Cryptocurrency taxation E-Book

Renan Do Nascimento Couto

• Herausgeber: Editora Letramento
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 414

Veröffentlichungsjahr: 2024

Beschreibung

O livro tem como elemento central a análise de fatos geradores tributários decorrentes do uso de criptomoedas como ativos de pagamentos (principalmente) e investimentos (residualmente). A premissa perpassa pela necessidade de se descobrir quais as pessoas operam as criptomoedas, uma vez que a chave pública não identifica o CPF ou CNPJ do usuário. A falta de reconhecimento entre a pessoa física e o algoritmo que compõe a chave pública permite a circulação de riqueza sem a respectiva tributação. Desse modo, o presente livro pretende responder às seguintes indagações: como lidar com a circulação de riquezas quando o ativo transferível, por chave pública, não propicia a identificação do registro da pessoa? E, após identificar, como deve ser feita a tributação? Para responder a essas perguntas, inicialmente, defende-se a necessidade de o Estado promover uma regulação de incentivos para potencializar que as criptomoedas circulem, primordialmente, dentro das Exchanges. Em seguida, analisa-se a natureza jurídica desses ativos e os principais fatos geradores tributários que podem incidir no caso concreto. Observa-se que, muito além do Imposto de Renda por ganho de capital decorrente do cash out, há outras possibilidades de incidência de tributo, inclusive, por auferimento de renda no pagamento de uma obrigação em criptomoedas (Imposto de Renda em razão do plus jurídico). Para além dessa hipótese, há ganhos na custódia, aproximação entre clientes e troca dos ativos por moeda fiat, o que faz incidir, também, o Imposto de Renda das Exchanges e o Imposto sobre a Prestação de Serviços. Tais hipóteses são apenas algumas relatadas ao longo deste trabalho.

Leseprobe

I dedicate this work to all the victims of the cruel slavery practiced by human beings. Each animal is an individual life, and all life is precious and must be protected. May we one day respect those who are different to us and coexist peacefully.

THANKS

ABSTRACT

INTRODUCTION

Historical report of the origin of crypto-assets

Delimitating the scope of this work

Structure of this work

1. THE INFLUENCE OF LAW ON ECONOMY: A BRIEF ANALYSIS OF THE CAPABILITY OF TAX LAW IN INDUCING CONDUCT

1.1. Economic Analysis of Law

2.2. Steering Taxes as a regulatory method: State spending to induce conduct

1.3. The dilemma of disruptive technology regulation and self-regulation

1.4. Direct regulation and the legitimation of the decision by the theory of discourse

1.5. Partial conclusion

2. CRYPTOCURRENCIES AS MEANS OF PAYMENT

2.1. Qualification of cryptocurrencies in the Brazilian legal system and manifestation of some regulatory bodies

2.2. “Meaning” of the term currency

2.2.1. Currency as a social institution and its flow within the market

2.2.2. Currency as an instrument that facilitates exchange relations

2.2.2.1. Historical analysis of currency

2.2.2.2. Elements of currency and its correlation in the market economy

2.2.3. Theories on the origin of currency

2.2.3.1 Theory arising from the Austrian School

2.2.3.2. Statist Theory

2.2.3.3. Institutional Theory

2.3. Trust

2.4. Monetary system and payment instruments

2.5. Expression of signs and their degrees of indetermination. Classification of cryptocurrencies as means of payment

2.6. Partial conclusion

3. TAXING GAINS AND THE CIRCULATION OF CRYPTOCURRENCIES

3.1. Commercial relations in light of legal aspects: an analysis of the blockchain

3.2. Taxation due to Income Tax

3.2.1. General aspects of the Income Tax

3.2.2. Income Taxation in light of cryptocurrencies

3.3. Taxation due to donation (ITCMD)

3.4. Incidence of contributions arising from gains obtained through operations with cryptocurrencies: PIS/PASEP, COFINS AND CSLL

3.5. Incidence of ISS and PIS/PASEP and COFINS in the confirmation of operations

3.5.1. General aspects of taxes for service provision

3.5.2. Viability of tax incidence

3.6. ncidence of Cide-Royalties in operations of confirmation of transactions with cryptocurrencies: income gain by miners residing outside of Brazil

3.7. Incidence of IOF – exchange

3.7.1. General aspects of the tax

3.7.2. Viability of tax incidence: analysis of the material aspect

3.8. Incidence of IOF –Securities

3.8.1. General aspects of the tax

3.8.2. Viability of tax incidence: analysis of the material aspect and the creation of assets in public offers

4. FINAL CONSIDERATIONS

REFERENCES

LEGISLATION AND ADMINISTRATIVE AND JUDICIAL DECISIONS

DOCTRINE

THANKS

Firstly, I thank Jesus Christ for giving me the opportunity of knowing Him and for giving me strength each day. As such, blessed be the day 02/07/2010.

I also thank my supervisor, Professor Doctor Marcus Livio Gomes, who, throughout this journey, has always encouraged and guided me, allowing, thus, for me to be able to elaborate my dissertation on such a new and fascinating theme. Even before the Master’s degree classes began, we were in touch, and he always showed me the path to follow in great detail.

