UK’s HMRC Makes the First NFT Seizure in Tax Evasion Scandal

The United Kingdom’s tax authority, Her Majesty’s Revenue and Customs (HMRC) have arrested three suspected tax evaders and seized three Non-Fungible Tokens (NFTs), a confiscation that marks the very first of them that it’s kind from any law enforcement agency in the country. - 2022-02-15T113924.901.jpg

Per a BBC report, three suspects were allegedly involved in data fraud and made attempts to defraud the HMRC with the sum of £1.4 million in taxes due.

Tax watchdogs worldwide have been attempting to intensify efforts to crack down on tax evaders, even though crypto regulations are non-existent in most countries. In the UK, digital assets, NFTs inclusive, are regarded as tradable commodities, and by virtue of this, they are bounded by extant tax regulations.

HMRC investigators involved in the case said the suspects used false identities to create as many as 250 shell companies, all to money laundering and evade taxation alongside. 

They were noted to use several subtle strategies and “sophisticated methods” to try to hide their identities, including false and stolen identities, false addresses, pre-paid unregistered mobile phones, Virtual Private Networks (VPNs), false invoices, and pretending to engage in legitimate business activities.

However, these suspects are not as invincible as they thought they were, leading to the arrest.

This arrest and NFT confiscation should “serve as a warning to anyone who thinks they can use crypto assets to hide money from HMRC,” said Nick Sharp, deputy director of economic crime, “We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets.”

Beyond taxation, it is obvious that enforcement agencies are particularly patient in following all money trails to bring criminals to book. As reported by Blockchain.News last week, the Department of Justice announced it had arrested a New York-based couple for being the mastermind behind the 2016 Bitfinex exchange hack. American movie giant Netflix Inc has planned a documentary series for the entire event.

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UK digital services tax targets crypto exchanges

A recent update to Her Majesty’s Revenue and Customs (HMRC) regulations has introduced a digital services tax that will be levied on cryptocurrency exchanges operating in the United Kingdom.

Crypto exchanges in the UK will now have to pay a 2% digital services tax according to a Telegraph report. Britain’s tax authority, HMRC, does not recognize digital assets as financial instruments and therefore exchanges are not eligible for financial exemptions.

On Nov. 28, the authority included cryptocurrency exchanges under the Treasury’s tech tax. The digital services tax on revenue was introduced in April 2020 targeting social media and search giants such as Facebook and Google.

The latest blow to crypto exchanges is a result of the HMRC’s classification of crypto assets, as the regulator explained:

“There are a wide variety of crypto assets, each with different characteristics. It said that because cryptocurrencies do not represent commodities, financial contracts, or money, it is unlikely that crypto-asset exchanges can benefit from the exemption for online financial marketplaces.”

According to CryptoUK, the trade body representing the digital asset sector in Britain, the tax is unfair and is likely to be passed on to investors and traders.

Executive Director Ian Taylor stated that treating cryptocurrencies differently to other financial instruments such as stocks or commodities is detrimental to the crypto sector.

He added that it is another heavy blow to the industry following the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges. Since January, all UK-based crypto-asset companies have had to comply with AML (anti-money laundering) regulations and register with FCA.

The regulator imposed a ban on crypto derivatives in January, and in June, the FCA warned consumers against 111 crypto firms that had yet to register with it.

Related: UK revenue authority to target cryptocurrency tax evaders

In April, Cointelegraph reported that HMRC was ramping up its efforts to snare crypto tax evaders and introduced explicit demands on details of digital asset holdings on self-assessment forms.

Britain’s tax authorities reportedly demanded that several crypto asset exchanges hand over details on customers from transactions and holdings in August 2019.


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