Is Cryptocurrency ‘Property’ for Tax Administration Purposes?

• Author: Moosa, F.
• DOI: https://doi.org/10.47348/SAMLJ/v33/i3a2
• Published date: 16 May 2022
• Date: 16 May 2022
• Citation: (2021) 33 SA Merc LJ 364
• Pages: 364-383

IS CRYPTOCURRENCY ‘PROPERTY’ FOR TAX

ADMINISTRATION PURPOSES?

FAREED MOOSA*

Associate Professor, Faculty of Law, University of the Western Cape

Abstract

Section 1(a) of the Constitution of the Republic of South Africa, 1996

stipulates that human dignity, the achievement of equality and the

advancement of human rights and freedoms are foundational values of

South Africa’s sovereign, democratic state. Aligned herewith is s 39(1)

of the Constitution, which directs that every interpretation of the Bill of

Rights must promote the values that underlie an open and democratic

society based on human dignity, equality and freedom. Therefore, the

Constitution’s human rights ethos, culture and spirit is a dominant

theme serving as a guide when the term ‘property’ is interpreted in the

context of the privacy clause (s 14(b)) and the property clause (s 25).

This article argues that by applying a purposive cum contextual cum

grammatical cum teleological interpretive methodology, the concept

‘property’ in ss 14(b) and 25(1) of the Constitution goes beyond the

conventional ambit of common-law property. It is argued that, for

constitutional purposes during tax administration, property also

encompasses intangible property in the form of Bitcoin and possibly

other cryptocurrencies owned by taxpayers, which represent legal

interests worthy of constitutional protection during tax administration

by the South African Revenue Service.

Keywords: Bitcoin; constitutional property; cryptocurrency; interpretation;

tax administration

IINTRODUCTION

The internet is an interconnection of networked computers that allows

users to communicate with each other in an electronic boundary-free

sphere that belongs to no one. In this cyberworld, place has little

meaning.

1

The absence of a border permits e-commerce to f‌lourish

unhindered by laws establishing jurisdiction with reference to a f‌ixed

*BProc (UWC) LLB (UWC) LLM (UCT) LLD (UWC).

1

Cox, The residence of cyberspace and the loss of national sovereignty (2002) 11

Information & Communication Technology Law 241 at 244–245.

364

https://doi.org/10.47348/SAMLJ/v33/i3a2

(2021) 33 SA Merc LJ 364

© Juta and Company (Pty) Ltd

place on a map. Therefore, trade in the digital economy may harm a

country’s tax base.

2

This situation is worsened by the fact that, within the

global online and off‌line ecosystem, virtual currencies (‘VC’), such as

Bitcoin, are increasingly being used instead of conventional payment

methods.

3

These are important innovations in the ‘internet of things’.

4

These digital currencies are intangible: they are paperless and cashless,

and exist only in e-form within a computerised network. The South

African Reserve Bank (‘SARB’) does not recognise virtual currency as

off‌icial tender and describes it as ‘a digital representation of value that

can be digitally traded and functions as a medium of exchange, a unit of

account and/or a store of value but does not have legal tender status.’

5

Aholder of this pseudo currency acquires a unit of value created and

stored digitally. Conceptually, virtual currency is classif‌ied as centralised

or decentralised, and as convertible or non-convertible.

6

Convertible

currencies have an equivalent value in real currency and may be

exchanged for them. There are two subsets, namely, centralised convert-

ible currency and decentralised convertible virtual currency (‘DCVC’).

The former, such as Webmoney, has a single administering authority

that issues the digital unit, establishes rules for its use, maintains a

central payment ledger for the currency, and has authority to redeem it.

7

In contrast, DCVCs, such as Bitcoin, are ‘distributed, open-source,

math-based peer to peer VCs that have no central administering

authority, and no central monitoring oversight’.

8

These digital curren-

cies are protected by cryptography, which is an encryption technique

that secures digital information and protects the privacy of its content.

9

This veil of encryption makes it diff‌icult for tax authorities to track

transactions denominated in so-called cryptocurrency and also to trace

them among a taxpayer’s portfolio of assets.

2

See Oguttu & Van der Merwe, Electronic commerce: Challenging the income tax base’

(2005) 17 SA Merc LJ 305. In South Africa, a resident is taxed on worldwide income, while a

non-resident is taxed only on income sourced in South Africa. See First National Bank Ltd v

CIR 2002 (2) SA 375 (SCA).

3

Nieman, ‘A few South African cents’ worth on Bitcoin’ (2015) 18 PELJ 1979 at 1981.

4

Baker, ‘Trustless property systems and anarchy: How trustless transfer technology will

shape the future of property exchange’ 2015 Southwestern LR 351 at 368.

5

SARB, Position Paper on Virtual Currencies 2/2014 at 2, available at http://

www.resbank.co.za, accessed on 2 February 2021.

6

SARB, Position Paper on Virtual Currencies 2/2014 at 2.

7

Moosa, ‘A cryptocurrency wallet: Is it ‘‘relevant material’’ for tax administration

purposes?’ (2020) 11 Business Tax & Company Law Quarterly 21 at 21–22.

8

Nieman, (2015) 18 PELJ 1979 at 1983. Also see Ly, ‘Coining Bitcoin’s legal bits:

Examining the regulatory framework for Bitcoin and virtual currencies’ (2014) 27 Harvard J

Law & Technology 587.

9

Moosa, (2020) 11 Business Tax & Company Law Quarterly 21.

https://doi.org/10.47348/SAMLJ/v33/i3a2

IS CRYPTOCURRENCY ‘PROPERTY’ FOR TAX ADMINISTRATION PURPOSES? 365

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