Additionally, I thank Doctor Tiago Machado Cortez, who, since our first contact, was extremely solicitous. Briefly, I make a point of emphasizing that, when reading the reference of his doctrine in other works, I searched many libraries for this Doctorate thesis. After countless fruitless attempts, I contacted Tiago, who, immediately, forwarded his work to me. Then, after my qualification, we talked for days in order to adjust some technical definitions. These conversations were essential and, thanks to them, I managed to advance to subsequent parts in this dissertation.

I would also like to thank my parents (Custódio and Fátima) and my sister (Roana), who shaped my character and are the support in my life. I also cannot forget to thank Fernanda, my eternal girlfriend and partner for life who shares the wild experience of having three canine sons with me (Junior, Raiko and Charlie – all rescued from the streets).

I also thank Uncle Nelson, who always helped me to take sensible decisions in my life such as, for instance, that of pursuing a public tender.

Furthermore, to avoid injustices due to lack of citation, I thank everyone who, in some way, assisted me and encouraged me in this journey.

Lastly, my special thanks to all those who chose to read this Master’s dissertation. Whenever an author is willing to write something, they hope someone will have the patience to read it. As such, my special thanks go out to you, the reader.

Finally, I stress that any errors in the work are entirely my responsibility.

— You are crazy, my son! Messing with those people; they are all a rabble of bandits and crooks, a Falconeri must be with us, on the king’s side.

The eyes smiled again.

— On the king’s side, for sure, but what king?

The boy had one of those bouts of serenity that made him impenetrable and endearing.

— If we are not there, they will build a republic. If we want everything to remain as it is, then everything must change. Did I explain myself well enough?

— Until we meet again, see you soon. I will be back with the tricolor flag.

Giuseppe Tomasi di Lampedusa

ABSTRACT

COUTO, Renan do Nascimento. Taxation of cryptocurrencies: the influence of monetary law for taxation beyond income tax for capital gains. 2023. 171f. Dissertation (Master’s degree in Law) – Law School, Universidade do Estado do Rio de Janeiro, Rio de Janeiro, 2023.

This work has, as its central element, the analysis of taxable events arising from the use of cryptocurrencies as payment assets (mainly) and investments (residually). The issue prior to this analysis pervades the need to discover which people are operating cryptocurrencies, since the public key does not identify the user’s CPF (Brazilian Individual Taxpayer Registration Number) or CNPJ (Brazilian Registry of Corporate Taxpayers). The lack of recognition between the physical person and the algorithm that makes up the public key allows for the circulation of wealth without the respective taxation. Therefore, the research questions are summarized by the following questions: “how to deal with the circulation of wealth when the transferable asset, via public key, does not provide the identification of the person’s registration? And, after identification, how must the taxation be made?”. In order to answer these questions, initially, I defend the need for the State to promote regulation of incentives to allow cryptocurrencies to circulate within the Exchanges and, then, the legal nature of these assets. Upon answering such questions, I analyze the main taxable events that may affect the specific case. What I observe is that, far beyond the tax income for capital gain arising from cash out, there are other possibilities for the levy the tax, including through including income from the payment of an obligation in crypto-currencies (income tax due to the legal plus). In addition to this hypothesis, there are gains in custody, rapprochement between customers, and the exchange of these assets for fiat currency, which also causes the Exchanges Income Tax and Service Tax to be levied. Such hypotheses are only some of those reported throughout this paper.

Keywords: Cryptocurrencies. Exchange. Means of payment. Taxation.

INTRODUCTION

Historical report of the origin of crypto-assets

In 1992, three recent retirees1 invited close friends to an informal meeting, with the goal of discussing the more complex matters of cryptography. The group, named cypherpunks, grew rapidly, with their central point of debate being privacy and freedom, as described by Eric Hughes in 1993:

Privacy is necessary for an open Society in electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.

[…]

When I purchase a magazine at a store and hand cash to the clerk, there is no need to know who I am. When I ask my electronic mail provider to send and receive messages, my provider need not know to whom I am speaking or what I am saying or what others are saying to me; my provider only need know how to get the message there and how much I owe them in fees...Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system. An anonymous transaction system is not a secret transaction system. An anonymous system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy. (HUGHES, 1993, n/p).

Based on these principles, the development of a digital currency began. The first record of an attempted anonymous transaction occurred in 1997 and was made by Adam Black, through hashcash. Essentially, it was a mechanism in which a cost of time and computational capacity was added to an e-mail submission to prevent spam.

In 1998, Wei Dai published the B-Money proposal, which included two methods to protect the data of the transaction. In the first one, each participant maintains a separate database of how much money each user has (decentralized form). In the second method, all records are kept by a specific group of users (centralized form). In order to promote trust in the latter case, the people responsible for manipulating the system need to make a prior deposit of an elevated value that would be affected in the event of frauds.

Over the following years, many people employed methods to facilitate the privacy and security of relations. Among them was Satoshi Nakamoto, who, on October 31st, 2008, forwarded a nine-page document to the cypherpunks that would facilitate both the aforementioned postulates and would direct society towards a world in which financial institutions would not need to confirm every legal transaction entered into between the parties.

The strategy to facilitate financial expenditure without the existence of an intermediary is the creation of an integrated network of people, in which processed transactions are stored in chronological order and sequentially, ensuring the formation of “inviolable” blocks”2. These blocks serve as a historical record of the currency’s circulation, making it possible to protect commercial relationships from fraud – avoiding spending the same currency more than once — and supporting the exclusion of intermediaries — fiduciary agents that attest to the existence of funds.

