I'm trying to figure out how to correctly calculate taxes in the below situation.
Prices of
cryptocurrencies can vary between exchanges, based in different countries. Here’s
the description of a typical arbitrage trade:
Step 1: Person
A buys 1 bitcoin (BTC) for 10,000 USD in the United States.
Step 2: Person
A transfers 1 BTC to Person B, who lives in a different country, and is able
to sell BTC on a different exchange in that country for a higher price.
Step 3:
Person B sells 1 BTC in that other country for 11,000 USD.
Step 4:
Person B withdraws 11,000 USD to their bank account, and wires that money over
to Person A in the US through regular bank wire.
The total gain on
this trade is 1,000 (less commissions, wiring fees etc.). How much gain does
Person A and Person B, respectively, need to report?
- If person A reports the entire gain,
what happens if the tax authority in Person B’s country says they also need
to pay taxes, since they got BTC that was purchased for 10,000 and they sold
it for 11,000? In this case the gain would be double-taxed.
- Can Person A and B enter into an
agreement that the initial investment of 10K, and all subsequent gains are shared between them equally, and they would each
report 50% of the gains, to avoid double taxation?
