Tax Challenges in Debt Financing Involving Digital Tokens

(2022) 17(4) Capital Markets Law Journal 564-582

Singapore Management University School of Law Research Paper

19 Pages Posted: 19 Sep 2022 Last revised: 24 Jun 2023

See all articles by Vincent Ooi

Vincent Ooi

Singapore Management University - Yong Pung How School of Law; Singapore Management University - Centre for AI & Data Governance

Date Written: September 3, 2022

Abstract

When digital tokens are used in debt finance, one cannot assume that the same orthodox tax treatment will apply. The highly specific nature of tax provisions means that they may apply very differently once digital tokens rather than fiat currency are involved. Through a case study of Singapore law, this article shows that if debt finance transactions involving digital tokens are not carefully structured, there may be severe tax consequences, including the inability to deduct borrowing costs or benefit from common tax incentives, and the possible incurrence of additional tax liabilities. This article submits that, under Singapore tax law, it may be difficult to argue that digital tokens are in fact “money”, whether they be digital payment tokens and/or asset-backed tokens. It highlights potential differences between situations where digital tokens are the assets being loaned, used to pay for borrowing costs, or used as a medium of recording the transaction.

Keywords: Digital Tokens, Crypto, Taxation, Capital Markets, Singapore Taxation

JEL Classification: K34, F38, H2, H20, H24, H25, H26, H27, H29

Suggested Citation

Ooi, Vincent, Tax Challenges in Debt Financing Involving Digital Tokens (September 3, 2022). (2022) 17(4) Capital Markets Law Journal 564-582, Singapore Management University School of Law Research Paper , Available at SSRN: https://ssrn.com/abstract=4209178

Vincent Ooi (Contact Author)

Singapore Management University - Yong Pung How School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore

HOME PAGE: http://vincentooi.com

Singapore Management University - Centre for AI & Data Governance ( email )

55 Armenian Street
Singapore
Singapore

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