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24ADDRESING CHALLENGES ARISING FROM THE USE OF CRYPTO-ASSETS
MINKOVA GANETA MINKOVA
Professor at the Institute of the State and the Law of the Bulgarian Academy of Sciences, Sofia,
Republic of Bulgaria
TZENOVA LUBKA MLADENOVA
Professor at the University of National and World Economy, Sofia, Republic of Bulgaria
Abstract
Digitalization has developed rapidly over the past two decades, covering increasingly important sectors of socio-economic life worldwide. Like any process, digitalization has both positive and negative aspects. In the field of finance, digitalization has raised new problems related to payments, currency exchange, tax evasion, etc. Some of these go beyond purely finance matters, as they concern, on the one hand, national security and the sovereignty of the state to issue payment instruments, and, on the other hand, the rights of citizens to obtain protection against fraudulent practices.
One of the phenomena associated with digitalization is the emergence of crypto-assets. Society as a whole is largely unprepared to deal with the challenges associated with crypto-assets. This topic is not being extensively discussed, and it lacks in-depth legal-theoretical research. In addition, this type of assets requires not only knowledge of the law, but also of digital technology.
One of the new initiatives of the European Union is the legislative proposal for regulation by the European Parliament and the Council of Markets in Crypto-Assets (MiCA). The proposal was first published in September 2020 and has been subject to revisions. Bulgaria, as a Member State, will directly implement the regulation, which should integrate seamlessly into the existing national legal system. Without the objective of exhausting the discussion, this article aims to examine the main ideas behind the proposal and to point out which Bulgarian laws border on the prepared EU regulation. This study does not deliver a comprehensive description of economic implications of the use of crypto-assets.
Keywords: crypto-assets, Distributed Ledger Technology, accountancy, Value Added Tax
1. Introduction
Since their emergence in 2009, crypto-assets have quickly become popular, especially among people who felt knowledgeable of and comfortable with digitization, and from whose perspective, crypto-assets are easily accessible, transferable, exchangeable and tradable from almost anywhere on the globe. Blockchain technology also reduces costs and increases speed of operation as it does not need manual verification. On the other hand, crypto-assets have some disadvantages [3], for example, if one considers the possibilities they offer to carry out transactions that are not controlled by state institutions due to the decentralized nature of the process [17]. In addition, crypto-assets are characterized by volatility, as their value can change significantly in a short time. A recent example of the uncertainty of investing in crypto-assets is the collapse of the FTX crypto exchange in November 2022.
Even more interesting in Bulgaria is the fact that cryptocurrency transactions have an impact not only on the economic but also on the political sphere. An international crypto platform operating in Bulgaria was accused of money laundering and providing illegal financial support to a political party. In January 2023, action was taken against the platform by the prosecutor's office and the State Agency for National Security [12]. Allegedly, the measures were implemented as a result of the intervention of the Attorney General of New York, but the crypto platform reached an agreement with US authorities and the case was closed, as the company operating the platform paid a fine [15].
Against the backdrop of these developments in the US and Bulgaria, the European Parliament postponed for the second time the consideration of the legislative proposal for a regulation of Markets in Crypto-Assets, which is part of the Digital Finance package and is expected to amend Directive (EU) 2019/1937 of the EU Parliament and of the Council of 23 October on protection of persons who report breaches of Union law. The MiCA proposal [6,8] aims to create a fully harmonized EU legal framework for the functioning of crypto-asset markets [4,5,7]. Currently, most Member States have not adopted provisions to protect investors in case of risk to their investments in crypto-assets. MiCA is expected to help consumers avoid deceptive schemes. In order to protect consumers' rights, especially if transactions are conducted outside the EU, MiCA introduces operational, organizational and prudential requirements for 'crypto-asset service providers' (CASPs). With the new rules, CASPs will have to protect consumers' wallets and be held responsible in case they lose investors' crypto-assets.
MiCA will also cover all types of market abuse, in particular market manipulation. As Bruno Le Maire, the French Minister of Economy, Finance and Industrial and Digital Sovereignty says, 'Recent developments on this quickly evolving sector have confirmed the urgent need for an EU-wide regulation. MiCA will better protect Europeans who have invested in these assets, and prevent the misuse of crypto-assets, while being innovation-friendly to maintain the EU's attractiveness. This landmark regulation will put an end to the crypto wild west and confirms the EU's role as a standardsetter for digital topics'. Despite these ambitious targets, last November the first reading of the proposal on MiCA in the EU Parliament, with an initial date in December, was postponed to February 2023, but in January, the proposal was deferred again to April 2023.
