“I’m going to take my next salary 100% in bitcoin…problem solved!”
– Mayer Francis Suarez
Presentation | The looming threat of hyperinflation
The era of COVID-19 and trade wars has spurred an international arms race to print money. With China’s monetary authority reporting the issuance of more than 9.62 trillion yuan in 2021 and $13 trillion printed in the United States respectively, many experts have warned that the practice of printing money for offsetting the deficits would entail a major economic risk.
Undoubtedly, this is not the first time in human history where a government’s decision to print large amounts of money has led to hyperinflation, especially the Yuan Dynasty, a decision that has ultimately led to the collapse of the dynasty. Other examples include the crisis of the third century in ancient Rome and the 1,000,000% inflation of drachmas.
Cryptocurrencies | Inflation hedge
One of Bitcoin’s stated goals is for virtual currency to become a hedge against inflation. To this end, the theory behind bitcoin as an inflation hedge while the number of bitcoin is limited to 21 million, the number of US dollars (or other fiat currency) generally increases over time at the discretion of the host government .
So, with the looming prospect of hyperinflation on the horizon, cryptocurrency as a means of compensation is growing in popularity, with an ever-increasing number of employers beginning to consider paying their employees’ salaries in cryptocurrency. .
Potential legal and regulatory issues | The dawn of cryptowages
In accordance with the Employment Ordinance (Cap.57), unless otherwise specified, the term “salary” means all remuneration, earnings, allowances (including travel allowances, attendance allowances, commissions, overtime), gratuities and service charges, however designated or calculated, capable of being expressed in terms of money. Given the authorities’ refusal to recognize crypto as currency, it remains unclear whether the Labor Department or Hong Kong courts will treat cryptocurrency as “wage” under the Employment Ordinance.
Additionally, the fact that the value of cryptos is much more volatile than other assets, such volatility can mean that employers can technically face the risk of being charged for failing to meet salary requirements. minimum (for limit pay jobs) as required under the Minimum Wages Ordinance (Cap.608).
Finally, there is the issue of tax reporting by employers that will need to be considered. To that end, one of the main draws for expats to work in Hong Kong is Hong Kong’s tax regime. The fact that unlike the United States, Hong Kong does not have a value-added tax regime, Hong Kong remains a preferred place to make crypto payments.
That said, in March 2020, the Inland Revenue Department (“IRD”) issued revised Ministerial Interpretation and Practice Notes No. 39 (“DIPN 39”) relating to the Digital Economy, Electronic Commerce and digital assets.
In particular, the IRD came to the conclusion that remuneration made in crypto should be subject to income tax. As such, the tax treatment of wages will be applicable to employment income paid in crypto. Employers and employees, as such, have an obligation to declare the amount of income received in cryptocurrency, provided that the crypto contract is a “salary” in itself (e.g. salaried employment). the market rate at the time of payment.
Note: Although DIPNs are technically not legally binding on taxpayers in Hong Kong, DIPN 39 has nonetheless helped to inform the IRD’s interpretation and valuation of cryptocurrencies.
Given the circumstances, until these matters are sent back for judgment, it remains to be seen how the taxation of Crypto-Wage will be assessed by the IRD and the courts.
Professional Conduct Consideration
As far as legal practice is concerned, it remains to be seen that a law firm has virtual currency accounts (either for client’s money or for office money) effecting the payment of salaries in the form of virtual assets with Law Society approval (which usually comes with an audit of the company’s accounts) will be required before this can be made operational.
The recent rise of cryptos and the threat of hyperinflation has prompted many to explore cryptos as the best mode of storing value. As such, reference should be made by various jurisdictions around the world:
Japan: Since April 1, 2017, the concept of “virtual currencies” has been introduced into legislation in Japan, with cryptos being considered a fully legalized means of payment. This prompted GMO Corporation to put 4,700 of its employees on the crypto payroll.
United States: American authorities are known to have welcomed a favorable environment for cryptowages. According to research by Bitwage, it was suggested that 10.5% of companies surveyed compensate their employees, at least in part, in virtual assets.
Finally, let’s not forget that one of the advantages of cryptos is the possibility of implementing smart contracts. This is attractive to many because where compensation removes the human and/or “discretionary” factor (eg where the bonus is calculated by formula and automatically performed) it will create a potentially fairer working environment with less conflict. of work.
All in all, just like how crypto has become inevitable, employers paying in crypto will also be inevitable. Businesses and companies will be wise to have the facilities to handle such an arrangement.
This article first appeared in the Hong Kong Lawyer, the official journal of the Law Society of Hong Kong.
This article is co-authored by Erin Ching of the Women Unbounded Mentorship Program.