that such transactions between related parties may be subject to verification from the point of view of their value. They may also require documentation with transfer pricing documentation, as well as the preparation of a comparative analysis. In addition, they may be subject to reporting under the transfer pricing information (TPR Information).
Transfer pricing relating to crypto-assets – what to look out for?
The application of transfer pricing to transactions involving crypto-assets poses a number of difficulties, particularly given the nature of crypto –assets and operations involving them.
Firstly, crypto-assets are a group of very diverse components, as evidenced, for example, by the general classification of crypto-assets resulting from the MiCA Regulation mentioned above. Referring to more traditional categories, including those relevant to transfer pricing, financial instruments, intangibles, other property rights, as well as a number of others can be identified among crypto-assets. Determining the nature of a given crypto-asset is therefore crucial for assessing the effects of the transaction on the grounds of tax regulations, including transfer pricing, which, for example, provide for different thresholds for determining the obligation to prepare transfer pricing documentation for different categories of transactions (i.a. financial and service transactionss).
Secondly, characteristics of transactions involving crypto-assets is their anonymity or at least limited access to a range of data concerning the parties to the transaction and its other parameters. Theoretically, it may even happen that the parties to the transaction do not know that it was concluded with a related party.
Thirdly, these assets are characterised by a high volatility of value, with the value resulting from a number of factors determined by heterogeneous standards and even sources. There is no central issuer or other centralised source of valuation or value and the values of even the same category of crypto-asset (e.g. a given virtual currency) at the same time can be highly variable in different places (e.g. on different virtual currency exchanges). This makes it significantly more difficult to establish a non-controlled price that could serve as a comparative value for assessing transaction terms. Assessing the debtor’s ability to repay an obligation expressed in crypto-assets can also be problematic.
Summary
The crypto-asset market is very complex and at the same time extremely dynamic. The issue of taxation of operations involving crypto-assets is challenging, including in the context of transfer pricing. It is worth considering in advance the implications of such operations concluded with related parties on the grounds of transfer pricing regulations.
