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After being unable to deposit profits, Israeli cryptocurrency traders are looking for answers from banks and regulators.
Still unfamiliar with the technology, some $86 million in unpaid taxes on cryptocurrency trade earnings have piled up as banks refuse to touch deposits writes Israeli media Haaretz.
“The tax authority is aware of the problem, but they say the ball isn’t in their court. I’ve tried working with almost all the banks, but the minute they hear the word ‘Bitcoin’ they freeze up,” Gross told the Haaretz.
Gross said he has paid his tax bills to the Israeli Tax Authority consistently since 2011, but after 2017 things went sour with his bank. Israel currently taxes virtual currency profits at a capital gains rate of 25% rate for individuals and 47% for corporations.
The issue is not the tax authorities, however.
Another trader Haaretz spoke with said banks lock up funds due to anti-money laundering and know-your-customer concerns. Paying taxes with trading profits is made near impossible by banks not wanting to be mixed up in the emerging market.
In May, an Israeli court ruled that bitcoin is an asset and not a currency. The court ruled against the founder of DAV.Network Noam Copel saying cryptocurrencies count as taxable events. Copel said his bitcoin holdings were foreign currency and therefore non-taxable.
“Zero Crypto Tolerance”
Seemingly, the Israeli banking industry is taking a risk-averse position. Speaking with CoinDesk, the Israeli Bitcoin Association’s Legal Counsel Jonathan Klinger says all major banks operate under a tight cryptocurrency policy. Trading deposits are not permitted. Fintech firms working with cryptocurrencies are similarly blackballed.
For Israeli policy advocates, the core issue remains in question. While some blame policy, Klinger says its in bank’s interest to keep cryptocurrency at arms reach:
“[C]ooperation from banks seems almost impossible. These actions might have been made if the policy did not originate from concerns of money laundering, but in order to eliminate competition that the cryptocurrency world has with banks.”
Gidi Bar Zakay, former Deputy Commissioner of the Israeli Tax Authority and current Bittax CEO, says the banking industry’s pace is set by regulators. Without proper guidance, banks do not want the additional responsibility of anti-money laundering snafus.
“In the past, crypto-related capital could be transferred to some banks in some cases, but in recent years, the banks tightened their self-policy on businesses or individuals operating in the field,” Zakay told CoinDesk. “They are now waiting for guidelines from the Bank of Israel.”
Retail banks are hardly friendlier, with 20 percent holding a “zero crypto tolerance” policy per Bits of Gold’s Youval Rouach. The remaining 80 percent make the process a headache.
For frustrated firms, most are taking their assets abroad. Even Zakay’s Bittax, a bitcoin tax firm, cannot open an account in the country. Zakay says many are sending assets to Switzerland.
In many respects, Israel’s private sector acceptance of cryptocurrencies mirrors the larger Middle East. Regulatory opinion has often been slow to date, involving governmental oversight like sandbox programs. Cryptocurrency exchange Rain, for example, launched last month in Dubai following a two-year program with the central bank.
Image via CoinDesk archives