Over the last five years regulators across the globe have made a concerted effort towards comprehensive regulation of distributed ledger technology, and blockchain. For fear of falling foul of laws governing the issuance of financial securities, there has been a recent hastening of the proliferation crypto asset distribution through the socalled ‘airdrop'. Under the developed framework of what constitutes a good system of taxation is the notion that it should be characterised by simplicity and certainty, both in the substance of the law and the manner in which tax subjects are required to comply. By its nature alone taxation is complex due to it being necessarily informed by many other branches of law; moreover, where a situation would precipitate a certain tax treatment, a subtle variation of the facts have a much amplified effect on the ultimate outcome. Consequently, the nuances of distributed ledger technology may have unanticipated tax effects in opposition to these principles. This research established that a crypto asset is classified for tax purposes as financial property, not currency. However, public guidance by the tax authority has not made it clear how, or under what circumstances, airdrops are to be taxed. A gross income analysis of airdrops (using the Flare Network as a case study) demonstrated that their tax treatment is able to be analysed in principle under the current primary sources of tax law. However, an inconsistency in its application arose in that non-custodial holders, being subjected to the exigencies of a stipulatio alteri, had a number of varying outcomes in comparison to a taxpayer who self-custodies assets. The observed results also illustrated variations in classification of the nature of accrual, as well as the timing. The latter had the effect of introducing possible avoidance opportunities not ostensibly covered by the General Anti-Avoidance rules as they arise through deliberate deferment of positive action. Notwithstanding that outwardly an airdrop has the countenance of ‘free money', the inevitable conclusion is the tax effects are highly complex and sensitive to obscure technicalities of law. The position of the South African Revenue Services is there is no need for a rigorous analysis per an interpretation note on crypto asset taxation, regarding established law as sufficient. The findings of this research challenge this position as being erroneous – the tax effects are not simply understood by taxpayers, violate the principle of neutrality (as custodial and non-custodial holders should attract the same tax incidence), and no certainty has been provided by tax authorities with respect to airdrops. The final recommendation is for the South African Treasury, in consultation with the tax authority, to mobilise the Legislature in passing a statute which overrides the attendant law of general application in favour of a single, unified approach to airdrop taxation.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/37938 |
| Date | 08 June 2023 |
| Creators | Doidge, Christopher John |
| Contributors | Titus, Afton |
| Publisher | Faculty of Law, Department of Commercial Law |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, LLM |
| Format | application/pdf |
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