Virtual currencies are throwing up a series of problems for governments trying to exert some control on a personal asset that only exists online.
Many governments are still coming to grips on whether virtual money is real or not.
The problem is gains from currency trades are not taxable in many countries, but government worldwide are looking at cryptocurrencies – like Bitcoin – as assets rather than currency.
This means they are subject to tax on any gains made from trading.
But the issues go much farther.
Some lawyers are struggling to come up with a solution about how to treat Bitcoin in a divorce.
The first consideration for many divorce judges is fairly sharing out matrimonial assets between the separating couples.
The usual starting point is valuing the property the couple acquired during the marriage and then applying a split according to the various rules – for instance should the partner caring for the children get a larger split, and so on.
Lawyers are concerned that Bitcoin and other virtual currencies are untraceable.
They are not subject to financial control by any central bank or regulator and no one really knows how many are in circulation online, who owns them and what they are worth.
If this is the case, the lawyers ponder, then the courts have no power to chase down any other cash or assets a spouse has converted into Bitcoin – nor can they put a value on them as no central registry is available to check for ownership.
The fear is virtual currencies will not only benefit criminals who can move money around without trace, but the wealthy who want to shield their riches from the prying eyes of the courts.
Virtual bolt holes
Some lawyers regard this as advancement rather than a new opportunity.
For as long as divorce laws have existed, some of the wealthy have tried to conceal their real worth by hiding money offshore.
New tax laws, like the Foreign Account Tax Compliance Act (FATCA) introduced at the start of July 2014 by the US government, are closing these bolt holes and drawing back the veil of secrecy on offshore accounts.
However, human nature is bound to leave some people seeking an alternative.
Moving into virtual currencies is the ideal hiding place, given the difficulties tax authorities and the courts have of tracing electronic communications across borders.
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