South African Tax Review Expresses Concerns Regarding Bitcoin

In February of 2013, former Minister of Finance Pravin Gordhan announced that the South African government would begin a review to assess the current tax policy framework and its role in supporting growth, employment, development and fiscal sustainability. The members who would make up that committee, which came to be known as The Davis Tax Committee, were announced in July of that year and their First Interim Report on BEPS1 was released for public comment late last month. Contained within the report are some concerns that Bitcoin might impact on tax compliance in the future.

Action Plan 1, which reports on the current state of the digital economy, cites Bitcoin as the most prominent virtual currency and expresses concerns that bitcoin transactions can be made in an anonymous fashion, requiring little to no personal identifying information to send or receive them.

Having outlined how the governments of the USA, Canada and UK are currently approaching Bitcoin, the committee included two recommendations in their report to the South African government:

  • Whilst the use of virtual currencies such as Bitcoins is not yet widespread in South Africa, it is growing and South African legislators would be wise to consider the potential impact of virtual currencies like Bitcoins on tax compliance and to monitor international developments to determine the most suitable approach for in South Africa.
  • Exchange controls seem at least in the short term – a major defence against BEPS in relation to e-commerce, digital products, virtual currencies, virtual currencies (e.g. Bitcoin), IP royalty payments and other forms of intangible related transfer functions. However statutory provisions will be needed in the long run.

Further information on The Davis Tax Committee is available here.

  1. Base Erosion and Profit Shifting. 

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