A debate in the cryptocurrency community is brewing over the tax implications of using XRP for cross-currency payments, specifically regarding XRPL pathfinding and taxable events.
A heated debate has ignited within the cryptocurrency community regarding the tax implications of using XRP for cross-currency payments. The discussion revolves around XRPL pathfinding and its potential effects on taxable events.
Fredo Ayala, an accounting and finance consultant with a passion for digital assets, initiated the conversation. He argued that if an XRP settlement occurs within a single ledger without price fluctuations, the tax implications would only apply to the customer. However, if price shifts occur during the pathfinding process, both increases and decreases in taxable events may arise.
I believe this is he biggest and hottest debate at the SEC and I believe there are Senior SEC officials who are split on what to do. Some will say don’t appeal and the SEC can argue “facts and circumstances” and that XRP is a unique story, one not shared by other tokens. If you… https://t.co/mIA64MwZvd
— John E Deaton (@JohnEDeaton1) July 25, 2023
Neil Hartner, a senior staff software engineer at Ripple, sought further clarification on a specific scenario involving a USD to EUR cross-currency payment that is autobridged via USD to XRP and XRP to EUR. Ayala confirmed that such a transaction would indeed trigger a taxable event, dependent on gains or losses compared to the cost basis at the time of purchase.
Matt Hamilton, a former director of developer relations at Ripple, interjected with an intriguing comparison to traditional banking processes. He pointed out that banks, as legal entities, already report gains and losses, while the decentralized exchange in XRPL is not a reporting entity. Consequently, the responsibility for handling tax-related matters falls upon the party initiating the transaction.
The Ripple CTO’s Viewpoint
David Schwartz, Ripple’s current CTO and one of the architects of XRPL, emphasized that the taxability of gains and profits remains independent of who reports them. Schwartz argued that any profit or gain generated during the process should be considered taxable income for the responsible party.
The discussion continues to generate widespread interest and may have far-reaching implications for the use of XRP in cross-currency payments. As the debate unfolds, cryptocurrency enthusiasts and stakeholders eagerly await further insights and guidance on how taxation will be applied in these scenarios.
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