According to Nikkei, the Japanese government recently approved major tax policy changes for the 2024 fiscal year, eliminating taxes on unrealized profits from cryptocurrencies held by companies.
Under the 2024 tax reforms approved by the Japanese government, taxes on unrealized profits from cryptocurrencies held by companies will be eliminated. The change, reported by Nikkei, reverses the previous policy under which cryptocurrencies held by companies were taxed based on their market value at the end of the tax year, regardless of whether the assets were sold or held.
Reforming Japan's cryptocurrency tax policy
Under the new tax regime, Japanese companies will only be taxed on profits actually made from the sale of their crypto assets. This change will align the tax treatment of corporations with that of individual investors who are taxed only on capital gains made.
The tax reforms also represent an important step towards implementing separate taxation of crypto transactions. This approach includes applying special tax rates and loss deductions to cryptocurrency transactions.
The Japan Crypto Asset Business Association (JCBA) has been a strong advocate for this change, pushing for a fairer and growth-oriented tax environment for digital assets.
The JCBA has proposed several measures, such as tax exemption of crypto-to-crypto exchanges and the imposition of a flat tax on the conversion of crypto-assets into fiat. They also proposed to apply the remaining three years of reduction.
Moore v. United States and tax consequences
Recent developments in the United States related to the Moore v. The US Supreme Court has provided a counterpoint to Japan's approach to taxing cryptocurrencies. The controversy in this case concerns the definition of "realized income" and the taxation of unrealized profits.
The case involves Charles and Kathleen Moore, who are challenging taxes on their investments in India-based companies. The Moors argued that they received no income from these investments because they did not cash in their profits or bring them back to the United States, thus defying taxation under the 16th Amendment.
“This is the most important tax case the Supreme Court has heard in decades,” Yale Law School professor Natasha Sarin said in an interview. “What the Moors are doing in this case is contesting its constitutionality. The tax had to be approved on the basis that they had never received revenue from this part.
The Supreme Court held a hearing on December 5 and is still awaiting a final decision. The move will be watched closely not only for its immediate impact on filers, but also for its potential to reshape the broader income tax landscape, particularly in the rapidly growing digital assets space.