Companies must disclose all crypto trade, investment

ByRajeev Jayaswal
Dec 01, 2021 05:29 AM IST

Companies should disclose full details of transactions undertaken through virtual currencies or cryptocurrenies in their financial statements for 2021-22 for the sake of transparency, officials said.

The government has made it mandatory for companies to disclose whether they have traded or invested in cryptocurrencies in the current financial year, even as it plans to introduce a bill in Parliament to prohibit private virtual currencies, two officials aware of the matter said.

Companies have been directed to disclose full details of transactions undertaken through virtual currencies or cryptocurrenies in their financial statements for 2021-22 for the sake of transparency, the officials working in two different economic ministries said, requesting anonymity.

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“The directive is not in conflict with the government’s recent move to introduce a bill in Parliament that seeks to prohibit all private cryptocurrencies in India. The directive will be suitably amended after the bill is enacted,” one official said. HT has seen a copy of the directive issued on March 24.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India (RBI). It also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” according to a bulletin issued by the Lok Sabha last week.

“Currently, cryptocurrencies are unregulated, but not banned. Hence, companies are required to report all their investments and transactions in such virtual currencies for the purpose of transparency and compliance. This will also check tax evasion and give us an idea of penetration of cryptocurrencies in corporate transactions,” the second official said.

The government’s directive is in line with certain amendments to the Companies Act, said Shilpa Mankar Ahluwalia, partner at law firm Shardul Amarchand Mangaldas & Co. “Amount of any cryptocurrency held at year end must also be disclosed... This disclosure will also serve as a useful data point to the government, particularly important at a time when a law to regulate cryptocurrencies is expected,” she said.

“However, this reporting does not capture retail trading, which now constitutes a significant part of the cryptocurrency trading market. Also, this is a year-end disclosure, as opposed to regular market trade linked disclosures, which is what will be needed if the aim is to regulate dealing in cryptocurrency,” she pointed out.

“The rules on disclosures have made it clear that the government wants to gather data on digital currencies,” said Maneet Pal Singh, partner at audit firm I.P. Pasricha & Co.

“The government can also use this data for evaluating the FEMA (Foreign Exchange Management Act) and taxation impacts of trading in cryptocurrency. It will also help investors in evaluating if companies are taking money out of core business and investing in adventures like cryptocurrency,” he said.

There is an inherent conflict between the government’s directive to companies to report transactions in cryptocurrencies and the proposed bills seeking to ban private cryptocurrencies, said Anu Monga, partner at AnantLaw. “The apparent conflict... may be resolved once the understanding of ‘private’ cryptocurrencies is made clear,” she said.

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