The security of the system derives from the simplification of a mathematical formula that registers an operation through the combination of several pieces of information, which, for the purposes of the present work, do not need to be detailed. Likewise, the health of the system stems from the fact that the cost/benefit ratio indicates that remuneration for collaboration – through the creation of new currencies and the confirmation of transactions that took place – demands a smaller expenditure of time and effort than potential attempts to invade the system to steal currencies.

Lastly, the document forwarded by Satoshi Nakamoto foresees that the method of protecting the privacy of the involved parties derives from the anonymity of the public key – similar to the transaction system in the Stock Exchange3. Furthermore, with each transaction, the user of the public key must confirm the relation using the private key. Between the initial milestone of cryptography and the appearance of the main current asset that uses this technology, 16 years went by.

Analyzing the history of the creation of this financial asset, it is not possible to dissociate it from the Austrian school of economy, as will be explored over the next chapters.

In this introductory chapter, in addition to promoting a delimitation of the work through the identification of the types of crypto-assets, a brief summary will be made regarding what each subsequent chapter will touch upon.

Delimitating the scope of this work

Knowledge drives the emergence of social revolutions that entail the need for accommodation between the new – which promotes a rupture with the old system and promotes a totally or partially unprecedented framework – and the consolidated positions in the community, who, generally, observe the evolution with distrust. From this perspective, it can be said that the world is experiencing an economic revolution, in which the goods are becoming immaterial. This social transformation is accompanied by the emergence of assets that were not known, such as, for example, cryptocurrencies.

Regarding these assets, it can be said that there is regulatory tension acting upon them, as it is necessary to accommodate the pressure towards using this technology with the legal system, which has already been constructed without the presence of such innovation. In this vein, it is put forward that the object of this research is how to tax cryptocurrencies, and the hypothesis that will be defended throughout this work is that cryptocurrencies are primarily a means of payment.

As such, initially, this research has as a guiding element the analysis of cryptography – the attempt to hide information – in virtual currencies, and the circulation of such wealth. To explain: cryptocurrencies are an asset in which the public key, although easily seen, does not identify the person in the world who owns it.

In other words, although the name of the person carrying out the transaction is public, this data does not allow one to identify the natural or legal person who is operating such an “account”. That is, there is a lack of transparency that would allow for the identification/correlation between the actual owner of the asset – name or CPF/CNPJ – and the public key. The lack of recognition between the physical person and the algorithm that makes up the public key allows for the circulation of wealth without the respective taxation. Therefore, the research questions are summarized by the following questions: how to deal with the circulation of wealth, and, consequently, the taxation of the financial gains of cryptocurrency operators, when the transferable asset, via public key, does not provide the identification of the person’s registration?

Before attempting to answer the question above, it should be noted that not all crypto-assets are payment tokens. Thus, the first premise to be established is that not all crypto-assets will be studied, but rather, only payment tokens. As such, this work does not intend to analyze other crypto-assets, such as utility tokens4; security tokens5 and non-fungible tokens6.

After partially restricting the object of the research, I note that there is a degree of controversy regarding the legal nature of these payment tokens. As will be seen throughout this work, part of the doctrine advocates that they are only an intangible asset, whose purpose is to serve as an exchange. This stance, though correct, must be refined. Any asset in which the tradable parties have an interest can be exchanged. However, beyond a simple exchange, the State can protect the aforementioned act, pointing out that it is a means of payment.

Assuming that these assets are a means of payment, it is essential to question the value in use, and the answer to this question is that it is primarily an exchange value. Therefore, the State, upon recognizing the asset as an instrument of payment, strengthens the quality of the exchange.

In this perspective, and bringing forward a topic that will be seen in Chapter 2, I note that Brazil adopted six classes of monetary aggregates, classified according to their liquidity. The first of them, M0, is the restricted monetary base, equivalent to the money created by the Central Bank of Brazil (BACEN) and by the bank reserves, which result from the money deposited in the Resource Transfer System (STR) and the money contained in the financial institution itself. It is noteworthy that it is from this value that the monetary multiplier is observed, which corresponds to the increase in the money supply due to the fractional ratio index.

M1 would be the payment itself, occurring through the circulation of paper currency or demand deposits in the banking system. In this case, the financial institution, upon recognizing the payment, signals the bookkeeping of the credit in favor of the beneficiary. M2, in addition to the previsions contained in M1, also encompasses the Special Remunerated Deposit, savings deposits and securities issued by depository institutions M3 corresponds do M2 plus shares of fixed income funds and government committed bonds held by public authorities, and does not consider those held by banks and investment funds7.

In addition to restricted (M1) and extended (M2 and M3) means of payment, there is also M4, which corresponds to M3 plus highly liquid public securities held by banks and investment funds; and M5, which is M4 plus the purchasing power of credit cards.

Structure of this work

This research, in addition to the introduction and the conclusion, is divided into three chapters, interconnected by some structures. In chapter 1, I discuss the intervention of the State in the economy, focusing on steering taxes as a regulatory instrument for private activity. Within this context, I analyze the role of regulation on new technologies and the possibility of these new advances being extinguished by incorrect State action.

