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Facebook answers how Libra taxes & anti-fraud will work

Facebook provided TechCrunch with new information on how its cryptocurrency will stay legal amidst allegations from President Trump that Libra could facilitate unlawful behavior. Facebook and Libra Association executives tell me they expect Libra will incur sales tax and capital gains taxes. They confirmed that Facebook is also in talks with local convenience stores and money exchanges to ensure anti-laundering checks are applied when people cash-in or cash-out Libra for traditional currency, and to let you use a QR code to buy or sell Libra in person.
A Facebook spokesperson said the company wouldnt respond directly to Trumps tweets, but noted that the Libra association wont interact with consumers or operate as a bank, and that Libra is meant to be a complement to the existing financial system.
Trump had tweeted that Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libras virtual currency will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International
For a primer on how Libra works, watch our explainer video below or read our deep dive into everything you need to know:

In a wide-reaching series of interviews this week, the Libra Associations head of policy Dante Disparte, Facebooks head economist for blockchain Christian Catalini, Facebooks blockchain project subsidiary Calibras VP of product Kevin Weil answered top questions about regulation of Libra. Heres what weve learned (their answers were trimmed for clarity but not edited):

Would Facebooks Calibra Wallet launch elsewhere even if its banned in the USA by regulators?


Calibras Kevin Weil: We believe that creating a financial ecosystem that has significantly broader access where all it takes is a phone and lower transaction fees across the board is good for people. And we want to bring it to as many people around the world as we can. But as a custodial wallet we are regulated and will be compliant and we will only operate in markets where were allowed.
We want that to be as many markets as possible. Thats why we announced well in advance of actually launching a product because weve been engaging with regulators. Were continuing to engage with regulators and we can help them understand the effort that were taking to make sure that people are safe and also the value that accrues to the people in their countries when theres broader access to financial services with lower transaction fees across the board.
Facebook answers how Libra taxes & anti-fraud will work

TechCrunch: But what if youre banned in the US?
Weil: Im hesitant to give a blanket answer. But in general, we believe that Libra is positive for people and we want to launch as broadly as possible. The world where the US does that I think would probably cause other regulatory regimes to also be concerned about it. I think thats very much a bridge that well cross when we get there. But so far were having frank, open and honest discussions with regulators. Obviously, that continues next week with David testimony. And I hope it doesnt come to that, because I think that Libra can do a lot of good for a lot of people.
TechCrunchs Analysis: The US House subcommittee has already submitted a letter to Facebook requesting that it cease development of Libra and Calibra until regulators can better examine it and take action. It sounds like Facebook believes a US ban on Libra/Calibra would cause a domino effect in other top markets, and therefore make it tough to rationalize still launching. That puts even more pressure on the outcome of July 16th and 17ths congressional hearings on Libra with the head of Facebooks head of Calibra David Marcus.

How will users cash-in and cash-out of Libra in person?


We already know that Facebooks own Libra wallet called Calibra will be baked into Messenger and WhatsApp plus have its own standalone app. There, those with connected bank accounts and government ID that go through a Know Your Customer (KYC) anti-fraud/laundering check will be able to buy and sell Libra. But a big goal of Libra is bring the unbanked into the modern financial system. How does that work?
Calibras Kevin Weil: Because Libra is an open ecosystem, any money exchange business or entrepreneur can begin supporting cash-in/cash-out without needing any permission from anyone associated with the Libra Association or member of the Libra Association. They can just do it. Today in a lot of emerging markets [theres a service for matching you with someone to exchange cryptocurrency for cash or vice-versa called] LocalBitcoins.com and I think youll see that with Libra too.
Second, we can augment that by by working with local exchanges, convenience stores and other cash-in/cash-out providers to make it easy from within Calibra. You could imagine an experience in the Calibra app or within Messenger or WhatsApp, where if you want to cash in or cash out, youll pop up a map that highlights physical locations around that allow you to do it. You select one thats nearby, you select an amount, and you get a QR code that you can take to them and complete the transaction.
Id imagine that most of these businesses that we work with will support Libra more broadly, so even if we get these deals started it will benefit the whole ecosystem and every Libra wallet, not just Calibra.
Facebook answers how Libra taxes & anti-fraud will work

TechCrunch:Have you struck relationships with any convenience store operators or money exchangers like Western Union or MoneyGram, or Walgreens, CVS or 7/11? Are you in talks with them yet?
Weil: I probably shouldnt comment on any specific deals but were in conversation with a lot of the folks you might think, because ultimately being able to move between Libra and your local currency is critical to driving adoption and utility in the early days . . . If youre banked there are easier ways to do that. If youre not banked and youre in cash those are the people we really want to serve with Libra were working very hard to make that process easy for people.
TechCrunchs analysis: This approach will let Calibra largely avoid the complicated and potentially error-prone process of KYCing people in person or handing out cash by offloading the responsibility and liability to other parties.

How will Libra stop fraud or laundering while offering access to unbanked users without ID?


