Summary
1. Why Cryptocurrency Is Classified as “Miscellaneous Income” — The National Tax Agency’s Core View
Japan’s National Tax Agency (NTA) maintains that cryptocurrency is primarily characterized by its function as a means of payment, rather than as an asset whose value appreciates. For this reason, the NTA treats gains from crypto not as capital gains but, in principle, as miscellaneous income. Because crypto is legally positioned as something akin to a payment instrument, price appreciation is considered conceptually distinct from an increase in asset value.
2. A Shift in Recent Years — Government Acknowledges Cryptocurrencies With “Hybrid Characteristics”
In a 2022 government statement, officials recognized the possibility that certain cryptocurrencies may possess both payment utility and value-appreciation characteristics. They noted that whether a particular crypto asset qualifies as capital gains income should depend on the specific nature of the asset. This marked a notable departure from the previous blanket classification of all crypto gains as miscellaneous income.
3. Yet the Current Position Remains: “No Cryptocurrency Qualifies as Capital Gains Income”
At the same time, the government stated that cryptocurrencies—including MonaCoin—are generally not recognized as having independent value based on appreciation alone. As a result, they maintain that, at present, no crypto assets effectively qualify as capital gains income. Furthermore, even if a crypto asset were deemed eligible for capital gains treatment, profits from ongoing, profit-motivated trading would still be classified as either miscellaneous income or business income.
In the previous issue, we explained why gains on the capital gains of cryptocurrencies are considered miscellaneous income rather than capital gains. This time, we will introduce a counterargument to this view.
There are several possible counterarguments to the NTA's view above. For example, "Can we categorically say that all cryptocurrencies have no intrinsic value?" "Is it appropriate to focus only on their role as a means of payment, among the multiple properties of cryptocurrencies?
Don't they at least have the properties of assets that can be used as investment targets?" "If cryptocurrencies are 'assets' but do not fall under the category of 'assets that form the basis of capital gains,' shouldn't this or the criteria for determining the latter be clearly stated in the law?" "Is it appropriate to narrow the scope of capital gains through interpretation when there is no such provision?"
