Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

I would deliver the "promised" Egyptian comparison. As matetr of fact, the abstract announces a comparative focus on Egyptian law, but Egypt is reduced to a single provision (Art. 29, five-year carryforward). THe option is to deepen the Egyptian analysis (administrative practice, any crypto guidance, interaction with anti-avoidance rules, etc...) or maybe to rewrite the abstract to present Egypt as one benchmark among several (maybe this second option?).
Address the Qualifying Free Zone Person regime. I think that a large share of UAE virtual-asset activity occurs in free zones (this is what they say in Europe, at least). The interaction between the 0% free-zone regime and the loss-relief/loss-transfer rules (Arts. 37–39) is directly on point and currently absent. This gap should be filled, if possible.
I would suggest to remove revision artefacts (but this decision is personal). The passages narrating the paper's own editorial history must be rewritten as substantive statements: "The original version of this study correctly identified…" (lines 77–80); the "weakly traceable references that appeared in earlier drafts" paragraph (lines 244–246); and "The first legal correction required in the earlier draft…" (line 338). A published article should not reference its prior drafts, and as a matter of fact they are not important to the reader, maybe.

Author Response

Reviewer 1

Comment 1.1 – Egyptian comparison

Reviewer comment: The abstract promises an Egyptian comparison, but Egypt is reduced largely to Article 29. Either deepen the Egyptian analysis or present Egypt as one benchmark among several.

Response: Agreed. We adopted the reviewer’s suggested second option and also modestly deepened the legal context. The Abstract and Methodology now identify Egypt as one functional benchmark among the United States, United Kingdom, Singapore, EU, and OECD. The Egypt discussion now covers Article 29’s five-year carryforward, Article 30’s related-party adjustment power, the Central Bank of Egypt’s official warning and the restrictive setting under Law No. 194 of 2020, and the absence of an identified dedicated corporate crypto-loss regime. We expressly state that Egypt cannot be used as affirmative support for a UAE crypto-specific loss basket.

Location in revised manuscript: Abstract; Section 3 (Methodology); Section 4 (Egyptian benchmark); Section 6 (Comparative Lessons); Table 2; Table 4; Conclusion; new Central Bank of Egypt reference.

Comment 1.2 – Qualifying Free Zone Person regime

Reviewer comment: Address the 0% Qualifying Free Zone Person regime and its interaction with Articles 37–39, given the importance of free zones to UAE virtual-asset activity.

Response: Agreed. A new substantive paragraph explains the 0% treatment of Qualifying Income, the ordinary treatment of non-qualifying and relevant permanent-establishment income, the de minimis condition, and the need to allocate income, expenses, and losses consistently across tax categories. It emphasizes that Article 38 already excludes Qualifying Free Zone Persons from transferring tax losses. The revised analysis rejects an automatic crypto rule and instead recommends activity-based classification, arm’s-length allocation, consistent accounting, and records. Table 2 and the reform roadmap now include the free-zone interaction, and the FTA guidance recommendation expressly calls for clarification of QFZP allocation.

Location in revised manuscript: Section 4 immediately after the Article 38 analysis; Table 2 (new Free-zone interaction row); Sections 7–8; Table 5; Ministry of Finance (2023) reference.

Comment 1.3 – Revision artefacts

Reviewer comment: Remove passages narrating the article’s editorial history, including references to the original version, earlier drafts, and earlier corrections.

Response: Agreed. All identified editorial-history language has been removed and replaced by substantive propositions. We also removed a comparable artefact in the findings section (“the original recommendation”). The resulting text now reads as a self-contained article and does not refer to prior drafts.

