Photo/IllutrationThe Asahi Shimbun

Tax authorities for the first time have obtained information for the potentially complicated task of determining if bitcoin investors, who made millions if not billions of yen last year, are evading taxes.

The move comes ahead of the start of tax reporting season in February, and investors of the virtual currency are not happy about it.

A law went into effect in Japan in 2017 recognizing virtual currency as a form of payment for goods and services. That has fueled the popularity of bitcoins, and prices have exploded for various types of virtual currency.

Bitcoin, which has the largest market capitalization of any digital currency, was priced at about 100,000 yen ($890) in January, but by December, the price had soared to more than 2 million yen.

The price of the Ripple currency, which has the second largest market capitalization, jumped more than 200-fold from the price at the start of 2017.

However, virtual currency transactions are completed over the Internet by private-sector exchange operators without going through traditional financial institutions. That means ordinary methods for gathering information about those transactions are insufficient.

Concerned that virtual currency investors could dodge taxes on their huge gains, tax authorities from around summer 2017 began asking exchange operators to let them view their transaction records.

Some operators have agreed to cooperate, and the data obtained have been analyzed mainly by special teams set up in the Tokyo and Osaka offices of the National Tax Agency. Information about assets has been compiled in databases.

That data will be used to check tax returns for 2017 that will be submitted in February and March. If the reported income appears unusually small, tax authorities plan to question the individual to determine if tax evasion charges are warranted or if tax penalties should be imposed.

Some investors have criticized the slow manner in which tax authorities have released information related to tax reporting.

In principle, anyone who records a profit exceeding 200,000 yen in the value of a virtual currency by selling it or exchanging it for another currency is required to file a tax return.

However, the National Tax Agency only announced in December the calculations for determining that income.

With tax reporting season only about a month away, some investors were forced to review their transaction records and recalculate their income from virtual currency transactions.

Tax authorities have also cited the need for additional measures to deal with investors who exploit loopholes by conducting complicated transactions involving several virtual currency exchanges operating abroad.

Tax authorities in more than 100 nations and regions, including Japan, will start a new system this year to exchange information on financial institution accounts.

Proposals will likely be made to cover virtual currency transactions under the new system. Virtual currency exchange operators could be requested to submit transaction records much in the same way as traders of gold bullion are asked to do now.