Chapter 2 is subdivided into three parts: (i) the qualification of cryptocurrencies in the legal system and the regulation by State bodies; (ii) the analysis of the social theories that define currency, and the necessary characteristics for a given object to be classified as such; (iii) the payment instruments determined by the State and the possibility of cryptocurrencies being defined as means of payment.

After qualifying cryptocurrencies as means of payment, the following chapter deals with taxation resulting from operations with cryptocurrencies. This part of the dissertation studies the incidence of the Income Tax in income profits and cryptocurrency transfers. Next, the work touches on the incidence of taxation on the provision of services in operations of confirmation of the legal relationship, and, briefly, on some special contributions that may be levied on legal transactions involving cryptocurrencies. Finally, I analyze the possibility of incidence of IOF-exchange and IOF-transferal securities.

Having demonstrated the script of this dissertation, the initial considerations are closed, and the elaboration chapters are entered.

1 Eric Hughes (a mathematician from the California University), Tim May (a businessman who worked for Intel) and John Gilmore (a computer scientist).

2 This irreversibility would be due to the effort necessary to reverse and operation that has already been sequenced by other operations. In short, with each new transaction, there would be an accumulation of information that, in order to be undone, would require enormous effort.

3 The public key is formed by an extremely long sequence of numbers that, upon being compressed, generates the public address.

4 Utility Tokens, in digital format, which facilitate access to specific goods and services, such as, for example, a fan token that grants access to matches of your favorite sports team for a period.

5 Assets used for investments, such as collective money-raising contracts, in which the token’s purchaser has some correlated right, such as, for example, participation in the company.

6NFTs, in which an encrypted file has a unique digital authenticity, generally related to a process of intelectual property in the digital creation of images.

7 For example, mortgage bills, bills of exchange and federal public securities held by banks and investment funds.

1. THE INFLUENCE OF LAW ON ECONOMY: A BRIEF ANALYSIS OF THE CAPABILITY OF TAX LAW IN INDUCING CONDUCT

1.1. Economic Analysis of Law

Initially, I highlight that Tax Law, as it derives from Financial Law and, on a second scale, from Administrative Law, is an important means of directing the conduct of the individual, through incentives (tax reduction) and disincentives (increase in taxation).8

Before delving into the modalities of State intervention through regulation, it is essential to remember that market efficiency is calculated through the difference between the sale value and the cost of the product, with potential gains occurring when the tolerable limit of the buyer and the vendor “balance out”, allowing for a greater number of operations. If there is an increase in product costs through taxes or administrative impositions, its price will be increased, bearing this increase to the one that has less elasticity9.

Under the auspices of State intervention in property, increased operating costs and economic consequences, the integrated study of Law and Economics begins, observing, to this end, the Chicago School, which was the driving force behind the Economic Analysis of Law (Normative Law Economics – NLE). As will be demonstrated below, following the line of the aforementioned school, the State must have a restricted role in its action, since self-containment reduces interference in the market and, therefore, promotes efficiency. The consequence of this posture is the reduction of the importance of law in relation to the economy, as, according to its faculty, law would be an instrument of distortion that would restrict microeconomics and jeopardize market results.

In order to understand what was stated above, the Chicago School can be analyzed from two angles separated by a well-defined time frame. Namely, the Second World War. The perspective prior to the war, whose main proponent was Frank Knight, although allowing for economic liberalism, conditioned it to the application of the liberal democracy and its respective consequences (liberalism)10.

In turn, at the end of the war, a new group emerged, which guided its ideology by the classic ideas of Adam Smith. That is, a less interventionist, less retributive State, whose legal foundation was the doctrine of well-being (utilitarianism) (MERCURO; MEDEMA, 2006).

In short, utilitarianism presupposes that any addition to the life condition of a person in society must be legitimized by the State, as long as it does not cause harm to the collective. That is, if in a society with 10 people, each of them has a talent quota of 10, the total is 100 talents. However, if instead of each person having 10 talents, one person has 50 and all the others have 6 talents, in the end, society will jointly have 104 talents. Therefore, this addition of 4 talents, as it generates an increase in society, must be preserved.

The aforementioned perspective, whose precursors were Jeremy Bentham and John Stuart Mill was opposed to the view of American liberalism, which foresaw the need for “equality” in order for individual rights of freedom and property to be effective. Thus, it can be stated that the political-legal clash was between liberals — who accepted State intervention for the achievement of freedom and property rights — and the welfarists — whose view was close to that of classic liberals, today called libertarians.

Still in this historical vein, directing, however, the debate to an economic analysis, and following the principles of Adam Smith, social welfare would be the set of results provided by rational, individual and selfish men, who, by seeking the fulfillment of their interests, would achieve the evolution of society’s efficiency through the market (invisible hand). In turn, on the other spectrum would be the liberals, who, despite believing in a free market doctrine, also defended the intervention of the State to effect equity in terms of the implementation of innate rights (it should be noted: only property and individual freedoms).

Another consequence of the aforementioned segregation may be observed when analyzing the figures of “choice” and “consent”. For defenders of utilitarianism, consent is inherent to choice, that is, if there are options to choose from, including rejecting the available offer, automatically, consent was achieved. Therefore, any intervention from the State in the relationship between parties must be restricted and specific to the hypotheses of there not being consent, as welfare would be achieved with the right of choice. On the other hand, for the liberal doctrine, if there were not a minimum spectrum of choices, there would be no consent to the choice made, and, in this case, the State could intervene to catalyze well-being.

