Taxation on Virtual Money Transactions: Analysis of Chinese Policies

Recently, a piece of news regarding the Zhejiang Provincial Taxation Department pursuing individual income tax has sparked widespread discussion. According to reports, a taxpayer was pursued for tax and late fees totaling 127,200 yuan due to not actively declaring profits from trading Virtual Money. This incident has raised people's attention towards China's taxation policy on Virtual Money trading.

However, there is currently no clear implementation policy for taxing Virtual Money in the country. It is worth noting that the official announcement does not clearly state whether the parties involved engaged in Virtual Money trading. Therefore, we need to cautiously consider the authenticity and accuracy of this information.

Even if there are indeed cases of taxation due to Virtual Money transactions, the existing legal framework lacks clear provisions for taxing such transactions. Relevant authorities may base their taxation on the current individual income tax law and its implementation regulations, as well as policies related to overseas income.

Looking back at history, in 2008, the State Administration of Taxation issued a reply regarding the taxation of online virtual money transactions, classifying them as "income from property transfer." However, this reply predates the birth of modern cryptocurrencies such as Bitcoin, and its applicability is questionable.

Currently, China takes a strong regulatory stance on Virtual Money. Relevant policies prohibit Virtual Money exchanges from conducting business within the country, and also prohibit the exchange of Virtual Money with fiat currency. These activities are classified as "illegal financial activities." Against this backdrop, taxing Virtual Money transactions presents contradictions on both logical and legal levels.

It is worth mentioning that China does not deny the legitimacy of virtual money, but does not recognize its status as legal tender. In judicial practice, especially in criminal cases, the property nature of virtual money is acknowledged.

For investors, virtual money trading in China falls under the category of risk-bearing, and the law does not provide protection. Therefore, it is difficult for tax authorities to maintain policy and regulatory coherence regarding taxation on such transactions.

However, it cannot be ruled out that some tax authorities may have a limited understanding of the relevant policies and may demand back taxes solely based on the inflow of funds. This approach ignores the many risks faced by Virtual Money investors, such as account freezes and asset losses.

Overall, China's taxation policy on Virtual Money trading is still in a gray area. Investors should fully understand the policy risks and act cautiously when engaging in related transactions. In case of similar tax issues, it is advisable to consult professionals to protect their rights.