Tax Restructuring through Cryptocurrency

Nov 10, 2018 | Law

Tax (Re)structuring: the advent of Cryptocurrency


Ombo Malumbe*


The ideology of establishing Bitcoin (read cryptocurrency) has been in place prior to the year 2008 when the first stable cryptocurrency was conceptualised by the mysterious person or group of persons known as Satoshi Nakamoto. However, in this paper, the bone of contention is what impact does cryptocurrency have towards implementation of laws or Regulations in various countries.

As a result of cryptocurrencies, there have been ample questions arising from the Securities/ Capital Markets oriented bodies, Central Banks, and or Government Tax authorities. It is imperative to note that the aspect of Blockchain Technology and Cryptocurrencies pose startling questions towards Governments that have been reluctant to catch up with the Technological and Innovation trends that are taking place day-in-day-out.

Around the world, Governments have taken different stances towards Cryptocurrencies, which include entirely or partially accommodating, banning, classifying, and or taking no action on Cryptocurrencies. Therefore, the imperative issues that emanate are, what are the benefits of Cryptocurrencies, particularly about the application of Tax Laws or Regulations.

Tax Laws or Regulations (Tax Laws) have an element of nulla poena sine lege, a Criminal Law based Latin maxim that provides that no one can be convicted for a crime that the laws, at that material time, did/do not define a certain activity as a crime. The application of Tax Laws requires that for a transaction to be taxable, the same ought to be provided expressly through the laws, therefore, in the event that a Country lacks such legal parameters or definitions that would make it possible to Tax Cryptocurrencies, then it makes it a fair model to implement Tax Avoidance Schemes.

The individuals or companies that engage in Cryptocurrencies tend to adopt various names for the Cryptocurrencies, which include Virtual Assets, Utility Tokens, Security Tokens, Equity Tokens, among others, which can merely be challenged based on the Substantive factors over the Descriptive factors that are relatively used by Cryptocurrency enthusiasts. Therefore, to understand the Tax models applied or those which can be applied towards Cryptocurrencies, it is essential to focus on classifications provided towards Cryptocurrencies.

The paper gives a simplistic explanation of cryptocurrencies, after that, the article addresses Tax Avoidance in a general manner, which is followed by a minor example on how one can structure their business using cryptocurrencies.

Keywords: Tax Avoidance, Tax Evasion, Tax Laws, Cryptocurrencies, ICO, Tax (Re)structuring, Tax Avoidance Schemes

* Attorney of the High Court of Kenya. Specialises in Strategic Legal Services: Corporate Law & Litigation. Partner at Ong’anya Ombo Advocates Nairobi Kenya.

Contact us: or +254703672515

Download: Tax ReStructuring the advent of Cryptocurrencies