As a result of this last difference, I emphasize that, for utilitarians, the efficiency of the market would result from a non-intervention by the State in private relations, in which rights could only be enforced through taxes. This is because consent would authorize all relations between the parties, and it would fall upon the economist to create a model of ideas, to be approved by the public manager, who would balance the benefits in the redistribution of rights with the costs of such a policy – including a possible disincentive to work11. Conversely, to liberals, in addition to the reduction of inequalities through taxes – which would already be a starting point of welfare –, the State could intervene in the market to increase the range of options and the enforcement of rights.

In summary, for the Chicago School, NLE is a method of interpreting the current norms, paying attention to a hermeneutics that makes the market efficient, since equity must be achieved only through taxes. That is, the law drawn up by the public manager with the help of the economist must be interpreted in such a way as to ensure the efficiency of the market, serving only to correct its asymmetries. Those who, however, disagree with this doctrine, peremptorily state that, far beyond the tax, the State can intervene in the market, regulating the relationship between the parties to enforce moral rights12.

Contradicting the post-World War 2 doctrine of the Chicago School, which reflects the interpretation of Richard Posner (1973) regarding the teachings of Ronald Coase, I cite Guido Calabresi (2016) and Albert Calsamiglia (1987).

The former, Guido Calabresi, a professor at Yale University, tried to distance himself from NLE through a linguistic turn, “separating”, of varied meanings, the “Economic Analysis of Law” and “Law and Economics”. According to the author, the “Economic Analysis of Law” reflected Jeremy Bentham’s doctrine, in which, if the economic result was not what he expected, it was irrational and disregarded – the effectuation of law would be irrelevant. In turn, “Law and Economics” reflected the evolution proposed by John Mill, who would respond to the lack of expected results with two solutions: (i) did I correctly describe reality?; (ii) is the expected economic response subject to external influence?

According to Calabresi (2016), the aforementioned questions would allow law to influence economy through an expected behavioral analysis due to the State’s influence on the market. Thus, according to the referred author, a norm, in order to be built, would be subjected to the ex-ante judgment of an economist and a jurist. The former would propose an economic policy according to his expectations, and the latter would write such a policy into legal norms. In this sense, I quote an excerpt from Alain Marciano and Giovanni Ramello, who explain the doctrine of Guido Calabresi:

More specifically, under Calabresi’s approach, law and economics complement each other as follows: Economics is concerned with choice under certain given conditions that, as we have noted, may not be satisfactory. What economics provides is only a framework, which needs to be normatively qualified by judges and the legal system. Therefore, if — as Laura Kalman stresses in her article in this issue of Law and Contemporary Problems — “[f]or Guido, law and economics proves the more challenging and worthwhile endeavor” than the economic analysis of law, it is because he envisages law and economics as a back-and-forth dialogue between the two disciplines. “This equal footing of law and economics is what the economic analysis of law tends to preclude, because it essentially downgrades economics to a mere problem solving technology. To be sure, Calabresi sees economics as providing road signs-”road signs that are not too misleading to be worth spending time on” -that judges and lawmakers can then use to serve a higher good than simply fostering efficiency. (MARCIANO; RAMELLO, 2014,p. 101).

Faced with the possibility of an economic/legal policy proposal intervening in private relations through behavioral analysis, Calabresi adheres to the idea that the State can act to enforce the rights of individual freedom and property, increasing the spectrum of choices within the marketplace.

Similarly, Albert Calsamiglia defends that the parameter of equity is efficiency. Thus, in order to achieve moral values, with is the goal of a legal system – as, according to the author, a non-ontological norm is not a norm –, the norm could not simply be efficient, but also had to be ontological. As such, the field of efficiency is relegated to an analysis of enforcement of rights. In order to reach this conclusion, the jurist cites Kelsen, stating that, according to the Pure Theory of Law, a norm, in order to be valid, must respect the legal system and be efficient (CASALMIGLIA, 1987).

Seeming to have understood the criticisms over the years of the doctrine established by the Chicago School, Eric Posner (2021), commenting on the doctrine of his father Richard Posner, promotes the following considerations:

NLE is generally thought to assume welfarism, the view that the well-being of individuals is morally important. This assumption might seem harmless but in fact could have strangled NLE in its crib. The reason is that NLE, like much of normative economics, uses the Kaldor-Hicks efficiency criterion or the Pareto criterion. Most welfarists believe in the diminishing marginal utility of money, which implies that in any society with wealth disparities, the government should redistribute wealth from rich to poor. But both the Pareto criterion and the Kaldor-Hicks criterion block redistributions of wealth. Any transfer makes a party worse off (in violation of the Pareto criterion) or produces a winner who cannot overcompensate the loser from her winnings (in violation of the Kaldor-Hicks criterion). As I will discuss in Part I.B., the problem was not solved but avoided through a division of labor policy strategy. NLE would be permitted to make efficiency arguments because distributional issues would be addressed by the tax-and-transfer arm of the government. But this still left the question of what exactly we mean by welfare, and whether the efficiency criteria maximize it. That question I will address first. Among philosophers, there are three major positions about the meaning of welfare. First, well-being can be understood as a mental state characterized by pleasure or the absence of pain. Bentham understood utility in this way. While this view fell out of favor for many decades, in recent years it has been resurrected by economists who use surveys to measure what they call subjective utility, and has influenced legal scholars and policymakers as well. (POSNER, 2021, p. 659-660).