These facts show that urgent action is needed at the EU and Member State level to regulate the acquisition, transaction and exchange of crypto-assets. The lack of definitions, agreed classification, or a regulatory framework leads to crypto-assets being misunderstood by citizens, companies and even authorities. This also contributes to their easy exploitation for tax evasion and even to the payment of goods and services that are considered illegal. Despite the lack of legal framework, this study attempts to briefly describe what crypto-assets and Distributed Ledger Technology (DLT) are. Object of research is also the use of different types of tokens [10,14]: payment tokens (virtual currencies or e-money tokens), utility (consumer) tokens, security (asset or financial or asset-referenced) tokens or "hybrid tokens" (combining the characteristics of payment, utility and security tokens).
This research focuses on existing commercial, accounting and tax rules that can be applied to regulate cryptocurrency and the crypto-asset services providers (CASPs), as well as administrative practice and case law. As a Member State, the Republic of Bulgaria is strongly influenced by EU law, but the work of the International Financial Reporting Interpretations Committee (IFRIC) also has a significant impact on the accounting of crypto-assets.
This topic is extremely relevant due to the aforementioned lack of research, appropriate legislation, practice and case law.
This paper ends with a formal conclusion.
This article does not employ an empirical method, as the analysis is conducted via doctrinal research and comparative study between EU law, the case law of the Court of Justice of the European Union (CJEU) and Bulgarian law and practice. Accordingly, the sources for analysis are limited to books, articles published in peer-reviewed journals, publications on the internet, opinions and interpretations of various institutions and case law.
2. The Concept of Crypto-assets
Crypto-assets are value represented in digital form that is traded, transferred and used for payment or investment purposes.
Crypto-assets are based on cryptographic and algorithmic methods. They use distributed ledger technology such as blockchain [13]. The blockchain represents a structure that stores and transmits data in packages called 'blocks' connected to each other in a digital 'chain'. The blockchain can be
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private, with select participants, or open to the public. Public networks often use permissionless access in order for participants to be able to read, write, and validate transactions. Conversely, private networks use permission based access, which limits the actions of the participants [11]. Through blockchain technology [1] data are recorded and shared across ledgers, that are multiple data stores, maintained by a network of computer servers. The transactions between network participants do not need an intermediary to take place and represent, therefore, a decentralized process [17].
Several types of assets are distinguished depending on their characteristics. The first category is crypto-assets which are used for making payments. These are the cryptocurrencies, which come in many forms such as stablecoins or e-money tokens (significant, non-significant or traditional e-money tokens), for instance. Virtual currency is a type of digital money that is not issued and guaranteed by a Central bank, though some banks have issued digital money. One unit of virtual currency may be exchanged for goods and services, for another type of virtual currency, or for fiat currency.
Very popular is the cryptocurrency 'bitcoin' [1]. Bitcoin can be 'mined' [9] and purchased on an exchange platform using conventional currency, then transferred to a personalized bitcoin account called a 'digital wallet' [3]. Wallets are divided into several categories: hot custodial wallet, hot-not custodial wallet, cold hardware wallet and cold paper wallet. Using the wallet, the user can send bitcoins online to anyone willing to accept them or convert them back into fiat currencies. When the transaction is executed, the sender 'signs' the transaction using their private key. After the confirmation, the transaction is compiled into a block with other transactions in chronological order in the blockchain ledger and it is impossible to change the chain [11]. All other users on the network can receive information about the transaction by using the public key. Transparency is an important feature of blockchain technology.
Another category is utility tokens that are intended to provide access to a good or a service supplied by the issuer of that token.
Under the MiCA proposal, crypto-assets are divided into three categories:
(i) 'asset-referenced tokens' that maintain a stable value by reference to any other value or right, or combination thereof, including one or more official currencies;
(ii) 'e-money tokens' that are used for payments;
(iii) crypto-assets other than asset-referenced tokens or e-money tokens.
The type of particular asset is important because in many cases described in the MiCA proposal, asset-referenced tokens and e-money tokens are referred to separately from other crypto-assets. For this reason, the types of tokens covered by MiCA are discussed in more detail in the study.
