Sebastian Sinclair

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 <ul>
 <li>President Cortizo said the bill requires amendment in accordance with the country&#8217;s banking regulations</li>
 <li>Panama is attempting to solidify its image as a technology innovation hub within the majority Spanish speaking continent</li>
 </ul>
 
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Panama&#8217;s president, Laurentino Cortizo, has partially vetoed a bill enabling citizens to use crypto as a form of payment for goods and services as well as taxes, sending the regulations back to the country&#8217;s <a href="https://cms.blockworks.co/panama-moves-forward-with-crypto-regulation-bill/" target="_blank" rel="noreferrer noopener">National Assembly</a>.



Bill No. 697 had passed through the last leg of its legislative journey, before making its way to the president&#8217;s desk where it was knocked back, local news outlet <a href="https://www.prensa.com/economia/cortizo-veta-parcialmente-el-proyecto-de-ley-que-regula-los-criptoactivos/" target="_blank" rel="noreferrer noopener">La Prensa</a> reported Thursday.



A partial veto is a type of veto power enabling a chief executive to reject certain provisions within a bill without vetoing its entirety. The bill will now head for another vote in the assembly, where it is expected to undergo changes to some passages.



President Cortizo, who has remained cautious about the wording of the bill for fear of facilitating money laundering, said the current piece of legislation required amendments in accordance with the country&#8217;s banking regulations.



Latin America is fast becoming a major adopter of cryptocurrencies and digital assets, following El Salvador&#8217;s historic decision last year to make bitcoin legal tender through legislative means. A <a href="https://cms.blockworks.co/bitcoin-now-legal-tender-in-special-economic-zone-of-honduras/" target="_blank" rel="noreferrer noopener">special economic zone</a> in Honduras also formally legalized crypto as a form of money in April.



Panama is attempting to solidify its image as a technology innovation hub within the majority Spanish-speaking continent, and the attempt to finalize the bill by the country&#8217;s assembly was seen by many as a path toward it.



Congressman Gabriel Silva, who co-authored the bill, said in a <a href="https://twitter.com/gabrielsilva8_7/status/1537496339646500866?s=20&amp;t=cl_ogufSXxTPFdWdAkFkKg" target="_blank" rel="noreferrer noopener">tweet</a> Thursday the partial veto was a &#8220;lost opportunity&#8221; to create jobs, attract investment and incorporate technology into the public sector.



The crypto bill joins a list of other pieces of legislation overseen by Silva that have been knocked back by President Cortizo including a conflict of interest law and a mental health law, <a href="https://twitter.com/gabrielsilva8_7/status/1537500454455738371?s=20&amp;t=SuIBSwXjkffEjOS9SFf25Q" target="_blank" rel="noreferrer noopener">among others</a>.



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Panama’s President Partially Vetoes Crypto Regulations

Casey Wagner

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 <ul>
 <li>Senators Lummis and Gillibrand’s bill attempts to bring DAOs into the tax code, but classification of groups will be complicated</li>
 <li>State versus federal classifications are also concerning, one industry member said</li>
 </ul>
 
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The long-awaited bipartisan digital asset bill introduced to Congress Tuesday has many in the industry optimistic about the future of crypto policy, but sections of the legislation, if passed, may significantly change how actors in the space operate.&nbsp;



Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., co-sponsored the initiative, dubbed the <a href="https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Responsible%20Financial%20Innovation%20Act%20%5bFinal%5d.pdf" target="_blank" rel="noreferrer noopener">Responsible Financial Innovation Act</a>. While the bill includes some measures mentioned in <a href="https://cms.blockworks.co/bipartisan-crypto-bill-to-hit-congress-within-weeks/" target="_blank" rel="noreferrer noopener">other proposed legislation</a>, it also tackles new issues for the first time, one of which being DAOs, or decentralized autonomous organizations. 



In the section on DAOs, the bill specifies that the default classification for these community-led entities is as a business entity for tax purposes. It also requires most DAOs to be properly incorporated in accordance with existing laws of an identifiable jurisdiction, such as a limited liability company (LLC) or partnership.



“That means that DAOs would be taxed as corporations or as partnerships, despite the differences between DAOs and traditional corporations and partnerships,” said Dario de Martino, a cryptocurrency and blockchain attorney at Allen &amp; Overy. “Under the existing default rules, a DAO would be a partnership if the DAO is domestic or if it is non-US, and at least one of its members does not have limited liability.”



Because DAOs are by definition decentralized and have several members, often with frequent turnover, classification and taxes are going to be complicated, de Martino added.



The bill states that to qualify as a DAO, an organization must be “properly incorporated or organized under the laws of a State or foreign jurisdiction as a decentralized autonomous organization, cooperative, foundation or any similar entity.”



“Looking forward, the definition of a DAO will be crucial — is it a corporation or a security?,” Aaron Tilton, CEO of SmartFi and former Utah state legislator, said. “DAOs allow voting rights for governance and some economic distribution rights similar to dividends.”