After exposing some considerations on the historical theme of regulation through the economic analysis of law, it must be said that a major debate on Behavioral Economics is the possibility for the State to induce the individual with behavioral choices that it deems best — (nudge) — without, however, preventing the individual from opting for another conduct13. Regarding this subject, it is worth stressing that Eric Posner (2015) posits that this formulation of behavioral policy violates individual freedoms and, as such, must be used only when people are informed and consent to such manipulation. Conversely, Cass Sunstein (2015) advocates that informing the population about possible inductive behavior makes the public policy not very useful, as it would remove the inductive character.

Finally, unlike the debate in the USA on regulation, whose origin is the idea of the State starting to intervene in the economy, in Brazil, regulation was a method to reduce the size of the State, arriving, however, at a similar result. Namely, the stimulus by the State toward the practice of conduct by the individual. It is precisely under the perspective of the State being able to intervene to stimulate conducts that I transition into the next topic, namely, steering taxes. On the subject, as a way of preparing the reader, I quote an excerpt from the doctrine of Luís Eduardo Schoueri, pointing towards the notion that the market presupposes induction and this interference does not contradict capitalism:

A relevant point of intervention by induction is that, far from removing the market, it presupposes it, since it uses means of persuasion whose effect only occurs in a scenario in which the recipient of the norm can decide whether or not the targeted act is convenient. Thus, when considering, for example, the tax instrument as a means of internalizing the so-called “externalities”, what is done is transferring to the market, through the price mechanism, those costs, leaving it up to producers and consumers to ultimately decide on the success or failure of a product. Likewise, the increase on taxation of a product might cause less consumption of it, depending on whether or not the market is willing to assume such costs. Conversely, specific exemptions can induce consumers towards certain products. In all cases, however, instead of political decisions, the market is favored as the decision-making center, to determine who will produce (or consume) and how much will be produced (or consumed) (SCHOUERI, 2005, p. 44).

[...]

The lesson reproduced above shows that the interventionist State model, rather than being a rejection of the liberal conception, reveals itself as an evolution of it, since both adopt the same belief in the market mechanism. Thus, the interventionist State, acts, at first, towards correcting the failures in that mechanism, seeking, all the same, to maintain it. It is in this sense that one must agree with Grau’s assertion that ‘the capitalist economic order (world of Should be), even if it qualifies as interventionist, is committed to the purpose of preserving capitalism’ (SCHOUERI, 2005, p. 73).

1.2. Steering Taxes as a regulatory method: State spending to induce conduct

Before understanding steering taxes as inducers of human behavior, it should be remembered that the State is a legal entity that obtains revenues in original and derived forms, which are used to finance public expenditures arising from the provision of public services, expenses with personnel, debt charges and many other expense vectors.

State funding presupposes material equality, that is, each person must contribute within the limits of their earnings. The corollary of equality unfolds, in the part referring to the economic order, in the principle of contributory capacity, whose provision, in the country’s Constitution, is found in §1, from art.14514.

Faced with this first stage, it is clearly observed that the purpose of taxes is to fund the activities of the State. However, in addition to the collection purpose, it is possible that taxation promotes a secondary economic effect. In this vein, it is convenient to recall notions of economics about the supply/demand of products, and the modification of the status quo with the insertion of a tax burden, causing the phenomenon of “deadweight tax”15.

The consequence of the dead weight of the tax, in addition to the exclusion of a portion of society from the consumption of a certain good/service, is the substitution of the consumption of some products for others. This change in the consumption pattern may lead to the consumption of another item that complements the substituted product. In this case, the fiscal action of the State has noticeable effects on the economy, which we call extra-fiscal effects of the tax.

In addition to the extra-fiscal effect of the tax, the possibility of a tax having an extra-fiscal purpose and a secondary tax effect (ordering or guiding taxes) is also discussed. In this scenario, the purpose of the tax is extra-fiscal. That is, its intention is to regulate human conduct. However, reflexively, even still, there is a collection to fund the State (tax purpose).

The guideline exposed above allows the law to objectivize the implementation of values present in the legal order as an instrument that regulate conduct, aiming at the full materialization of constitutional purposes. In this case, the taxes whose predominant characteristic is their extra-fiscal nature do not aim to obtain revenue for the treasury, but rather to regulate conduct. However, regardless of whether the desired end is achieved, taxes provide, as a secondary effect, collection.

In summary, steering taxes have an elevated regulatory nature, stimulating desired behaviors and burdening unwanted behavior through tax action. In these hypotheses, the legal effect of the tax confers economic effects (steering taxes), and may infer a regulatory nature of subjective conduct, with a view to achieving a different purpose from the common one. In this sense, it is worth quoting José Casalta Nabais:

Steering taxes are the set of norms that, although formally part of tax law, have as their main or dominant purpose the achievement of certain economic or social results through the use of the tax instrument, rather than obtaining revenues to meet public expenditure. They are, thus, (fiscal) norms that, when prescribing taxation, that is, a removal or cut less than that required by the criterion of contributory capacity, i.e., a total or partial waiver of said removal or cut (tax benefits), are dominated by the intention of acting directly on the economic and social behavior of their recipients, discouraging them, neutralizing them in their economic and social effects, or encouraging them, that is, of norms that contain measures of economic and social policy (NABAIS, 2004, p. 629).