3. Crypto-assets in EU and Bulgarian Legislation
In Bulgaria there are normative acts that regulate various aspects of banking, insurance and investment (the Collective Investment Schemes and Other Undertakings for Collective Investments Act, the Credit Institutions Act, the Markets in Financial Instruments Act, the Payment Services and Payment Systems Act, the Recovery and Resolution of Credit Institutions and Investment Firms Act, the Supplementary Supervision of Financial Conglomerates Act, etc.). Although the overall regulatory framework of financial services is relatively new, current laws generally do not regulate crypto-assets in detail. In the past, only some authorities, such as the National Revenue Agency (NAP), the Bulgarian National Bank (BNB), which is the Central bank of Bulgaria, or the Financial Supervision Commission (FSC), have issued opinions in response to questions posed by companies or institutions, but these do not constitute a complete guidance, as will be examined below.
However, in 2019, the Measures Against Money Laundering Act (MaMLA) was amended and a legal definition of the term 'virtual currency' was created. According to i. 24 of § 1 of the Supplementary Provisions (SP), 'virtual currency' shall be a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded
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electronically. As is obvious, the definition does not cover all the aforementioned types of crypto-assets and is therefore not exhaustive. Custodian wallet providers are also defined as a natural or legal persons or other legal entities that provide services to safeguard private cryptographic keys on behalf of their customers, to hold, store and transfer virtual currencies. Both definitions are intended to serve the purposes of the MaMLA, as its Art. 4 governs all entities responsible for combating money laundering. The provision also includes persons that, by way of their business, provide exchange services between virtual currencies and fiat currencies under i. 38 and custodian wallet providers under i. 39. The measures binding the exchange services providers and custodian wallet providers are the following: customer due diligence; collection and preparation of documents and other information and according to the procedure established by the MaMLA; retention of the documents, data and information collected and prepared for the purposes of the MaMLA; assessment of the risk of money laundering and terrorist financing; disclosure of information on suspicious operations, transactions and customers; disclosure of other information for the purposes of the MaMLA.
Nevertheless, in view of the expected adoption of the MiCA regulation, it is necessary to consider future amendments to existing legislation in the field of banking, insurance, financial payments, etc., whose implementation will positively influence the administrative practice and case law.
3.1. Crypto-assets in Commercial Law
Although the users of cryptocurrency services are natural or legal persons, there are usually no service providers intermediating the payment, as is the case with the use of payment instruments. This situation makes it impossible to regulate cryptocurrency payments in the same way as payments that use instruments defined in the current version of the Payment Services and Payment Systems Act.
In fact, this conclusion is controversial as the FSC expressed a contrary view in an October 2016 consultation on crypto-assets. According to it, since the transfer of virtual currency takes place on the relevant network and insofar as the transfer itself bears the characteristics of a payment transaction, the network operator also plays the role of a payment service provider, and should be licensed by the Bulgarian National Bank.
In addition, as case law shows, this consultation is not the only opinion of the FSC on the subject. In 2015, a case was brought before the Sofia Court of Appeals [20] in connection with the refusal of the Registry Agency (RA) to register a company operating with bitcoin in the Commercial Register. The registration of an investment intermediary requires a permit from the FSC, but in this case the company that filed a complaint with the court did not have such a permit when it applied for commercial registration, and for this reason the RA did not register it. By Decision No. 834 of 24.04.2015 (Case No. 984/2015), the court used the statement of the FSC expressed by Letter No. A07-00-114 of 23.10.2014, in which the Commission stated that virtual currencies are not treated as financial instruments and it is not necessary to obtain a license to enter into transactions with them. According to Letter No. BNB-108809 dated 19 Sept. 2014, the view of the BNB, requested by the court in the said proceeding, is the same.
The cited opinions of the FSC and the BNB might undergo changes in the near future due to the expected development of the EU legal framework. There is already a change in the Bulgarian authorities' view on crypto-assets, pursuant to Decision No. 672 of the Council of Ministers of the Republic of Bulgaria of 17 Sept. 2021, on the approval of the Action Plan to Mitigate the Risks of Money Laundering and Terrorist Financing [18]. It should also be pointed out that from 2019, Article 9a of the MIPA states that the persons referred to above in Article 4, i.38 and 39, shall be entered in a public register maintained by the National Revenue Agency. Entry in the register shall be made in accordance with a procedure established by an ordinance of the Minister of Finance. However, this registration shall not constitute a licensing regime and shall have no effect over registration in the Commercial Register. The purpose of the register is purely informative and serves the objective of combating money laundering.
