Japan’s Government Abolishes Crypto Tax on Unrealized Corporate Gains

Japan‘s cabinet has recently approved a key change in the fiscal 2024 tax policy, removing the tax on unrealized gains for corporate-held crypto assets, according to Nikkei.

In the fiscal 2024 tax reform approved by the Japanese cabinet, the tax on unrealized gains from crypto assets held by corporations will no longer apply. This shift, reported by Nikkei, changes the previous policy where corporate-held crypto assets were subject to tax based on their market value at the end of the fiscal year, regardless of whether these assets were sold or held.

Japan’s Crypto Tax Policy Reform

Under the new tax regime, corporations in Japan will now only be taxed on profits actually gained from the actual sale of their crypto assets. This amendment aligns the corporate tax treatment with that of individual investors, who are already taxed only on realized gains.

The tax reform also takes an important step towards establishing separate taxation for crypto transactions. This approach includes introducing specific tax rates and loss carryover deductions for crypto asset dealings.

The Japanese Crypto Asset Business Association (JCBA) has been a vocal proponent of these changes, advocating for a more equitable and growth-oriented tax environment for digital assets.

The JCBA has suggested several measures, such as exempting tax on crypto-to-crypto exchanges and imposing a lump-sum tax when converting crypto assets into legal currency. They have also proposed the introduction of a carry-over deduction for three years.

Moore v. U.S. And Implications on Taxation

The recent developments in the U.S. surrounding the Moore v. U.S. Supreme Court case present a contrasting picture to Japan’s approach to cryptocurrency taxation. In the case, the dispute centers around the definition of “realized income” and whether unrealized gains should be subject to tax.

The case involves Charles and Kathleen Moore, who are contesting a tax imposed on their investment in an India-based company. The Moores argued that they had not realized any income from this investment as they had not cashed in their profits or brought them back to the U.S., thereby challenging the tax under the 16th Amendment.

“This is the most important tax case that the Supreme Court has considered in decades,” said Yale Law School Professor Natasha Sarin in an interview, “What the Moores are doing in this case is they’re challenging the constitutionality of whether or not this tax should have been allowed to be levied at all by claiming that they never realized any income in this case.”

The Supreme Court had its argument hearing on Dec. 5, and the final decision is still pending. It is closely watched not just for its immediate impact on the petitioners but also for its potential to reshape the broader landscape of income taxation, especially in the rapidly evolving field of digital assets.