Weil: There are very important populations that dont have an ID. People in a refugee camp may not, as an example, and we want Libra to be serve them. So this is one example of many of why its important that Calibra isnt the only option for people who want to participate in the Libra ecosystem . . . Others of these will be run by local providers and they have programs to meet customers face-to-face and other ways to serve people and even KYC them that we may not . . . Were not going be the only wallet, we dont want to be the only wallet.
This is one of the reasons NGOs have bene members of the Libra association from the start, because we want to encourage the monetization of identity processes both through working with governments issuing credentials for more people and also making use of new types of information for identity and authentication. We hope this process will hep the last mile problem.
In the case of a non-custodial wallet, the user isnt trusting anyone. The way the regulations have worked and this is evolving as we speak. The on-ramps and off-ramps to the crypto world are regulated and they have direct customer relationships and its their responsibility to KYC people. In our case well be a custodial wallet and well KYC people. There are a number of wallets in the Bitcoin or Ethereum ecosystem non-custodial wallets that dont have a direct relationships with the users. . . They have to get that Bitcoin somehow. Usually theyre going through an exchange where usually as part of the process theyre KYCd.
Facebook answers how Libra taxes & anti-fraud will work

In a lot of emerging markets you have LocalBitcoins.com where you can find a representative or agent who will meet you in person and exchange cash for bitcoin in whatever market you have to be in. And I believe that they just started making sure that they KYC everyone,but theyre doing it in person. And they have more flexibility in how they do it then you might otherwise. I think there are lots of ways that this will happen and the fact that Libra is an open ecosystem will enable people to be entrepreneurial about it.
There are lots an lots of people who are underserved by todays financial ecosystem who have government ID. So even with requiring everyone go through a KYC process, well be able to serve many, many people who are not well-served by todays financial ecosystem. We want to find ways to support people who cant KYC and the important part is that Calibra will fully interoperate with any other wallet, including ones that people in local markets are using because its a better fit for their needs.
TechCrunch:Through that interoperability, if someone with an non-custodial wallet receives Libra and then sends it a Calibra wallet user, does that mean you Libra coming into Calibra from users who werent KYCd and could be laundering money?
Weil: So its part of the regulatory situation thats evolving as we speak. Theres something called the Travel Rule . . . If theres a transfer above a certain value you have to make sure that you understand both who the sender is, which you do if theyre using a custodial wallet, and who the receiver is. These are evolving regulations, but its something that obviously were going to make sure that we implement as regulations solidify.
TechCrunchs Analysis:Calibra appears to be inviting regulation that it can strictly abide by rather than trying to guess at what the best approach is. But given its unclear when concrete rules will be established for transfers between non-custodial wallets and custodial wallets, or for in-person cashing, Facebook and Calibra may need to establish their own strong protocols. Otherwise they could be guilty of permitting the unlawful behavior Trump describes.
Facebook answers how Libra taxes & anti-fraud will work

How will Libra be Taxed?


Dante Disparte of Libra: Taxing of digital assets is something thats being designed at the local level and at the jurisdiction level. Our view of the world is that like with any form of money or any form of payment or banking, the onus in terms of compliance with tax is with the individual user and consumer, and the same would hold true broadly here.
We expect that the many, many wallets and financial services providers building solutions on the Libra blockchain would begin to provide tools that make it much easier than it is today [to calculate and file taxes] for digital assets and cryptocurrencies more generally . . . Theres plenty of time between now and Libra hitting the market to begin defining this more strictly at the jurisdictional level among providers.
TechCrunchs Analysis:Again, here Facebook, Calibra, and Libra association are hoping to avoid shouldering all the responsibility for taxes. Their position is that just as you have to take the initiative of paying your taxes whether or not you use a Visa card or your banks checks to transact, its on you to pay your Libra taxes.
TechCrunch:Do you think in the United States that its reasonable for the government to ask that Libra transactions be taxed?
Disparte: Tax treatments of digital assets broadly hasnt been entirely clarified in most places around the world. And we hope that this is something that this project and the ecosystem around it helps to clarify.
Tax authorities will see a benefit from Libra at the consumption level and at the household level, while some cryptocurrencies have avoided taxes until the point they tried to cash out. But the nature of it and the lack of speculation and its design we think should give it a light tax treatment the way you would find with traditional currencies.
Facebook answers how Libra taxes & anti-fraud will work

Christian Catalini of Facebook: Cryptocurrencies are taxed right now every time you have a sale on the differences in gains and losses. Because Libra is designed to be a medium of exchange, those gains and losses are likely to be very tiny relative to your local currency . . . Sales tax would likely be implemented the exact same way on Libra as it is today when you pay with a credit card.
At launch giving current regulations, the Calibra wallet will have to track every purchase and sale of Libra for a US user and those differences will have to be reported on tax day. You can think of the losses, albeit they may be very small gains and losses relative to USD, as similar to the what people do today when they have a Coinbase account with Bitcoin.
The sales tax I think could be implemented in the exact same way as it today with any other sort of digital payment, it would be no different. If youre buying goods or services with Libra youll be paying sales tax the same way as if you used a different form of payment. Like today when you see a percentage, that is the sales tax on your total.
Disparte: Maybe the best way to frame how taxes work all over the world is that its not up to Libra, Calibra, Facebook or any company to make that determination. Its up to regulators and authorities.
TechCrunch: Does Calibra already have plans in place for how to handle sales tax?
Weil: Thats also a pretty rapidly evolving part of the regulatory ecosystem right now. Its really an ongoing discussion. We will do whatever the regulation says we need to do.
TechCrunchs Analysis:Here we have the firmest answers of our interviews. Facebook, Calibra, and the Libra Association believe the proper approach to taxes is that Libra transactions carry a countrys traditional sales tax, and that Libra you hold in your wallet will have to pay taxes based on the Libra stablecoins value (thats pegged to a basket of international currencies) relative to the US dollar.
If the Libra Association recommends all wallets and transactions follow these rules and Calibra builds in protocols to handle these taxes simply, at least the government cant argue Libra is a method of dodging taxes and everyone paying their fair share.

Facebook announces Libra cryptocurrency: All you need to know
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