The MacCoin: an interesting non-ICOed airdrop

The Big-Mac Index has long been considered as a financial indicator to compare the cost of living between different countries. The index compares the price of the McDonald's burger in different states to reflect the cost of living. According to the index, the Israeli Shekel is undervalued at 15%; meaning that the Israeli currency should be stronger in order for the prices to be compared to their US equivalent.

Because of this index's popularity amongst economic researches, it's not a surprise that the burger joint has decided to use it as a financial apparatus. Starting this week, in every purchase of a Big Mac, a centralized-physcial coin, the MacCoin shall be issued to each purchaser. The MacCoin shall be available in 14,000 branches of the famous McDonalds, and you may redeem it for a Big Mac at any time during 2018, and replace the MacCoin with a physical dead cow that you can eat.

De-Facto, this is a very complicated financial instrument that allows international trade and the hedging of currencies. A sophisticated investor can approach an Israeli that has a thousand of these coins, which he bought for 17,000ILS and fly off to Switzerland, where he can sell them for 24,000ILS. Meaning, a husky profit of 7,000ILS (or 40%) in one day.

The same speculative investor could wait, and hope that the Big Mac index will rise during this upcoming year and bet on the rate. He can make a small fortune if the Big Mac price rises.

This is a financial structure like all other financial structures, and the question of its taxation is quite structured by itself.

According to the Israeli Tax Authority's recent regulation for cryptocurrencies, this payment method is not a "coin" and therefore, all profits arising from it are considered as capital gains taxes. This means that a person that got this benefit and made a profit (by arbitrage) will have to pay a tax on his gains. The regular joe, that bought a family meal in Israel and got four coins, and then flew to a family vacation in New-York during the holidays and there he used the coins to buy four burgers should report his three Shekel profit within 30 days and should pay the relevant capital gains tax.

Is this absurd? well, that's not so different than the Israeli regulation when an Israeli buys falafel in bitcoin today. Like the MacCoin, bitcoin is not issued by a state. Unlike the MacCoin, there is no central agency in charge of bitcoin, but a community who is willing to accept this as a payment method. When a person wants to buy a ball of falafel with his bitcoins, he needs to report it to the tax authority within a short period and pay the taxes.

When the profit is in the hundreds of thousands, this need is quite obvious. The need is to reflect a worthy tax policy where speculative investors should pay for their profits. When the profit is a bit less material, then the actual request to pay taxes may be a deterrent on bitcoin's use. If the transaction costs (the cost of reporting the transaction to the tax authority, even if it exempt) may outweigh the benefits of paying with bitcoin, then people just won't use it.

What we can learn from the MacCoin is just that: the law lags behind interesting business models. The tax authority can't decide on how to tax an employee who received loyalty club rewards miles due to a business flight, how to measure a person's waiver of his privacy to receive a free service and how to deal with a huge community of developers who decided that there's actual value in a cryptographic file.

The MacCoin points out the problem in taxing bitcoin under capital gains. It is so obvious that the people who used the coin aren't speculative investors; the daily users aren't these guys. Some of them are people who the traditional banking system left behind, some are cryptoanarchists and some are cryptovangalists. Don't tax these guys, just the people who are in it for the money.

Originally published in Globes, Hebrew Link