Bitcoin & VAT (EN)

JPMorgan Chase Chief Executive, Jamie Dimon once again lambasted the bitcoin and digital currencies, warning that governments would close them if they grew. Jamie Dimon is in the truth!

—– Black scenario —–

The Bitcoin trading price has just sunk following a rumor. Its value is in free fall. All exchange platforms are inaccessible!

Today, there are no longer queues in front of the banks as in 1929.

Faced with the volume of demand Bitcoins conversions in return to a classic currency, all international platforms to exchange this virtual currency, have just shutdown their website. It is in reaction to the movements of panic that which seized, on the Net, by the holders of Bitcoins, whose trading price has just collapsed. To make the situation worse, Bitcoin processing only allows a maximum of seven to eleven operations per second! Splitted in two: Bitcoin and Bitcoin cash, in early August to remedy this problem, did not help matters. It is now necessary to manage two portfolios of possible blockchains that will have to be « mined » (validation of transactions) in two different environments with a shared machine time, by default non-extensible, between these two parallel processing, which will slow down even more both the transactions of the classic Bitcoin but also the Bitcoin cash. The doubling of computers could have provided a technical solution. It is an investment problem which does not resolve itself in a day, facing an immediate crisis and now no longer justified by the « miners » of Bitcoins whose collaborative gains have been halved since 2008!

The validation machines are in “stack overflow”, so the platforms have stopped the hemorrhage and the panic so that we do not know the number of sales orders and thus preserve the trading price.

Another reason about the closure of trading platforms. After an historical price of more than $ 4,000 at the end of August compared to $ 560 in January, many of them have reinvested the currency conversions in Bitcoins. It is also unlikely these trading platforms have the liquidities backed by such actual increased price since the beginning of the year. If they had this cash available, where would they take it? Impossible! Other platforms still open do not want to trade outside the transactions they have processed and from which they are at the origin, with proof of purchase. They redeem in the original trading price for their privileged customers.

However, many buyers of Bitcoins, as a result of « peer-to-peer » transactions are no longer in possession of the virtual currency that they surely converted into legal acquisitions before the crach. These are the winners of the events. For all the others, those with their Bitcoins, If they do not have proof of their purchases on these trading platforms, they can not request a conversion into Euro or Dollar. These are the fall guy of this situation, and have only to pray that the descent into Hell is the least painful possible.

Here we must remember the warning proverb of the Bitcoin: « Invest in the Bitcoin only the time and money you can afford to lose » !

The exchange platforms have made the decision to close by the simple fact that they do not want to buy with billions of Euros or Dollars, Bitcoins to people who sell them a virtual currency that no longer value! It is logical, have you ever seen a bank divest itself of its official holdings, for many of these international currencies, guaranteed by the States and the banking system, and convert them into an immaterial currency? I have not never seen a banker agreeing to do that! The disastrous consequences are the same as in the Ponzi pyramids, where the system can operate as long as new buyers acquire Bitcoins at a high price by paying the profits of those who sell.

Worse yet, these exchange platforms, If they are not yet bankrupt and still opened, in case they want to accept to convert Bitcoins to Euro, for example, will wait until the value of the Bitcoin is at the lowest, so that the differential is the largest possible with the Bitcoin’s purchase by the customer. It is a bet, free of charge and without risk, which condemns the Bitcoin to fall down into the abyss of its value.

So why the fictitious panic of this scenario, but not without foundation, described in this article?

It is with the disappearance of cash in a very nearby horizon in Denmark and Sweden in 2020, where no trading exchange will take place outside the banking system. States and their tax authorities quickly realized that peer-to-peer transactions would undermine their budgets and political willingness. They do not want to leave the free hands to embezzlement of all kinds. They locked their monetary environment and fiscal system. It should be recalled here that in modern democracies, voters have entrusted the politicians with the responsibilities of budgets and these politicians want to be re-elected, these circumstances explaining these decisions!

But in what context this rumor?

The context has emerged in the framework of the future VAT levied directly on the payments that will be splitted, planned in April 2018 in Poland, already partially in Italy and October in Romania for an application in January 2018, on a VAT which is spreading around the world with newcomers such as Brazil, GCC – United Arab Emirates, Bangladesh, etc ….

The rumor at the origin of the monetary crash is that, as a result of the new digital tax declarations, which came into force in Spain with « SII » since July and in GCC where the e-filed tax returns will be matched between sellers and purchasers (DAGTVA declarative system),  a tax authorization will be also required in the future to debit a buyer and to credit a seller on a bank account. This is so that the banking system knows how to extract the VAT on the payments. Thus it be able to balance the accounts of the taxable companies by notifying the vendors of the VAT is levied automatically at the source and at the place of consumption. Processes to comply with the directives of the European Commission and the OECD. Without this tax clearance that would authorise any bank payments, it would then become impossible to transform payments into Bitcoins, inside a transactions in which VAT would be present, by the modification of the bank processing software in the future implementation around the world, like the card’s payment, in the same processing. The Bitcoin is therefore condemned to term on all transactions : B²B, B²C and a fortiori C²B, out off the circuit of the legal currencies. A, de facto, condemnation by all the undertakings subject to VAT. It is recalled: « with VAT, labor and investment are not taxed on production, only the increased valuation of this production is involved and with these advantages, the businesses are very attached to their VAT » .

