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A legal status for cryptocurrency is happening

01.02.2018
4 min read
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Pepeliaev Group advises that on 25 January 2018 the Russian Ministry of Finance published on its official website a draft law indented to regulate digital financial assets.

The draft law[1] expands on the concept of a ‘digital financial asset’ which is defined as property in electronic form generated using an encryption (cryptographic) method. Moreover, the draft law names the items that are classified as digital financial assets, specifically, cryptocurrency and tokens.

Save for digital financial assets the draft law regulates relations concerning the exercise of rights and performance of obligations under smart contracts. A smart contract is an electronic agreement under which right are exercised and obligations are performed through automatic digital transactions in strict sequence and when specific circumstances occur that are defined by the contract.

Note should also be taken of the concept of ‘mining’, which is treated as a type of entrepreneurial activity.

Комментарий ПГ

Mining is aimed at generating profit, is performed regularly and at one’s own risk which is all consistent with the features of entrepreneurial activity as defined by the Russian Civil Code.

It is expected that the persons involved in mining activities will have to register as either entrepreneurs or legal entities in order to perform such activity.


The draft law specifically focuses on the issuance and the purchase of tokens. Thus, if a person is not a qualified investor, they may acquire tokens in a single issuance only up to a maximum amount of RUB 50,000 and only by remitting a token they have acquired to a special account opened for the acquirer by an operator (the ‘operator’) of a digital financial assets exchange. However, qualified investors may acquire and transfer tokens to their personal e-wallets without any limitations.


The intended procedure regulating transactions involving the purchase and the exchange of digital financial assets is similar to that for tokens and also depends on the status of a person who is a party to such transactions.

Comments

It follows from an analysis of the published draft law that the Ministry of Finance has rejected the idea of equating digital financial assets to means of payment. The regulation that the draft law envisages has more in common with the regulation of the securities market with respect to issuance and transactions.

The mechanisms for the taxation of these digital assets are still unclear.

While the structure of the draft law is concise, it does not tackle all the issues arising when transactions involving cryptocurrencies and other digital financial assets are carried out.

The draft law stipulates an obligation for transactions involving an exchange for other types of digital assets, property, or monies to be carried out only through an operator. The draft law provides only for transactions with Russian digital financial assets and does not in any way regulate the purchase and the exchange of a foreign issuer's digital financial assets. This means that a gap remains in the legislative regulation of relations between Russian and foreign owners of such assets.

However, the appearance of this draft law signifies the government’s intention to ensure that it regulates the digital financial assets market. The draft law is expected to be completed and passed before the end of 2018.

What to think about and what to do

Companies and the individuals involved in business associated with financial assets should evaluate what impact this legislative initiative may have on the cryptocurrencies market and other digital financial assets in general. One should also consider the potential civil law and tax consequences of a digital financial asset and the digital property being treated on an equal footing.

Help from your adviser

Pepeliaev Group’s team have gained unique methodological experience in matters of taxation with respect to the securities market and financial assets. We are ready to provide legal support and resolve conflicts of law that transactions on these markets may give rise to.

We will keep a close watch on the status of this draft law and also on the possible regulation of digital financial assets and will update you on new initiatives.



[1] https://www.minfin.ru/ru/document/?id_4=121810&area_id=4&page_id=2104 https://www.minfin.ru/ru/document/?id_4=121810&area_id=4&page_id=2104

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