Location in revised manuscript: Introduction; Methodology; Section 5 opening paragraph; Section 7 findings.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

This is a methodologically sound, well-organized, and potentially original article that addresses an important problem at the intersection of UAE corporate taxation, company law, accounting, and virtual-asset regulation. The doctrinal method is appropriate: the authors closely analyze Articles 37–40 of Federal Decree-Law No. 47 of 2022 – the UAE’s corporate tax law – and integrate the UAE’s company- and virtual-asset-regulatory architecture.  They use Egypt, the United States, the United Kingdom, Singapore, the European Union, and international reporting standards as functional comparators. The article’s tables and decision models also translate a complex legal argument into a concrete reform program. Its strongest contribution is not the general proposition that crypto losses warrant scrutiny—Vincent Ooi has already defended “source matching” and restrictions on setting crypto losses against unrelated income.  Rather, it is the attempt to connect that debate specifically to the UAE’s loss-transfer, ownership-continuity, corporate-governance, and virtual-asset-supervision regimes. The manuscript is therefore neither methodologically defective nor devoid of originality. Its originality is narrower than it sometimes appears, however. It lies principally in its UAE-focused synthesis and proposed implementation architecture, not in originating the argument for ring-fencing crypto losses. The manuscript itself accurately describes the existing UAE framework—including the 75 percent utilization limitation, Article 38 group-transfer conditions, Article 39 continuity requirements, and Article 40 tax-group rules.  Then, it proposes an additional virtual-asset layer.

 

 

My principal concern is that the manuscript repeatedly identifies transaction-specific risks, but it responds with asset-class-specific restrictions. The authors convincingly show that some virtual-asset transactions produce unusually serious problems: involving pseudonymous wallets, divergence between control and beneficial ownership, fragmented pricing, private-key loss, exchange insolvency, decentralized-finance protocols, smart-contract exploits, and incomplete custody records. The criticism, therefore, should not be that crypto presents no distinctive or heightened risks. It plainly can. The unanswered question is whether those risks are sufficiently general across virtual assets and taxpayers to justify presumptively different substantive, legal treatment for the entire asset class. A major recent treatment in the Oxford Review of Economic Policy begins instead with tax neutrality—taxing cryptocurrencies like comparable conventional instruments—while acknowledging that pseudonymity and crypto’s dual use as investment and payment technology make implementation difficult (Baer et al. 2023). The present manuscript needs to explain more rigorously why enhanced proof, valuation, realization, source attribution, transfer pricing, and anti-abuse enforcement would be inadequate.  Why is the appropriate response legally exceptional treatment of crypto losses, rather than targeted treatment of demonstrably high-risk transactions (whether those high-risk transactions are crypto-related or not)?

 

The comparative methodology is itself a strength, but the normative inference drawn from it requires closer examination along the lines just mentioned.  To be clear, the United States and United Kingdom have developed crypto-specific administrative guidance, but neither appears to impose the kind of general crypto-specific loss ring-fence proposed in this manuscript. The United States treats digital assets as property and applies longstanding tax principles governing property transactions; limitations on losses follow from generally applicable distinctions such as capital versus ordinary treatment, not from a rule confining virtual-asset losses to virtual-asset income. The United Kingdom likewise determines tax treatment according to the taxpayer’s activity and the applicable existing category—such as trading profits, intangible fixed assets, or chargeable gains—and does not appear generally to place crypto losses in a separate loss basket. Singapore is particularly instructive: businesses accepting or trading digital tokens remain subject to normal income-tax rules, deductions are allowed where otherwise permissible, and trading-versus-capital characterization depends on the facts and circumstances rather than on a general crypto ring-fence. The European Union’s Markets in Crypto-Assets Regulation and the Organisation for Economic Co-operation and Development’s Crypto-Asset Reporting Framework principally concern market regulation, service-provider oversight, transparency, reporting, and international information exchange; they do not themselves establish the manuscript’s proposed substantive restrictions on corporate loss utilization. Egypt, as the manuscript explains, applies a general five-year carryforward period and does not appear to maintain a dedicated virtual-asset-loss regime. Thus, again, these comparators support clearer classification, stronger documentation, reliable valuation, and improved reporting. But the manuscript has not shown that they support crypto-specific ring-fencing, a same-virtual-asset-business condition for group transfers, special continuity rules for listed companies, or governance-conditioned recognition of losses. Indeed, the manuscript’s proposed UAE framework appears materially more restrictive than the comparative approaches it invokes and therefore requires an independent UAE-specific justification.