According to MiDA, crypto-asset service providers (CASPs) engage in the following activities: providing the operations of crypto-asset trading platforms, exchanging crypto-assets for funds or other crypto-assets by dealing on own account, services on behalf of third parties that ensure the custody and management of crypto-assets, transferring crypto-assets, placing crypto-assets, accepting or transmitting orders for crypto-assets, executing orders for crypto-assets on behalf of clients, including when part of these activities is carried out in a decentralized manner, ect.
Although many CASPs offer some other kind of crypto-asset transfer service (for example custody and administration of crypto-assets, execution of orders, etc.), the usual activity of such a provider is the transfer of crypto-assets from one distributed ledger address to another on behalf of a third party. However, the validators, nodes or miners that may be part of confirming a transaction and updating the state of the underlying blockchain, are not CASPs.
Not only the CASPs, but also the offerors or persons seeking to be admitted to trading in crypto-assets should be legal persons. Non-legal entities, such as commercial partnerships, could also provide crypto-asset services where they meet certain conditions. Any natural person registered to distribute e-money under Directive 2009/110/EC of the EU Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions, may distribute e-money tokens, even without prior authorization.
In Bulgaria, the legal persons active in the field of crypto-assets services are likely to be limited liability companies or joint stock companies within the meaning of Bulgarian Commercial law, as these legal entities are entitled to carry out activities in the financial sphere under specific laws.
The CASPs should have their registered office in a Member State where they carry out substantial business activities, including crypto-asset services. At least one of the managers of the company must be a resident in the EU.
Where a third-country company provides crypto-asset services to a person established in the Union, the crypto-asset services should not be deemed to be provided in the Union.
In accordance with Article 9 of Directive (EU) 2015/849 of the EU Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for purposes of money laundering or terrorist financing, EU-authorized CASPs will apply enhanced controls to financial transactions involving customers and financial institutions from high-risk third countries.
Under MiCA, CASPs will need authorization to operate within the EU, which will be granted by national authorities within three months. As regards the largest CASPs, national authorities will regularly transmit relevant information to the European Securities and Markets Authority (ESMA).
Also under MiCA, certain companies subject to Union financial services legislation should be allowed to provide all or some cryptocurrency-related services if they notify their competent authorities with the necessary information. Although crypto-assets may not qualify as financial instruments, deposits, insurance or pension products, the legal framework of, for instance, Directive 2014/65/EU of the EU Parliament and of the Council of 15 May 2014 on markets in financial instruments, will apply when entities provide crypto-asset activities.
In Bulgaria, consideration should be given to whether new authorization rules will be adopted for activities related to crypto-assets that cannot be covered by existing regimes as they are not electronic money, or deposits, or financial instruments, or funds according to the current laws.
As mentioned above, under MiCA, there are the following categories of assets:
(i) Crypto-assets other than asset-referenced tokens or e-money tokens
Public offerings of crypto-assets other than asset-referenced tokens or e-money tokens, that potentially have a financial use in the Union or all admissions of crypto-assets to trading on a crypto-asset trading platform should be adequately monitored and supervised by the competent authorities.
Outside the scope of the regulation are certain situations, such as when crypto-assets are offered for free or created automatically as a reward for maintaining DLT. Such activities with crypto-assets constitute a 'limited network exemption', but this may change if the network grows.
In order for transparency to be strengthened, offerors of tokens should publish an information document ('crypto-asset white paper'). The document should contain general information on several issues such as, for example, the issuer, the offering party, or the person seeking admission to trading, the project to be carried out with the capital raised, etc. The requirement of drawing a white paper does not apply to offers made to qualified investors or to a small number of persons. The operator of the trading platform may be responsible if the white paper was not prepared but the crypto-assets are admitted to trading. The person seeking admission to trading is responsible if the white paper provides false information.
(ii) Asset-referenced tokens
Due to the higher risk in regards to the protection of the rights of their holders, the issuers of asset-referenced tokens or e-money tokens are subject to stricter requirements than issuers of other crypto-assets.