Indeed, in this context, a buyer which would like to pay in Bitcoin a seller subject to VAT. It would then be impossible for the seller to produce an invoice in Bitcoin that could lead to an automatic digital tax return to the tax authorities, where the VAT would be mentioned. We already see that in Italy where when you leave the store, you must be able to present to the control authorities, in the street and under penalty of fines, the receipt of your purchases mentioning the price paid and the VAT. So without a digital declaration, no tax authorization produced for the banking system and it will not know how to extract the VAT from the payment (the invoice can be complex with several articles and different VAT rates), especially since the bank will be able to make these transactions only in an official currency.

These consequences will be the same for all the other virtual currencies which assume the right to do business outside of any regulation. With a « peer-to-peer » transaction, it would be, for example in the company, the possibility of paying the employees directly in Bitcoins, by telephone, without any legality. With today’s immigration, the new modern slaves would not be far away!

But back to the monetary blockchain. We see that without the possession of this tax authorization attached to the transaction, it would no longer be possible to carry out a banking but also interbank movement, it is the certainty of the tax revenues for the States, as sought by the G20 in Autumn 2016, G20, which entrusted the OECD with the task of proposing possible solutions. It is also the return to strength of the banking system that guarantees the stability of the world economy, even if the banking system can no longer make movements of funds internally without these fiscal authorizations. In compensation, it will receive from the States remunerations on all the transactions carried out. That is to bring income guarantees in its main activity. If banks make money, they will be able to lend and raise interest rates in the currency market. It is therefore all the benefits for the banking system that will stand with the States in the same objectives, even if they will not leave him the choice of the VAT levying.

Today, with this predictable loss of autonomy and to escape these constraints, the banking system tries to react to avoid the States pressure, as we see with the grouping of seven of the largest banks: Barclays, Credit Suisse , the Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street, on a form of private blockchain, in service at the end of 2018, which was created by UBS Switzerland. This banking grouping signs the blockchain’s own loss. It will only accelerate and reinforce the future reaction of the States because, it is far too late. All is already « in the pipes ». Each bank will receive from the State an agrement from the tax authorities to apply the split payment.

Failure to comply with the automatic VAT collection instructions would result the loss of this agrement, if transactions using virtual currencies were detected. The tax authorities will have full power to put pressure on the banks. It will suffice for them to no longer produce, for the implicated bank, the tax clearance on a payment request. The punishment is instant for the bank with the loss of all transactions: B²B, B²C and it is the total bankruptcy by the loss of all its clients subject to VAT, clients obliged to make their payments by other agremented banks, banks which can be also those of the State. No serious bank wouldn’t take the risk, firstly, not to accept the rewarded treatment of the split payment but also to find themseves in a such delictual situation. The banks will perform, step by step, what they have to do with the split payment.

It is the reaching hitting three targets with one shot. The fight against fraud, the safeguarding and transparency of the banking system, which is sought after by all the States and the all major international organizations fighting for stability and against financial and fiscal embezzlement, like OECD.

The scenario of this article is not without foundation!

The need to have a tax authorization (Tax Clearance) to be able to make a bank transaction where VAT is present, is not a rumor. Spain with « SII », tests since July the digital tax return on transactions, Poland, Italy and Romania, the last, since the end of August, to apply the split payment. Together these two processes: digital tax return and split payment and all is done! The scenario of this article has just joined a reality that has been presented in several international conferences. To convince you, please go to on the page of the conferences with the slideshows and texts of the presentations made to the International VAT Association in June 2016 and last November at the OECD WP9 (indirect taxation). See also what HMRC is asking in its queries for alternative methods of levying VAT.

To conclude,

All scientific studies confirm this fatal outcome for monetary blockchains, but we should not too much worried about it. It is no longer the small savers who bought when the price of the Bitcoin was around € 500. At € 4000 a piece today, large investors artificially increased the raise of trading rate of virtual coins. We should not have in too much compassion for them, they have sound financial backing.

Since Antiquity, the currency has always shown its solidity by two united parameters: sovereignty and relationship of trust. It is clear that none of them is present. For confidence, despite the recent increased price of the Ethereum against Bitcoin in recent months, it must not make us forget that these « investors » have already been robbed of $ 50 million in Ethereum in June 2016, and last June, $ 32 million disappeared in the wild after a first hack had lost $ 7.4 million still on the Ethereum, spreading doubt on a real security and reliability on blockchain systems! (A further article will brings the proof evidence of this).

I just described a monetary scenario in both directions: monetary blockchain associated with its announced disaster, and the positive side for the banking system and tax revenues. The probability that this scenario will occur is a certainty, because the current Bitcoin is only the result of a pure speculative bubble, a « value » that is not a real refuge, without sovereignty and relationship of trust, the production of associated labor, out of wealth produced and any contribution for the common good! And like all bubbles, even it’s nearly impossible to predict when bubbles will burst – but we know they will!

This will be the subject of a forthcoming article detailing all the technical and congenital defects of the blockchain in all its aspects.

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