How Will the UK Deal With Crypto After Brexit: Expert Take

Because, the U.K. and its territory Gibraltar - the age-old tax haven that has repositioned itself as the new crypto venue of choice - have already created separate virtual currency and blockchain technology initiatives as strategic tools for income growth and national competitiveness.

The EU also took the lead in proposing an EU-wide digital tax ahead of the OECD. All the while, EU member state cryptocurrency classifications for income tax and for VAT purposes, as well as their taxation, vary widely from member state to member state, with cross-border tax applications as detailed in current tax treaties remaining uncertain.

These multiple tax issues are compounded by the individualized implementation of the EU's Anti-Money Laundering laws by member states that will likely create barriers to pan-European blockchain implementations - as pointed out by Carlos Torres, CEO of Spanish bank Bilbao Vizcaya Argentaria, who, after issuing the first blockchain-based loan, cautioned that blockchain technology is ''not mature'' and faces major challenges, including the ''volatility of underlying cryptocurrencies'' and possible compatibility issues with tax authorities and financial regulators.

The U.K. has been a leader in the CMU initiative, but now with the Brexit deadline approaching, it plans to implement its own crypto regulations before 2019.

Major banks utilized the U.K.'s network of offshore tax havens in structuring opaque mortgage-backed securities that caused the credit crisis that wreaked havoc on the world economy, threatening the collapse of the world's largest financial institutions and which was cured by the bailout and nationalization of banks by governments.

Vera Jourova, a member of the European Comission responsible for Justice, Consumers and Gender Equity, at a Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance meeting, explained that ''there is a lack of implementation of AML by 20 member states, as well as very poor cooperation among member states in enforcing AML.'' Banks are free to move capital across EU states and beyond, but checks on money laundering and other financial crimes remain largely a national competence - a mismatch that EU authorities say hampers transnational/cross-border controls and creates financial stability risks.

Digital Tax With a long-term solution of taxing digital firms being postponed until 2020 by the OECD, the EU Commission took the lead by proposing an EU-wide digital tax ahead of the OECD - a brand new taxable nexus, ''digital presence'' or virtual permanent establishment concepts, which are not addressed in current tax treaties.

"When assessing the effective level of taxation of the digital sector, the EESC underlines the need to take into account the changes in the tax codes going forward, due to the ongoing implementation of BEPS rules and, in particular, to consider the substantially increased level of taxation in the U.S. of U.S. digital firms operating in the EU, due to changes in the U.S. Tax Code.".

On July 16, the U.K. Parliament voted to amend the Brexit Customs Paper to ensure the U.K. does not remain within the EU VAT regime post-Brexit, which means that the U.K. will not attempt to collect EU VAT on behalf of other EU states, enjoy many cross border trade VAT simplifications, nor remain subject to European Court of Justice rulings on indirect tax.

Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD..