Pressure builds as Russia struggles to define cryptocurrencies

The Bank of Russia recently held a meeting with Russian President Vladamir Putin, where the legal status of cryptocurrencies was discussed. Citing the belief that cryptocurrency legalization represents “a loss of control over the money flows from abroad," the Chairwoman of Russia’s Central Bank, Elvira Nabiullina, clarified that her organization is against any type of legalization.

Earlier this month the Bank made a general announcementthat revealed more of their stance on cryptocurrencies, including Bitcoin. Recalling the usual risks from fluctuating exchange rates, technical difficulties, anonymity, and the lack of a responsible issuer, the Central Bank stated clearly that its position hasn’t changed on cryptocurrencies since they declared non-state-issued currency banned in January of 2014.

“Given the high risks of circulation and use of the Crypto-currency, the Bank of Russia considers it premature to admit crypto-currencies, as well as any financial instruments nominated or associated with crypto-currencies.”

• Bank of Russia

The recent clarification on the Central Bank’s stance marks a clear divide in the Russian ruling elite. Last week the governor of Russia’s Leningrad region suggested that developers of crypto-currencies and innovative start-ups should consider using a new technopark in Sosnovy Bor.

“We thought a lot [about] how to use them in the future, including a modern technopark, and now the idea arose to offer this platform for the creation of innovative energy-intensive industries,” announced Governor Drozdenko.

The news comes less than a month after Russia’s Internet Ombudsman announced an ICO to help fund the launch of the Russian Mining Company, which has so far raised over US$37 million towards a world-class bitcoin mining chip fabrication and mining facility.

“This year, our country will own 10% of the world’s computer mining power."
— – Dmitry Marinichev, Russian Internet Ombudsman

Meanwhile, Russia’s largest bank, Sberbank, has been a major proponent of Bitcoin and blockchain technology, calling for legalization and running various blockchain experiments.

“In my view, it is critically important to determine the role and position of the government and even better to stimulate instead of prohibit the development of groundbreaking technologies, namely the blockchain,” said Sberbank CEO, Herman Gref, late last year.

The Russian Finance Minister, Anton Siluanov, recently added that “the state understands indeed that cryptocurrencies are real […] There is no sense in banning them, there is a need to regulate them.”

Hoping to regulate them in a similar way to securities such as treasury bonds, which his department only got around to launching earlier this year, Siluanov revealed that the Ministry will finish working on a law defining how Russians should purchase cryptocurrencies, as some kind of registration would be required.

“We must make an organized market out of the black market.”

• Anton Siluanov, Russian Minister of Finance

The Finance Ministry is not alone in its’ scramble to define cryptocurrencies. The following day the Chairman of the State Duma Committee on Financial Markets Anatoly Aksakov told Pravda that he will soon hold a meeting on the issue of cryptocurrency regulation. Representatives of the Central Bank, the Ministry of Finance, and the expert community will participate. “We will agree on the basic principles for regulating this market,” he stated.

“The main task is to define the concept of what is a cryptocurrency, whether a crypto currency is a financial instrument, “ Aksakov clarified. “This is important because it can have different tax consequences. Because transactions with financial instruments are not subject to VAT. If this is a different kind of product, then a value-added tax may arise.”

Taxation of cryptocurrencies is the main concern for the Finance Ministry, and it is an important issue in the Duma, at the Central Bank, and at some other government departments as well.

In May, Sputnik News revealed that the Central Bank had been drafting a proposal to classify bitcoin as a “digital good” for tax purposes.

“We propose to treat them as digital goods, use the digital goods legislation, with certain amendments on taxes, control and record-keeping.”
— – Olga Skorobogatova, Central Bank Deputy Governor

This treatment would see cryptocurrencies classified similarly to electronic books, music and software, which carries an 18% VAT tax that is collected at the time of their purchase.

In August the head of the Russian Parliament’s cryptocurrency working group, Elina Sidorenko, proposed treating bitcoin as foreign currency, taxing it the same way currencies are already.

Meanwhile, Russia’s Ministry of Communications and Mass Media is the federal executive body responsible for drafting and implementing government policy and legal regulation in the areas such as information technology, telecommunications, mass communications and mass media.

The head of the Ministry of Communications, Nikolai Nikiforov, recently said that his department will “submit rules for circulation of cryptocurrencies to the government, the Central Bank and other financial institutions that will be responsible for the monetary component,” according to RBC. “Such operations should be taxed not with VAT or on profit, but taxed on personal income,” Nikiforov declared. His Ministry “will deal with technical issues.”

“Bitcoin is unlikely to be fully legalized in Russia, since this technology is based on foreign encryption algorithms, and they are not recognized from the point of view of Russian jurisdiction.”

– Nikolai Nikiforov, Ministry of Communications