Aussie blockchain startup Power Ledger wants changes to ICO tax rules

Power Ledger reckons addressing the 'anomalies' in taxation rules would allow Australia to be competitive in the blockchain sector.

The Australian Securities and Investments Commission (ASIC) has been cracking down on initial coin offerings (ICOs), having stopped several proposed ICOs and issuing investor warnings since mid-2017.

ASIC considers ICOs as speculative, high-risk investments.  

An ICO is a form of crowdfunding that can be a source of capital for startups. In return for investor cash, the organisations involved offer virtual coins such as bitcoin, ethereum, or custom tokens, with the transaction then being recorded on a blockchain.

Despite concerns from ASIC, ICOs are not banned, though they are regulated. They're subject to the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 if the tokens issued are classed as financial products and Australian Consumer Law if they are not.

Appearing on Thursday before the Select Committee on Financial Technology and Regulatory Technology and its probe into the opportunities presented by the two sectors -- fintech and regtech -- Perth-based blockchain startup Power Ledger executive chairman and co-founder Dr Jemma Green asked that more consideration be given to allowing ICOs to operate in Australia.

See also: What should you do when your ICO is dead in the water? Flog it on eBay

"In the blockchain space, ICOs are a mechanism for funding the creation of technology platforms and development of blockchain businesses," Green said.

She said that to date, globally there has been more than $26 billion in capital raised through ICOs.

"Australia has only captured less than 1% of this value and there's only really a handful of companies to-date that have benefited from that, in terms of setting up and establishing new businesses," she continued.

"My company Power Ledger is one of them. We employ 27 staff and we are the world leader in energy, transactive energy, using the blockchain. We're present in nine countries -- it's really kind of a miracle that we exist in the first place, but there could be many of these miracles if we actually set the tax regulation around ICOs to be fit for purpose."

Green believes there are anomalies in the tax system. One such anomaly, she said, is that proceeds of ICOs under legacy taxation systems have been classified as income.

"Many countries -- for example Switzerland -- are changing it to put them on capital accounts, which is moving the taxing point to when proceeds are used to build a platform which generates income," she explained.

"In Australia, the proceeds are being taxed as income and as a result of this, Australia is not an attractive proposition to undertake one of these ICOs or indeed set up a business … I think this is a real problem given the federal government's aspirations to lead in fintech and also stimulate innovation."

According to Green, the opportunity for Australia is to have "the Googles and Facebooks of the blockchain sector of tomorrow" based down under to capture a bigger slice of the blockchain-market-proceeds pie.

"The taxation revenue from these companies becoming profitable will be bounty for the Treasury -- there's a bigger play around capturing those markets," Green said.

Power Ledger faced criticism in late 2018 for using "bounty hunters" to drive interest in its cryptocurrency.

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