 

Recommendations related to article 38 provide the first important illustration. Under current UAE law, transfer of tax losses already requires resident juridical persons, at least 75 percent common ownership, continuity of that ownership during the relevant periods, matching fiscal years and accounting standards, and the exclusion of exempt persons and qualifying free-zone persons. The manuscript nevertheless proposes restricting Article 38 transfers of virtual-asset losses, unless the entities conduct the same or a similar virtual-asset business and satisfy enhanced continuity and business-purpose requirements. This could penalize entirely ordinary group organization. A diversified UAE group might centralize treasury and digital-asset holdings in one affiliate while placing payments, real estate, logistics, technology, or customer-facing activities in others. The authors should demonstrate why existing ownership, continuity, transfer-pricing, and general anti-avoidance safeguards cannot distinguish genuine integration from loss trafficking. Otherwise, the same-business requirement effectively assumes that a crypto loss becomes legitimate only when confined within a crypto-specific corporate silo.

 

The proposed ring-fence, special treatment of listed companies under Article 39, and reliance on corporate-governance architecture create similar difficulties. Ring-fencing would ordinarily permit speculative virtual-asset losses to offset only virtual-asset income unless the taxpayer proves that crypto activity is an ordinary and integral business line. The listed-company proposal would add special disclosure and continuity testing when material crypto losses are present. And the governance proposal suggests that businesses lacking board-approved treasury policies, risk limits, custody safeguards, internal controls, or audit-committee oversight should not receive treatment equivalent to regulated companies possessing those structures. Yet weak governance and economic nonexistence are different matters. A startup, smaller company, lawful user of a foreign platform, or company experimenting with crypto payments may make a poorly supervised or even commercially foolish decision and still incur a genuine, realized, measurable loss. Good governance may strengthen evidence, justify penalties, or affect the taxpayer’s burden of proof; it should not automatically become a substantive condition for acknowledging economic loss. Similarly, volatility, related-party manipulation, and acquisition of loss shells occur with derivatives, distressed debt, commodities, closely held securities, intellectual property, and real estate. The manuscript, therefore, should explain why material crypto losses uniquely justify an additional Article 39 regime.  Why not instead recommend a technologically neutral rule for all unusually illiquid, manipulable, or weakly documented assets?

 

These concerns are especially significant because the manuscript does not identify a demonstrated UAE constituency or institutional demand for this more restrictive framework. It does not present UAE tax cases, taxpayer data, estimated fiscal exposure, interviews with the Federal Tax Authority, auditor evidence, enforcement patterns, or an existing legislative proposal. Indeed, its limitations section expressly acknowledges the absence of those sources. A doctrinal article may certainly anticipate an emerging problem, but it should distinguish clearly among an observed abuse, an institutionally identified vulnerability, and a theoretically possible risk. That clarification matters in a jurisdiction selected precisely because it is a sophisticated commercial and digital-finance hub.  Given the UAE’s deliberate development as a sophisticated commercial and digital-finance hub, the manuscript should explain: why would policymakers would adopt a framework that might reduce the jurisdiction’s relative attractiveness, when a technologically neutral regime could potentially accomplish comparable anti-avoidance objectives without legally singling out virtual assets?

 

Indeed, the manuscript also overlooks an important competing body of scholarship emphasizing the epistemic and institutional advantages of decentralized market systems. A related literature connects private and competing currencies to Hayekian experimentation, decentralized knowledge, and resistance to monetary monopoly—without establishing that every cryptocurrency or every crypto deduction is desirable. McIntosh, for example, traces a serious intellectual lineage from Hayek’s competitive-currency project to cryptocurrency, emphasizing experimentation and spontaneous rather than centrally designed monetary order (McIntosh 2024). The manuscript need not embrace that tradition, but its overwhelmingly risk-centered account of decentralization should at least recognize the competing argument that decentralized systems may generate discovery, competition, and information that centralized institutions cannot fully reproduce.

