According to CoinDesk, the UK’s tax authority, HM Revenue and Customs (HMRC), has proposed changes to the tax treatment of decentralized finance (DeFi) lending and staking. The move comes after recent crypto market failures, including the collapse of the FTX exchange, which has led regulators around the world to scrutinize the DeFi space.
Under current rules, DeFi transactions can be treated as disposals, leading to tax outcomes that do not reflect the underlying economic substance of the transaction. The proposed changes aim to ensure DeFi transactions are not treated as disposals for tax purposes, except when crypto assets are economically disposed of in a non-DeFi transaction.
The new framework could also treat all DeFi returns as revenue in nature, subject to a new miscellaneous income charge, to avoid administrative burdens. The proposed changes target DeFi lending and staking and apply to centralized finance (CeFi) as well.
The consultation period for the proposed changes is open for eight weeks and will close on June 22. HMRC is seeking public views on the matter before implementing any changes. This move is part of the UK’s wider efforts to regulate the crypto space and ensure that tax rules are being followed correctly.
Regulators around the world have highlighted specific risks associated with DeFi, including cyber risks, technical risks, and increased dependencies between traditional and decentralized financial systems. The proposed changes by HMRC are aimed at addressing some of these risks and ensuring that tax outcomes reflect the economic substance of transactions.
It remains to be seen how the proposed changes will be received by the industry and whether they will be implemented. However, with regulators globally focusing on DeFi, it is clear that the sector is coming under increasing scrutiny and regulation.
