A framework for understanding the taxation of digital tokens

• Main Author: OOI, Vincent
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Taxation; Taxation Law; Tax Law; Cryptocurrencies; Digital Tokens; Science and Technology Law; Taxation-State and Local
• Online Access: https://ink.library.smu.edu.sg/sol_research/3908; https://ink.library.smu.edu.sg/context/sol_research/article/5866/viewcontent/A_Framework_for_Understanding_the_Taxation_of_Digital_Tokens.pdf
• Institution: Singapore Management University

As a relatively new area, the taxation of digital tokens can give rise to several dangerous misconceptions. This article lays out five propositions to counter these misconceptions: 1) digital tokens are not a single monolithic asset class attracting uniform tax treatment; 2) the common trichotomous division of digital tokens into payment, utility and security tokens is derived from securities regulation and should not be blindly adopted into tax law; 3) the three classes are not mutually exclusive and hybrid tokens may exist; 4) the fact that an asset is a digital token rarely changes its tax treatment by itself, which must be determined by the surrounding circumstances of the relevant taxable event; and 5) there are broad similarities in the way that digital tokens of the same class might generally be taxed across a variety of common taxable events, which might provide a useful broad overview of this field.