 

I therefore recommend major revision, not rejection. The manuscript’s research design, organization, and UAE-focused synthesis are strong, and its concerns about unverifiable or artificially shifted losses are legitimate. But the authors should narrow or more fully justify their principal reforms. The more persuasive route may be to preserve ordinary neutrality for demonstrably genuine losses while imposing enhanced disclosure and scrutiny when identifiable risk markers exist.  The authors might emphasize self-custody without reliable records, non-independent valuation, illiquid tokens, related-party crystallization, unlicensed platforms, abrupt ownership changes, acquisition of loss companies, or transactions lacking commercial purpose. But, regardless of the approach they ultimately take, the governing question in my opinion should be made explicit throughout: why not insist on better proof, valuation, realization, source attribution, transfer pricing, and anti-abuse enforcement before creating a crypto-specific system of ring-fencing, group-transfer limitations, listed-company restrictions, and governance-conditioned relief? Because this question reaches the central normative justification for the proposed reform model—and because the article’s revised treatment should be examined after the authors respond—major revision is the appropriate recommendation.

 

Author Response

Reviewer 2

Comment 2.1 – Scope of originality

Reviewer comment: The originality is narrower than sometimes claimed: it lies in the UAE-focused synthesis and implementation architecture, not in originating ring-fencing or source matching.

Response: Agreed. The Abstract, Introduction, Literature Review, and Conclusion now expressly acknowledge Ooi’s prior source-matching and stronger-scrutiny argument. The manuscript defines its contribution as the UAE-focused integration of Articles 37–40, transfer pricing, the general anti-abuse rule, free-zone treatment, company governance, VASP supervision, and an implementation sequence that preserves neutrality.

Location in revised manuscript: Abstract; Introduction; Literature Review; Conclusion.

Comment 2.2 – Asset-class rules versus transaction-specific risks

Reviewer comment: Explain why better proof, valuation, realization, source attribution, transfer pricing, and anti-abuse enforcement are inadequate before creating crypto-specific restrictions.

Response: We accept this as the governing question and have changed the proposed model. Ordinary law now applies first. Objective markers—illiquidity, self-custody without reliable records, non-independent valuation, related-party crystallization, unlicensed platforms, ownership changes, loss-company acquisition, and weak commercial purpose—trigger enhanced evidence and anti-abuse review. Adjustment, deferral, or denial follows only where existing legal requirements are not met. A crypto-specific ring-fence is no longer an immediate recommendation and is reserved for a later, evidence-based legislative stage.

Location in revised manuscript: Abstract; Sections 2–3; Section 5; Figure 2; Sections 7–8; Table 3; Table 5; Conclusion.

Comment 2.3 – Comparative inference and tax neutrality

Reviewer comment: The United States, United Kingdom, and Singapore apply general tax categories; MiCA and CARF concern regulation and reporting; the comparators do not support the proposed substantive restrictions.

Response: Agreed. The comparative section has been rewritten jurisdiction by jurisdiction. It now states that US loss limitations follow ordinary characterization, the UK applies existing categories with administrative guidance, Singapore applies normal fact-sensitive income-tax rules, and MiCA/CARF provide market and information infrastructure rather than corporate loss rules. Baer et al. (2023) has been added to anchor tax neutrality. Table 4 now separates each comparator’s actual function from the UAE policy inference.

Location in revised manuscript: Literature Review; Section 6; Table 4; Figure 3; Baer et al. (2023) reference.

Comment 2.4 – Article 38 and ordinary group organization

Reviewer comment: A same-virtual-asset-business condition could penalize ordinary diversified group structures; explain why existing safeguards cannot distinguish integration from trafficking.

Response: Agreed. The same-business transfer condition has been removed as an immediate proposal. The revised Article 38 analysis recognizes the existing 75% ownership and continuity conditions, common accounting requirements, and QFZP/Exempt Person exclusions. A diversified group may centralize treasury or digital assets in one affiliate. Enhanced review now turns on arm’s-length pricing, commercial purpose, beneficial ownership, traceability, abrupt ownership or activity changes, and acquisition of loss companies—not whether both entities conduct the same virtual-asset business.

