Thursday, 4 March 2021
Department of Finance
41. To ask the Minister for Finance the assessment his Department has carried out on the possibility of financial instability or reduction in the tax base due to the use of cryptocurrencies; and if he will make a statement on the matter. [12226/21]
The assessment of financial stability risks are discussed regularly at meetings of the Financial Stability Group (FSG), which comprises senior management of the Department of Finance, the Central Bank of Ireland and the National Treasury Management Agency. The FSG discussed global stablecoins at its meeting in September 2019. The FSG maintains a watching brief on any potential financial stability issues arising from cryptocurrencies.
The issue of the potential financial stability impact of cryptocurrencies is also under active consideration by European supervisory agencies and regulators. The European supervisory agencies have carried out much work on this issue over the last few years and on 24 September 2020 the European Commission released its Digital Finance Package. This contains a proposal for a new EU legislative framework for the Markets in Crypto-Assets (MiCA), which aims to enable markets in crypto-assets, including asset-referenced tokens (also known as stablecoins) and utility tokens as well as the tokenisation of traditional financial assets and wider use of Distributed Ledger Technology (e.g. blockchain) in financial services. This harmonised approach towards developing an appropriate regulatory framework for the markets in crypto-assets is welcome.
In April 2020 the Central Bank issued its response to the European Commission public consultation on the Markets in Crypto-Assets, highlighting the views of the Central Bank on crypto-assets. Its analysis highlights that the risks associated with certain cryptocurrencies such as so called global stablecoins include risks to financial stability, monetary policy, consumer and investor protection, legal certainty and compliance with anti money laundering/countering-financing terrorism requirements and these are a key concern. Among the key concerns is that the issuing of currency should firmly remain under the remit of the relevant public authorities (i.e. central bank). Where the reach or other features of cryptocurrencies or so called stablecoin risk it being perceived as a currency, or operating as a quasi-currency, then it should be prohibited.
At an EU level while the development of an appropriate regulatory framework continues, it is important to highlight that there is a consensus to adopt a conservative prudential approach towards crypto assets which is line with that set out in the European Banking Authority’s January 2019 report.
While the Department of Finance and the Central Bank support innovations that increase the efficiency of financial services to consumers, innovations are not supported that fail to reach the high standards and controls that protect consumers and underpin the integrity of the financial system or those which put financial stability at risk.
The potential impact of cryptocurrencies also continue to be the subject of analysis by the Financial Stability Board, and they have produced high level recommendations on the regulation, supervision and oversight of global stablecoins. The FSB intend to take stock of progress in implementing these recommendations later this year and report to the G20.
In relation the impact of cryptocurrencies on the tax base, I am informed by the Revenue Commissioners that it does not differentiate income derived from, or transactions involving, cryptocurrencies as separate from other income types or financial transactions when taxpayers are making declarations in relation to their income or profits. In this regard, the normal self-assessment taxation rules applies to taxpayers in relation to income derived from cryptocurrencies. The Revenue Commissioner operates a risk-based compliance framework that uses advanced analytics in a Risk Evaluation Analysis and Profiling (REAP) system to detect non-compliant behaviour. Risks in relation to cryptocurrencies are included in the Revenue Commissioner’s compliance framework.