The form presented in the lines above seems to confer broad powers of action beyond taxation. However, one cannot forget that taxes must serve to divide State expenses, and that mitigating someone’s expenses in favor of a targeted conduct has as a consequence the increase in the costs of other individuals. It is in this perspective that steering taxes must be carefully observed, their parameter being the existence of a constitutional vector to be achieved and the inexistence of a less burdensome means to induce a conduct.

Before entering into a factual analysis of the granting of tax benefits (such analysis will take place at the end of this topic), it is adduced that steering taxes, by way of exemption, are equivalent to tax expenses, since the State waives revenue in favor of an instrumental performance of the individual.

In this sphere, I stress the existence of two types of tax benefits. In the first one, the correlation with public policies is secondary, as the gain to be earned is the effectuation of social values16. In turn, in the second type of tax benefit, there is the intention of obtaining revenue, such as, for example, the installation of an industry in a region that generates jobs and economic development.

Having exposed these branches, four problematic cores of the concession of these benefits can be highlighted: (i) admissibility/legitimacy; (ii) derogatory/exceptional character; (iii) belonging of such norms to tax law and similarity of tax benefits with the subsidies; (iv) distinction between such benefits and fiscal stimuli.

Regarding the admissibility of these norms, as seen above, a possible obstacle would be the offense to the contributory capacity17, and the counterpoint, to be determined on a case-by-case basis, is (i) the existence of a normative provision that authorizes the granting of the tax benefit; (ii) demonstration of advantages in granting tax benefits18.

Regarding the derogatory/exceptional nature of the norms that institute tax benefits, as they are special norms that mitigate the general rule, namely, contributory capacity, the interpretation must be strict. Furthermore, it is essential to remember that, as it is an interventionist measure that can give rise to artificialities, the State must act in a moderate way19. On the other hand, Norberto Bobbio maintained that, in the event that the law promotes rights, tax benefits would not need to be seen as exceptional norms and, therefore, the use of analogy and extensive interpretation recourses would be permitted20. In our legal system, this must not be applied, given the express provisions stating determining otherwise21.

Regarding the legal nature of the norms that provide for tax benefits (inductive and guiding norms) as part of fiscal law (collection/tax law), José Casalta Nabais reports the existence of four ways of interpreting them. The first is to understand that guidance norms are part of tax law and, therefore, are always legitimate instruments of economic and social policy, and it is not possible to analyze the merits of the norm22. Then, the second understanding is in the sense that the norms of tax benefits are subsidies and, therefore, have an external connection with the tax norms. Thus, for such norms to be valid, they must be proportional, since the granting of a tax benefit will have the effect of increasing the tax burden of the other members of society23. The third branch deepens the previous theory, stating that a norm that grants tax benefits can only be valid if there is some constitutional dictate that justifies the policy. In other words, one must observe (i) both the burdensome effects of the tax norm (it must not violate the contributory capacity); (ii) and the conforming effects (protection of values provided for in the Constitution). If the burdensome effects confront the contributory capacity, but there is the implementation of a public policy, there must be a weighting24.

Due to the scarcity of parameters for a proportionality analysis, Casalta Nabais seeks to work around this balancing judgment. Within this spectrum, the author separates tax norms, which deal with tax law, from extra-fiscal norms, which deal with economic law. Thus, the norms that grant tax benefits are valid when the following is verified: (i) the legality of the norm and the principle of equality, with regard to tax norms; (ii) the legality of the economic norm and the proportionality in the intervention. Only by harmonizing the requirements of these two aspects can the validity of the norm granting tax benefits be accepted. In this regard:

[...] we are of the opinion that it is necessary to dichotomously separate tax norms from extra-fiscal norms, ordering the former, as (classic) tax law that they are, to the legal-constitutional principles of the “tax constitution”, and the latter, as economic (tax) law that they are, to the legal-constitutional principles of the “economic constitution”. Hence, the former must primarily obey the principles of fiscal legality and equality, and the latter, the principles of economic legality and lato sensu equality and proportionality in economic-social intervention. However, given that the instrument used in this intervention is the fiscal instrument, it is necessary to articulate or harmonize the constitutional requirements, valid for the latter instrument, with those valid for the former intervention, with it not being possible, consequently, relative to extra-fiscal norms, and in particular those that discipline tax benefits, to apply exclusively and strictly the aforementioned economic constitution. Namely, the principle of legality to be observed in this domain will not be entirely content with the weak requirements of this principle in the domain of economic law, while the idea of tax-paying capacity cannot fail to be present in extra-fiscal measures as its presupposition. For this reason, tax benefits do not enjoy full constitutional legal similarity with (direct) subsidies. (NABAIS, 2004, p. 648).

Regarding the distinction between such benefits and tax incentives, it should be noted that inducing tax rules are only characterized as true when they have concessions of dynamic tax benefits or extra-fiscal exemptions that entail true rules capable of promoting the country’s economic development, which is the core of this work. In turn, mere static benefits or tax exemptions that observe only personal aspects do not correspond to tax incentives, being merely the legislator’s policy options that result in erosion of the tax base25.

