Bitcoins: transforming
your phones to wallets

By Atty. Kim Aranas




What do Filipino finance enthusiasts and techie millennials monitor on their mobile phones, other than social media updates and mobile games? The highs and lows of virtual or digital currencies.
Virtual currencies were traditionally used by players of online games. Then came the mysterious Satoshi Nakamoto, who introduced Bitcoin as a “peer-to-peer version of electronic cash” that allows for fast and cheap digital transactions independent of third-party financial institutions. Now, these virtual or digital currencies may already be acquired using fiat currency and be converted back to fiat currency or be used for payment or remittance. Bitcoin is the most widely used virtual currency by far.
The technological backbone of the bitcoin currency is the so-called blockchain—a data structure that allows a network of computers to share between them a tamper-proof digital ledger of transactions known as cryptography. Through the blockchain, codes are entered into the ledger to track the ownership of the bitcoin without the need for a central authority, thereby fast-tracking transactions, while lowering fraud and maintaining the anonymity of the bitcoin owner.
The bitcoin came into existence sometime in January 2009 with the issuance of the bitcoins. The rest, as they say, is history.
Is bitcoin a currency?
In the Philippines, the increase in the volume of bitcoin transactions to around $6Million per month has caught the attention of the Bangko Sentral ng Pilipinas (BSP). Bitcoin is also gaining popularity among Overseas Filipino Workers (OFWs) as they began using it for their remittances to the country to avoid hefty remittance charges. Banks, such as the Bank of the Philippine Islands and Banco De Oro Unibank; and even 7-Eleven convenience stores are now into bitcoins transactions.. Several platforms as,, and are Filipino mainstays acting as bitcoin brokers to facilitate its transactions. The value of a bitcoin is very volatile, as it depends on the supply and demand of bitcoins. Its value changes every second, as this is dictated by the market. The virtual currency’s value has recently increased, as many become hooked on bitcoins, thereby increasing its demand.
On February 6, 2017, the BSP finally broke its silence and issued BSP Circular No. 944, where it categorically declared that virtual currencies, including bitcoin, is not a currency, since it is neither guaranteed by a central bank nor backed by any commodity. The BSP, however, provided guidelines on regulating virtual currencies for the delivery of financial services, particularly for payments and remittances. These guidelines could have a material impact on anti-money laundering and combating the financing of terrorism, consumer protection, and financial stability.
A closer look at BSP Circular No. 944 reveals that the Philippines does not intend to prohibit bitcoins, although the said regulation diminishes the anonymity of the bitcoin owner for relatively valid reasons. Hence, there is need for a special law, at the least a regulation by our tax authorities.
BIR’s silent treatment of the bitcoin craze
One may purchase a bitcoin to speculate the increase of its value and convert it to fiat currency at a gain, others merely use bitcoins for payment and remittance. The fact that its value changes every second gives an air of excitement. There is a catch, though: it is not backed by a commodity or a tangible object, unlike stocks or bonds. A bitcoin’s valuation is entirely dictated by the market. As Warren Buffett puts it, bitcoin is a bubble. It cannot be deemed a real investment, because it is not backed up by any tangible commodity.
However, it is undeniable that gains or profit may be realized just by speculating an increase in the value of a bitcoin and then converting it to fiat money. To date, the Bureau of Internal Revenue (BIR) has not yet issued any regulation or circular to ascertain the taxability of a bitcoin transaction.
In the US, the Internal Revenue Service has already issued regulations treating bitcoins and similar convertible virtual currencies as “property.” As with other types of property, first, one acquires property, often by exchanging cash for the property. Then, one owns the property for a period of time. Eventually, one might sell, give away, trade, or dispose of the property. As such, income upon the disposition of the “property” is subject to tax, depending on its holding period if long-term or short-term. Under this treatment, verifiable documentation from the acquisition to the disposition stage is a must.
In Canada, the Canada Revenue Agency (CRA) treats bitcoin—and digital currencies generally—as a commodity for income-tax purposes. As a result, bitcoin transactions are subject to the same rules as barter transactions, i.e., transactions where one commodity is exchanged for another. Under this treatment, the income or loss from a bitcoin or other convertible virtual currency transaction would be treated as either (1) income or loss from business or property or (2) capital gains or loss.
According to the CRA, vendors accepting bitcoins must record the fair market value of the bitcoin upon receipt and be subjected to the business income tax. On the other hand, those that use bitcoins for trading, investing, and speculating may straddle the line between income and capital, which continues to be a gray area.
In Japan, bitcoins and other digital currencies are defined as “asset-like values that can be used in making payments and can be transferred digitally.” Initially, Japan subjected bitcoin transactions to 8% consumption tax and applicable capital gains tax. Effective July 1, 2017, however, the Japanese government has lifted the consumption tax to bitcoins, but retained the applicable capital gains tax.
Of bitcoins and existing local laws
Under Article 1305 of the Civil Code of the Philippines, a “contract” is a meeting of minds between two persons, whereby one binds himself with respect to the other to give something or to render some service. Bitcoin transactions could be classified as an innominate contract or that which has no specific name or designation under the law. Hence, unless a law is passed prohibiting bitcoin transactions, it cannot be considered invalid simply because it is virtual and does not conform to the strict standards of contracts under the Civil Code.
One major hurdle that needs to be addressed by regulators is the anonymity of bitcoin owners, as ownership tracking is done through codes and not to mention the fact that there is no governing authority for bitcoins and other virtual currencies. Bitcoin is a type of cryptocurrency. As such, a bitcoin transaction may be short of an enforceable contract through legal proceedings. For one to commence legal action against another party, one has to know the whereabouts of the other i.e., the name and address, among others. In a bitcoin transaction, such is not the case. A bitcoin transaction could only amount to a moral or social agreement, which cannot be enforced by court action, unless a special law is passed to regulate the said transaction.
Some bitcoin platforms, such as, require the bitcoin owner’s personal profile pursuant to know-your-customer rules.
If a bitcoin transaction could give rise to a contract, it becomes necessary to ascertain if a bitcoin, being virtual, may be considered property. Article 417 of our Civil Code provides that “obligations and actions which have for their object movables or demandable sums” are considered personal property. If a bitcoin transaction gives rise to an obligation or action for a demandable sum, then it can be considered personal property. Bearing in mind the elements of a taxable income—(1) there must be gain or profit; (2) the gain or profit is realized or received, actually or constructively; and (3) it is not exempted by law or treaty from income tax—it is expected that the BIR could at least come up with a circular on its position on the taxability of bitcoins and other digital currencies.
With the recent “build, build, build” thrust of the administration comes the need for internal funds. While everyone is busy finalizing tax reforms, legislators and regulators might want to consider regulating bitcoin transactions to effectively subject it to tax. After all, the power of taxation being an inherent power of the state is universal. For reference purposes, the BIR might be interested in looking at the tax treatment being used by the US, Canada, and Japan.
Atty. Aranas is a manager and tax advisory of the Compliance Division of P&A Grant Thornton, a leading audit, tax, advisory, and outsourcing firmsin the Philippines, with 21 Partners and over 850 staff members. We are in Makati, Cavite, Cebu and Davao. For comments on this article, please email or

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