Photo/IllutrationA bill for "consulting fees" submitted by a company that received cryptocurrency from a company owner apparently as part of a scheme to reduce the owner's taxes while profiting the company (The Asahi Shimbun)

Astonishing profits are being reaped from cryptocurrency trading, but not nearly enough of it is being reported, according to Japanese tax authorities.

About 50 individuals and 30 companies around Japan failed to declare crypto-related income to the tune of at least 10 billion yen ($93 million) over a period of several years until March, sources said.

The figure is likely linked to the sharp rise in the value of virtual currencies in recent years, prime among them bitcoin, which in 2017 saw a parabolic rise of 20 times its value.

As part of efforts to combat such under-reporting, authorities plan to introduce measures to track the transactions of cryptocurrency traders that deal in large amounts.

There are also concerns that the tax rate--which can exceed 50 percent--on crypto winnings has led some individuals and businesses to seek ways to avoid reporting their gains.

A special investigation unit at the Tokyo Regional Taxation Bureau handling electronic business transactions asked operators of several cryptocurrency exchanges to submit lists of their clients' business transactions last year. After analyzing the data, the team compiled a list of people and companies who appear to have earned large amounts of money through the trading of virtual currencies.

The data was combined with independently collected information from other regional tax bureaus around Japan to come up with a picture of the extent of under-reported income linked to cryptocurrency.

The authorities also believe that holders of about 7 billion yen of such income made efforts to conceal their income from cryptocurrency transactions.

In light of the discovery, tax authorities are apparently considering filing criminal complaints over tax evasion against those who have made especially large gains or used nefarious methods, such as masking their identity.

According to the Japan Virtual Currency Exchange Association, transactions involving five major cryptocurrencies at member exchanges totaled 69.147 trillion yen in fiscal 2017, a 20-fold increase over fiscal 2016 and a 788-fold increase over fiscal 2015.

Gains from cryptocurrency transactions are considered miscellaneous income. If salaried employees earn more than 200,000 yen in such income over the course of a year, they are required to report it. However, the high rate at which miscellaneous income is taxed--at up to 55 percent--has apparently led to an increase in efforts to conceal it.

Gains from stock sales are taxed at 20 percent.

It would be virtually impossible for tax authorities to track down individuals who trade cryptocurrency on foreign exchanges or sell their holdings for other virtual currencies that offer higher levels of anonymity.

As a step toward increasing the transparency of crypto transactions, a new system will start from January that will allow tax authorities to ask private-sector exchange operators to provide the names of clients under certain conditions, such as conducting transactions exceeding a certain amount.

Penalties will be stipulated for operators who fail to provide such information, as under-reporting of income in tax returns is rife.

The measures are designed to crack down on cryptocurrency exchange operators that are not cooperative with tax investigators or fail to properly register before starting operations.

Questionable activities by individuals other than those who work at exchanges are also on the radar of tax authorities.

One man in his 40s who sold information online on how to make money through buying and selling crypto was found to have failed to report about 330 million yen in income over a five-year period until 2017. He was also found to have been involved in creating a new virtual currency and hiding gains from his own transactions.

Some companies have also used virtual currencies as a surreptitious means of helping clients lower their taxes.

In one case, company A solicited the owner of company B to transfer about 10 million yen in cryptocurrency to its account. Company A then issued a bill for the same amount for "consulting fees," but secretly returned 8 million yen to company B, taking 2 million yen as commission. Company B was then able to write off the consulting fees, thereby reducing its income tax amount.

Retired tax officials said that unless the company actually conducted consulting services, such bills would not be recognized as legitimate and the company owner could be suspected of tax evasion.