Between February 18 and 20, 2025, the 3rd NTO Conference was held in Panama City, Panama, where, among other topics, crypto assets were discussed. At the end of one of the NTO sessions, walking with Catherine Lemesle, the Executive Secretary of CREDAF we exchanged our views on the sessions we had moderated. Our first conclusion was that the quality of the Conference presentations was remarkably high, but that if anything was clear to us it was that, particularly on crypto-assets issues, the need for cooperation between tax administrations is greater today than ever before.

It is clear that in most jurisdictions, crypto assets, including so-called cryptocurrencies, are treated as assets and not currencies, and that they may have tax implications in direct taxes, either income or capital gains, or indirect taxes. After all, it is more than 11 years since the first of the posts in this series was published . But about this, and from the point of view of the tax administration, some of those old and traditional questions are not, at least for us, totally clear: Who, when, where, how?

It is true that establishing obligations to declare, determine and pay the taxes derived from these transactions is indispensable, as is reporting the holding of crypto assets. Efforts to share within the CARF (crypto assets reporting framework) the information made on legally recognized exchanges in a jurisdiction about transactions with details obtained by the know-your-customer – KYC effort, are more than a good idea.

So, these efforts are necessary, but are they sufficient?

For example, if a regulation states that a transaction in which one crypto-asset is exchanged for another will have tax implications only if the two crypto assets are of different characteristics or functionality, we should understand that if “traditional” cryptocurrencies – if a cryptocurrency can be called traditional – are exchanged for one of the so-called stablecoins, those whose value is supposedly pegged to a reference asset, e.g., a commonly used fiat currency, there are tax consequences equivalent to selling the cryptocurrency, even if the sole purpose of the transaction was to exchange one cryptocurrency for another cryptocurrency using the stablecoin as an intermediary to move from one blockchain to the other;  o if its purpose was to protect itself from the volatility of cryptos by using it as a storage of value, something like hiding dollar or euro bills in the mattress as a mechanism to protect against the loss of value of the current currency.

Without entering into the discussion about the necessary confidence that these stablecoins will be really stable and will not be detached from what they are linked to when, for example, the bank where the equivalent reserve is deposited goes bankrupt [1], it is good to note that the growth in the use of this type of crypto-assets in Latin America is extremely significant, perhaps due to monetary or inflationary issues in some places, perhaps to facilitate remittances in others, or to facilitate transactions with suppliers, service providers or customers abroad, without going through the traditional financial system, avoiding the costs of transferring or sending money; or who knows, in some cases even for less elegant purposes such as money laundering or pure tax evasion [2].

It is also good to remember that MiCA [3] in the European Union establishes regulations for stablecoins in Europe, but in Latin America the regulations are less clear or even aimed at restricting their use, for example by preventing them from being transferred to self-custody wallets, precisely because eliminating third party service providers from the equation opens spaces for …. Meanwhile, for example, two stable coins issued in other parts of the world (USDC and EURC) were approved in February 2025 to operate in the Dubai Financial Center [4].

But if stable coins were not enough, we cannot forget the so-called privacy coins _or maybe we will learn of their existence_, which use mechanisms to obscure transactions and make the pseudo-anonymity of traditional cryptocurrencies _again “traditional”_ less pseudo and more anonimous. And while there are certainly legitimate applications for them, e.g., a wealthy individual wants as much privacy as possible so as not to be kidnapped or simply wants to make huge donations to a good cause without being known; the truth is that they are attractive vehicles for actors carrying out illegal activities, probably on an international stage [5].

And we ask again, is obtaining information from third party intermediaries such as Exchanges or escrow services sufficient?

And then comes DeFi, decentralized finance.

For a moment, just for a moment, let us remember that deposits earn interest in banks, and that banks can report interest earned to the tax administration, and even pre-fill tax returns with that information; or that banks make loans that generate profits and report those profits to regulators to pay their taxes.

But, if this happens without any banks, or any third party intermediaries, but occurs between peers directly, well, there is no third party that can inform any tax administration; and that transactions, although recorded on blockchains can be consulted, use addresses that may be difficult to connect with individuals, particularly if the first contact of an individual occurs on an Exchange operating in a jurisdiction that does not share the CARF, or even worse _may be worse_ on a decentralized Exchange, i.e. a market directly between peers.ç
With No bank in the middle, no finance in the middle, no Exchange in the middle… who will send that data? and where is it? and when do you have to “go” for it? And perhaps more importantly, how?

I think we can say that it is inevitable that administrations, or at least some of their officials, directly or with the support of third parties, will have to learn to dive deeply into these blockchains. In the same way that users and holders of crypto assets are not unhappy with having slightly gray borders, neither should the tax administration be uncomfortable, in terms of risk analysis and management, with, for example, analyzing, identifying, understanding and, where appropriate, determining atomic swaps adjustments. These are, in a very simplified way, smart contracts that allow the exchange of one crypto asset for another on different blockchains, directly between peers, without third-party intervention, without Exchange in the middle, and without anyone to ensure any KYC standards have been met – know your customer, and therefore without anyone to report it.

Of course, we have to, if we have not already done it, learn how to do it, and it is easier to learn it together.

Greetings and good luck

Considerations on these issues can be found in introductory deliverables (i) and (ii); the first positions of administrations on some of these elements in (iii), considerations on Initial Coin Offerings – ICO in (iv) and on non fungible tokens – NFT in (v).

[1] https://www.reuters.com/business/crypto-firm-circle-reveals-33-bln-exposure-silicon-valley-bank-2023-03-11/

[2] https://news.bitcoin.com/pt/banco-central-do-brasil-liga-crescimento-de-stablecoins-a-evasao-fiscal-e-lavagem-de-dinheiro/

[3] https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica

[4] https://www.circle.com/pressroom/usdc-and-eurc-become-first-stablecoins-recognized-by-dubai-international-financial-centre

[5] https://www.merklescience.com/blog/privacy-coins-legitimate-uses-and-illicit-risks-explained

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