As such, the relevance of the extra-fiscal purpose of the tax has always been understood in the Brazilian legal system. As an example, it is worth remembering that, during the government of Getúlio Vargas, whose hallmark was authoritarianism, imports of inputs for the manufacture of newspapers by political critics of the government were taxed at a higher rate. Such a strategy, revealed by Sampaio Mitke, former head of the Control Service of the Press and Propaganda Department (DIP), was more effective than police threats. In this sense, an excerpt from the judgment by the STF on the subject is collated:

The work was clean and efficient. The sanctions we applied were a lot more effective than police threats, because they were economic in nature. The newspapers relied on the government to import tax exempt paper. Customs fees were high and had to be paid within 24 hours. And the DIP only exempted from payment the newspapers that collaborated with the government. It was me or Lourival who called Customs to authorize the retrieval of the paper (ABI apud GALVÃO, 1975, p. 4)26.

Considering all the above, it is concluded that the extra-fiscal effect/purpose of the tax is a very fruitful method for the elaboration of State public policies, since the economic reflexes encourage/discourage the individual. However, it is essential to be careful to avoid transmuting the collection function into a function that induces tax conduct. In this vein, the criterion used to assess the legitimacy regarding the waiver of revenues is the comparison between public policy (economic norm) and the waiver of a portion of the tax (fiscal norm) with the promotion of equality (contributory capacity) and freedom.

Furthermore, as posited by Schoueri, another point to consider when granting fiscal incentives is the possibility of a regressive effect. To explain: the inducing norms, in order to be complied with, require an economic investment by the taxpayer, and not all individuals have the financial capacity to adapt to such norms. In this case, the tendency is for taxpayers with greater economic capacity to become even stronger over time. On the subject, two passages by the author stand out:

This paradox was also referred to by Bõckli, who sees in the inducing tax norms a regressive effect, since they end up implying a premium for taxpayers who have greater economic capacity, in such a way that, after a few years, these taxpayers end up becoming stronger. In this sense, the author warns of the competitive effect of inducing tax rules, since the strongest can make investments to rationalize their production, while the less favored cannot support the increase in tax costs, being forced to abandon investments already made (SCHOUERI, 2005, p. 53).

The use of burdensome tax norms encounters its legal limit with the occurrence of the paradox referred to by Bõckli, who shows that they can produce a regressive effect, implying a premium for taxpayers who have greater economic capacity, in such a way that, after a few years, this contributor ends up getting even stronger. In the author’s reasoning, the inducing tax rule may, in such a case, go against the principle of freedom of competition, since the weaker competitors will not bear the additional tax burden, therefore succumbing, which will allow the stronger ones to grab an even larger share of the market (SCHOUERI, 2005, p. 206).

Within this scenario, the present work focuses on two questions. The first of them, which will be explored over the next chapters, is the effect of qualifying some crypto-assets as means of payment and the reflexes generated for purposes of tax incidence. The second question is the possibility for the State to grant tax benefits to individuals who come to act as cryptocurrency exchanges, reporting all operations that have occurred and immediately withholding the tax in favor of the Tax Authorities. The objective of this treatment is to stimulate the emergence of the intermediary, since the concentration of information at the source makes it simpler to observe the circulation of cryptocurrencies and the verification of taxable events by the Federal Revenue Service.

From this perspective, the possibility of tax expenditures is accepted as a way of stimulating the reduction of fees practiced in the market, providing an incentive for the user to operate crypto-asset storage activities within a brokerage, which will lead to greater traceability of the circulation of these assets. This is because cryptocurrencies are an asset in which the public key, although easily visible, does not identify the person in the world who owns it. In other words, although the name of the person carrying out the transaction is public, this data does not allow one to identify the natural or legal person who is operating such an “account”. That is, there is a lack of transparency that would allow for the identification/correlation between the actual owner of the asset (name or CPF/CNPJ) and the public key27.

At this point, as already explained, despite the fact that the genesis of cryptocurrencies lies in anonymity, the expansion of this technology led to a disconnection from its philosophical origin. In this way, the user, today, is not only concerned with remaining hidden, but also with the profitability/acceptability of this asset. From this perspective, it seems relevant to encourage Exchange operations, since they will have the role of informing the government about the circulation of assets, even avoiding money laundering and the promotion of withholding of taxes, instead of letting the individual operate anonymously in the market. It should be noted that the Organization for Economic Cooperation and Development (OECD), through the Crypto-Asset Reporting Framework (CARF)28, has the proposal of integrating the reporting of information between the Exchanges, standardizing them, in order to have greater control over the transfer of such assets. Thus, initially, the Exchanges collect the information, pass it on to the local tax authorities, who, in turn, share it with other tax authorities in the places where the users reside.

It is concluded, thus, that tax benefits will have the effect of stimulating future revenues and preventing the erosion of the tax base, and it is legitimate, therefore, to grant such tax incentives. However, as it is a new technology, any extra-fiscal regulatory analysis must be made in light of the regulatory impacts, as will be examined in the topic below.

1.3. The dilemma of disruptive technology regulation and self-regulation

One of the problems of regulating new technologies is the fair time limit for State intervention in private activity, since premature regulation interrupts the advancement of innovation and late regulation becomes ineffective. The reported difficulty is called Collingridge’s Dilemma, and stems from sociological studies of technology that suggest that, in the initial stages, innovation flexibility is high. However, in the end, when it stabilizes, modification becomes difficult.