There are a variety of corporate tax considerations at play in the digital asset marketplace.

On one hand, the digital asset marketplace is entered in order to generate streams of passive income. On the other hand, it presents an opportunity for investment. Corporations and individuals are attempting to make use of the huge, recent gains in the market, though some are certainly incurring losses on the other side.

Additionally, the marketplace includes market-makers, traders who are looking to act as middlemen and brokers.

It also includes the companies receiving payments for products and services in cryptocurrency.

Thus, some corporations may be receiving payments in cryptocurrency—and then holding it for investment or passive income purposes. Others convert it to a specific national currency immediately because they don’t wish to shoulder the risk of holding it.

The question for corporations acting one way or another within the digital asset marketplace is then whether one form of action bears weightier tax consequences or more advantageous tax consequences than another.

The dynamic nature of this market and the extent to which it is more regulated in the UK and less so in the US has created a thicket of tax considerations for corporations to wander through.

From the UK perspective, it is important to bear in mind the different areas of the corporation tax regime applicable to different uses of cryptocurrency.

If you’re receiving cryptocurrency for an exchange of services, you will be taxed for the value of the services provided as income. However, once you hold the cryptocurrency rather than realizing its cash value, you’re sliding into another area of the corporate tax regime.

Either way, for accounting purposes, it will likely sit in intangible fixed assets. If you’re holding it for long-term gain and not using the crypto for the purpose of your business, then you’re falling into a capital gains section of the tax rules. If the cryptos are used for the purpose of the business (i.e. staking) then you are likely to fall into the intangibles rules.

The bottom line is that, if you’re making money, the end result is that you’re going to be taxed 19% on any gains or any kind of uplift in value.

Meanwhile, the treatment of losses must also be considered as the losses can be used against different types of income, depending on which area of the tax rules the profits would have been taxed through. If you suffer a considerable loss that lands you in a negative earnings position, you’ll also need to bear in mind the possibility of creating a dividend block.

Thus, corporations must consider whether this is a position into which they wish to be placed as an entity.

From the US perspective, the tax consequences of involvement in the digital asset marketplace also depend upon how the property is held.

The IRS is currently considering whether to define cryptocurrency as property and whether to tax such currencies as foreign exchange gains or losses when used as a currency.

In short, the tax consequences of digital asset investment for corporations are highly dependent upon both use and upon the evolving state of US regulation.

Thomas Hulme of Mackrell.Solicitors moderated this conversation with Sam Inkersole, BKL and Noah Buxton and Yu-Ting Wang, Armanino LLP, as well as other tax professionals at the Mackrell International webinar titled “Digital Asset Tax Issues.” You can view the entire session at https://youtu.be/davbCdhw3TQ