By: Shaun Courtney
• Companies relying on existing laws for revenue apportionment issues
• US, Canada slow on offering formal tax guidance for miners
Crypto miners flocking to the US and Canada, lured by their stable business environments and low energy costs, cite a growing concern—the lack of clear tax policies governing their operations.
Mining companies currently have to interpret existing tax laws to guess at how their revenue should be apportioned and how to treat buildings and equipment, for example. They are navigating tax incentives and credits at the local, regional and country levels, including about energy, and the taxation of their profits or gains, said Nicolas Cloutier, partner at the Canadian law firm McCarthy Tétrault LLP.
“Canada and the US could cement their status as prime destinations for crypto mining by providing maximum clarity to the industry on all aspects of taxation and tax administration,” Cloutier said.
China’s ban of crypto mining last year accelerated the exodus of companies to regions that offered more predictability for their operations. The US and Canada, two top destinations, already provide a dependable business infrastructure, practitioners said.
Canada has top mining companies such as HIVE Blockchain Technologies Ltd. and Hut 8 Mining Corp. The US is home to companies like Marathon Digital Holdings and CleanSpark Inc. Major mining companies that have moved operations from China to the US include BIT Mining Ltd., which has invested in mining sites in Texas, Ohio, and Kazakhstan.
But tax and regulatory environments are becoming as important to the cryptocurrency mining industry as reliable access to affordable power and the internet.
“Countries like the US and Canada will soon need to set reasonable tax policy which will not stifle innovation and growth to keep these countries at the top of the list of most stable places to conduct business,” said Gary Vecchiarelli, the chief financial officer of US-based CleanSpark, a bitcoin mining and energy technology company.
The business of mining cryptocurrency assets can be split into two main parts, the location of the
physical infrastructure, like data centers, and the jurisdiction where it can be traded, said Denis
Rusinovich co-founder of the Cryptocurrency Mining Group.
The US, Kazakhstan, Russia, and Canada have the leading share of global Bitcoin network hashrate, according to the Cambridge Bitcoin Electricity Consumption Index.
While Kazakhstan, one of the top energy consumers for Bitcoin mining, has the energy and space, it lacks the regulatory and financial infrastructure, Rusinovich said. Companies that want to convert their Bitcoin in a compliant way need a business ecosystem with trading houses and banks. That’s where the US may come out on top, he said.
“People don’t want to go and create companies in jurisdictions where the rules are not clear,” said Seth Wilks, senior director for SME & Government Relations at TaxBit, a platform for crypto tax and accounting.
“The reason we’re in the US is because that is really where the opportunity is. That’s where the grid is the most sustainable and it’s really the best business operating environment around the world,” said Vecchiarelli. Still, when it comes to taxation, “some guidance, obviously, would be helpful.”
The Canada Revenue Agency has initiated compliance activities on individuals and businesses
involved in cryptocurrency, including crypto mining, Hannah Wardell, a spokesperson for the CRA, wrote in an email.
Canada expects to tax the server farm assets based there, the agency said.
While there is no published guidance on cryptocurrency mining taxation in Canada, CRA
spokesperson Christopher Doody explained the agency’s approach in an email.
Generally, wrote Doody, non-residents who operate crypto-mining equipment may be considered to have a permanent establishment—essentially, a taxable presence—in Canada where all of the
following conditions are met:
• The crypto mining business is being carried on, wholly or in part, through the operation of the
• The equipment is at the non-resident’s disposal; and
• The equipment is used on a more than merely temporary or tentative basis in an identifiable
geographic location within Canada.
The Internal Revenue Service—which declined to comment on this story—has been “pretty hush hush about crypto” as the agency tries to develop guidance on it, Miles Fuller, a former 15-year IRS veteran and head of the government solutions team at TaxBit, said in an interview.
“We’ll have to take all the information right now, absent any guidance, and make the best decision,” CleanSpark’s Vecchiarelli said.
Even when countries do begin establishing regulatory and tax regimes for cryptocurrency mining, the uncertainty won’t end. Once companies begin seeking out preferential treatments, it will likely lead to international tax competition and conflict, tax attorneys and crypto mining experts said.
“It’s going to be a global kind of tension where crypto-mining havens will want to take the stance that non-residents having crypto mining activities in their jurisdiction have a permanent establishment under the treaty,” Geneviève Favreau, a tax associate at McCarthy Tétrault, said in an interview.
Mining isn’t much different from the historical questions about a manufacturing or service business residing in Country A with operations in Country B, TaxBit’s Fuller said. The challenge is a case-by case evaluation of when permanent establishment can be asserted, he said.
“The existence or not of a permanent establishment is one of the more contentious aspects of
international taxation and has been for many decades,” the CRA’s Doody wrote. “Crypto-mining, while a recent example, is not unique in this regard.”