Although issuers of asset-referenced tokens should also have a registered office in the Union, be authorized by the competent authority and have an approved white paper for those crypto-assets, not all issuers need a special registration. For instance, credit institutions authorized under Directive 2013/36/EU of the EU Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investments firms, should not need another authorization in order to issue asset-referenced tokens. The rules of Directive 2013/36/EU are transposed into the Bulgarian Credit Institutions Act, which regulates the authorization and supervision of credit institutions. The powers of the competent authorities to restrict or limit the activities of credit institutions and to suspend or prohibit an offer to the public shall apply in the case of services provided using asset-referenced tokens.
The authorization granted by the competent authorities of a Member State should allow the issuer of asset-referenced tokens to offer and to seek admission to trade them on crypto-asset platforms throughout the Union. The white paper should also be valid for the whole Union.
As asset-referenced tokens can lead to distortions of monetary policy and sovereignty, the level of activity of their use should be limited when the number and value of transactions per day are higher than a specified threshold.
Asset-referenced token issuers should be subject to capital requirements. The size of the issue of asset-referenced tokens should be calculated as a percentage of the reserve of assets backing the value of the tokens. Issuers of tokens should maintain an asset reserve to cover their obligations to holders of tokens, for example in the event of insolvency.
The issuer of asset-referenced tokens should grant a permanent right of redemption to holders of tokens at any time.
(iii) E-money tokens
The issuer of e-money tokens is also required to produce a white paper containing the relevant information. Article 5 on own funds and Art. 7 on safeguarding requirements of Directive 2009/110/EC shall not apply to credit institutions issuing electronic money tokens.
3.2. Crypto-assets Accountancy
Despite the adoption of the National Accounting Standards (NAS) by the Council of Ministers, International Accounting Standards (IAS/IFRS) continue to be applicable in Bulgaria en bloc. All companies may choose to prepare their financial statements in accordance with IAS. The wording and headings of the NAS are similar to those of the IAS. As there is no specific NAS or IAS that regulates crypto-assets, an Interpretative Opinion of the International Financial Reporting Interpretations Committee (IFRIC) helps to address the lack of a standard.
According to § 1, item 8 of the SP (Supplementary Provisions) of the Accounting Act, "International Accounting Standards" include also the related IFRIC Interpretations. Therefore, in Bulgaria, IFRIC Interpretations are implemented on a mandatory basis. The Committee's Interpretative Opinion (IO) on the accounting treatment of cryptocurrency holdings from the 12th of
June 2019 is applied immediately from the date of its publication [2]. Under this IO, the possession of cryptocurrency should be accounted for in accordance with:
(i) IAS 2 (NAS 2) Inventories if it is held for sale in the ordinary course of business.
If IAS 2 (NAS 2) applies, the initial measurement is cost. The subsequent measurement is lower cost and net realizable value. The change in carrying amount is recognized in profit or loss. If IAS 2 applies to commodity brokers and dealers, the initial measurement is again cost, but the subsequent measurement is fair value less costs to sell.
(ii) IAS 38 (NAS 38) Intangible Assets in all other cases.
If IAS 38 (NAS 38) is applied by using the Cost Model, the initial measurement is cost. The subsequent measurement is cost less accumulated depreciation and impairment. The change in carrying amount is recognized as profit or loss. In most cases, cryptocurrency does not depreciate due to not having a limited useful life. Cryptocurrency is reported at a loss when the revaluation surplus from previous remeasurements is insufficient to cover a fair value remeasurement loss.
If IAS 38 (NAS 38) is applied by using the Revalued Amount Model, the initial measurement is the acquisition cost. The subsequent measurement is the fair value less accumulated amortization and impairment. The change in carrying amount is recognized in other comprehensive income and profit or loss. The revaluation model can only be applied if there is an active market for the cryptocurrency. An active market is a market in which transactions for an asset or liability occur with sufficient frequency and volume to provide continuous price information.
As asset-referenced tokens can be used as a means of exchange, any profits or losses arising from the investment of reserve assets should be borne by the issuer of the tokens.