Location in revised manuscript: Section 4 (Article 38); Section 5; Sections 7–8; Tables 2, 3, and 5; Figure 2.

Comment 2.5 – Ring-fencing, listed companies, and governance

Reviewer comment: Weak governance and economic nonexistence are different. Listed-company and governance proposals should not cause genuine losses to be denied, and similar risks occur in other asset classes.

Response: Agreed. Governance and licensing are now treated as evidence, never conclusive substantive conditions. A startup, small company, lawful foreign-platform user, or diversified treasury entity may incur a genuine loss despite imperfect governance. The listed-company proposal is now technology-neutral and triggered by material losses involving any illiquid, manipulable, related-party, or weakly documented asset. The revised text expressly notes analogous risks in derivatives, distressed debt, commodities, closely held securities, intellectual property, and real estate.

Location in revised manuscript: Sections 4–5; Section 7 (listed-company and governance findings); Section 8; Table 5; Conclusion.

Comment 2.6 – No demonstrated UAE abuse or institutional demand

Reviewer comment: The manuscript supplies no UAE cases, taxpayer data, fiscal exposure, interviews, enforcement patterns, or legislative proposal and must distinguish observed abuse from theoretical risk.

Response: Agreed. The manuscript now consistently describes the issue as a prospective legal vulnerability. It expressly distinguishes documented legal rules, risks institutionally identified in international materials, and theoretically possible UAE vulnerabilities. It does not claim widespread abuse or institutional demand. The limitations section lists the missing empirical sources and conditions any substantive restriction on future UAE evidence from audits, rulings, cases, data, or policy review.

Location in revised manuscript: Abstract; Introduction; Methodology; Sections 5 and 7; Limitations; Conclusion.

Comment 2.7 – Innovation, competitiveness, and free zones

Reviewer comment: Explain why UAE policymakers would adopt a more restrictive regime that could reduce attractiveness when technology-neutral measures may achieve the same objectives.

Response: Agreed. The reform sequence now explicitly assesses compliance costs, innovation, diversified group organization, free-zone investment, and jurisdictional attractiveness. Guidance, risk-based disclosure, existing anti-abuse rules, and information coordination come first. Any special substantive rule comes last and requires a published proportionality and competitiveness assessment.

Location in revised manuscript: Abstract; Methodology; Section 7; Table 5; Section 8; Conclusion.

Comment 2.8 – Competing literature on decentralization

Reviewer comment: Recognize scholarship connecting decentralized and competing currencies with experimentation, knowledge, and resistance to monetary monopoly, including McIntosh (2024).

Response: Agreed. A new literature-review paragraph discusses McIntosh’s account of Hayek’s competitive-currency project and acknowledges the possible benefits of private experimentation, discovery, competition, resilience, and decentralized information. The paragraph does not treat that tradition as validating every token or deduction; it uses it to balance the article’s previously risk-dominant account and reinforce innovation-sensitive proportionality.

Location in revised manuscript: Section 2 (new paragraph); McIntosh (2024) reference.

Comment 2.9 – Revised reform model and decision tools

Reviewer comment: Narrow or more fully justify the reforms; preserve ordinary neutrality and focus on identifiable risk markers.

Response: Implemented. The risk-control table, decision tree, comparative table, roadmap, implications, and conclusion have all been rebuilt around ordinary recognition plus risk-triggered substantiation. Figure 2 now routes claims with no material marker to ordinary Articles 37–40 and routes marked claims to enhanced evidence and existing anti-abuse review. Figure 3 is no longer a subjective maturity score; it is a descriptive coverage map that separates general tax classification, administrative guidance, market supervision, and reporting infrastructure.

Location in revised manuscript: Tables 1–5; Figures 2–3 and captions; Sections 5–8; Conclusion.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

I see all the suggestions raised have been properly addressed. In my view, the article is fine, and I congratulate the authors.

Reviewer 2 Report

Comments and Suggestions for Authors

I recommend "accept as is" at this point. Thank you to the authors for their conscientious re-working of the argument! Baer et al and McIntosh are two especially welcome additions!