DAOs may require sub-classification for tax purposes depending on how they operate and how they remunerate their members, Tilton added.&nbsp;



“There will be much for both federal and state legislatures to tackle in the coming months and years on this issue,” he said.&nbsp;



The bill states that a project can avoid business disclosure requirements if it can prove it is sufficiently “decentralized” to not be considered a business entity.&nbsp;



“Termination of disclosure requirements is tied to whether a project has substantial evidence that there have been no entrepreneurial or managerial efforts with respect to the underlying assets,” de Martino said.&nbsp;



The proposed disclosure regime would remain in place until the issuer can demonstrate that the project is decentralized through an opt-out process, de Martino said. The issuer must submit a certification, which may be denied if the SEC determines by majority vote that the certification is not supported by substantial evidence.&nbsp;



State versus federal classification is also an issue, Tilton said. LLC and corporation filings are submitted to state entities, further complicating the potential implications of Lummis and Gillibrand’s bill, he said.&nbsp;



&#8220;The DAO recognition will really be handled at the state level like any other business entities such as corporations or LLC,” Tilton said. “Without state level recognition of DAOs, those federal tax implications will not be affected.”



Jae Yang, CEO of non-custodial crypto exchange Tacen, agreed, adding that enforcement will need to be further clarified.



“Who&#8217;s going to be watching these DAOs very closely remains to be seen,” Yang said. “Much like there are tens of thousands of companies that are out there, but not every single company&#8217;s internal activities are going to be reviewed by auditors or regulators from outside.”



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New Crypto Bill Suggests Some DAOs Be Taxed Like Businesses

<div id="highlights-block_6272ec027f842" class="highlights">
 <ul>
 <li>The governor’s latest executive order looks to create transparent regulation around digital assets</li>
 <li>The state is hoping to align itself with upcoming policy from the federal government</li>
 </ul>
 
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The state known as a bastion of technology and an economy that dwarfs many a nation is warming up to digital assets — and the need to regulate them, specifically.&nbsp;



Gov. Gavin Newsom signed an executive order Wednesday aimed at establishing regulatory guidelines around the digital asset industry that protect investors while fostering innovation, Newsom’s office <a href="https://www.gov.ca.gov/2022/05/04/governor-newsom-signs-blockchain-executive-order-to-spur-responsible-web3-innovation-grow-jobs-and-protect-consumers/" target="_blank" rel="noreferrer noopener">said</a> in a statement.&nbsp;



“California is a global hub of innovation, and we’re setting up the state for success with this emerging technology – spurring responsible innovation, protecting consumers, and leveraging this technology for the public good,” Newsom said. “Too often government lags behind technological advancements, so we’re getting ahead of the curve on this, laying the foundation to allow for consumers and business to thrive.”



The executive order builds on <a href="https://cms.blockworks.co/whos-in-charge-of-what-breaking-down-the-crypto-executive-order/" target="_blank" rel="noreferrer noopener">President Biden’s recent moves</a> to bring regulatory clarity to the emerging asset class, according to Newsom, with the hopes of positioning California ahead of the curve in terms of looming federal policy.&nbsp;



Newsom’s gambit comes as mayors in New York and Miami are maneuvering to roll out crypto-friendly regulations that could establish their metropolitan areas as the US’ crypto hub.&nbsp;



Denelle Dixon, CEO of the Stellar Development Foundation, told Blockworks it’s a “huge win” to see California take blockchain rule-making seriously, especially when it comes to job creation.&nbsp;



“Best known as the home of Web2, the governor’s call today was a move toward a Web3 future,” Dixon said.&nbsp;



Under the executive order, California officials are tasked with soliciting feedback from industry participants, as well as the public, the statement said. Lawmakers are also set to consider how blockchain technology could be used to address public — and policy — needs.&nbsp;



<a href="https://cms.blockworks.co/new-york-bill-banning-proof-of-work-crypto-mining-poised-to-advance/" target="_blank" rel="noreferrer noopener">New York</a>, meanwhile, is considering a bill that could curtail proof-of-work mining, namely, bitcoin. <a href="https://cms.blockworks.co/illinois-moves-closer-to-accepting-crypto-for-taxes-but-not-considering-legal-tender-status/" target="_blank" rel="noreferrer noopener">Illinois lawmakers</a> have introduced a measure that would allow the department of revenue to accept crypto payments, while <a href="https://cms.blockworks.co/colorados-plans-to-accept-tax-payments-in-crypto-could-be-rocky-for-investors/" target="_blank" rel="noreferrer noopener">Colorado</a>’s governor pushes for cryptocurrency tax payments.&nbsp;&nbsp;



“Like many things in United States politics, crypto regulation trickles up from the states,” Ron Hammond, director of government affairs for the Blockchain Association, said. “A lot of battles we see happening at a state level do trickle up to the [federal level].”



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