3.3. Crypto-assets and Value Added Tax (VAT)
The issues with taxation of crypto-assets with VAT were observed in the administrative practice of Bulgaria since the topic had already been dealt with by the European Court of Justice (CJEU). In its judgment of the 22nd of October 2015 [21], the CJEU discussed a case of VAT on cryptocurrency exchanges. A special focus was paid to the characteristics of the cryptocurrency transactions as financial services. The Court concluded that Art. 135(1)(e) of the Council Directive 2006/112/EC on the common system of value added tax (VAT Directive) must be interpreted as meaning that the supply of services such as those of issue in the main proceedings. These services, which consist of the exchange of traditional currencies for units of the virtual currency 'bitcoin' and vice versa, made in return for a payment of a sum equal to the difference between the price paid by the operator for the purchase of the currency and the price at which it sells that currency to its customers constitute transactions exempt from VAT. According to the CJEU, bitcoin is a direct means of payment between operators who accept it. For the purposes of a chargeable VAT event, they must be treated in the same way as legal tender and paying with bitcoins is not a barter transaction. In this line of thought, the CJEU concluded that the exemption provided for in Art. 135(1)(e) of the VAT Directive covers the transactions in question [16].
The reasoning of the CJEU's decision of the 22nd of October 2015 is introduced in Interpretation No. M-26-P-234 dated 21st of October 2020 of the Bulgarian National Revenue Agency issued in response to a request by a company that provides cryptocurrency exchange and advisory services. Cryptocurrency advisory services are treated as taxable supplies to which the general provisions apply, but exchange services are exempt from taxation. The recipient of the supply of cryptocurrency exchanged into fiat money is the customer who purchased the virtual currency. If the recipient is a non-taxable person, no matter where the latter is established, the place of performance of the supply of services pursuant to Art. 21(1) of the VAT Act [19] shall be on the territory of the country and insofar as there is an exempt supply under Art. 46, for the company, which exchanged crypto-assets, pursuant to Art. 86(3) of the same law, no obligation to charge tax arises. In case the recipient is a taxable person established in an EU Member State or in a non-EU country, the place of performance of the supply of the quoted services is outside the territory of the country
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and pursuant to Art. 86(3) of the VAT Act, the supplier, who is registered under the VAT Act, shall not charge tax. According to Art. 68(1) of the VAT Act, 'credit for input tax' shall be the amount of tax which a registered person has the right to deduct from tax liabilities in respect to goods or services received in a taxable supply. Pursuant to Art. 69(2), for taxable supplies shall also be considered the supplies of financial services, where the recipient of the services is established outside the European Union.
The OECD expresses in the report 'Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard', the position that cryptocurrency is closer to financial assets for reporting purposes. Also, under Directive 2014/65/EU, certain crypto-assets as defined as financial instruments fall within the scope of existing EU financial service legislation. However, according to the MiCA proposal, services related to crypto-assets should be considered 'financial services' if the criteria of Directive 2002/65/EC of the EU Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services, are met. Other crypto-asset activities, such as the operation of trading platforms, the service of exchanging crypto-assets for funds or other crypto-assets or the custody of crypto-assets, are outside the scope of EU financial services legislation. This makes it necessary to determine very carefully for VAT purposes which crypto-asset services are financial and which are not.
4. Conclusion
This research conducted on crypto-assets allows several conclusions to be drawn:
(i) Currently, the law of the EU does not regulate crypto-assets in detail. Due to the lack of European regulation, Member States have to decide for themselves whether to create such national regulation. The Bulgarian parliament has not yet drafted legislation regulating crypto-assets. The explanation for this situation can be found in the fact that crypto-assts are not yet widely used in Bulgaria.
(ii) From the point of view of Bulgarian commercial law, there are no prohibitions for banks, insurers or investment companies to operate with crypto-assets as they are authorized to conduct activities with similar assets. However, if such activity is carried out by other entities, Bulgarian law does not provide an authorization regime, which is a situation that should change in the future.
(iii) In the area of accounting, an Interpretative Opinion of the International Financial Reporting Interpretations Committee applies as there are no separate National or International Accounting Standards for crypto-assets. This raises the question, to what extent is the VAT treatment of transactions in crypto-assets as financial services inconsistent with the accounting treatment of these assets. Moreover, in Bulgaria corporate income taxation is built on accounting rules, which could result in a conflict between indirect and direct taxation.
Further detailed study is needed on what amendments need to be undertaken, and to which laws, in order to adapt the EU MiCA regulation to the Bulgarian legal system. Thus, this focus point remains as future work to be carried out by the legislator and academia.
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