I INTRODUCTION

In the age of digital evolution, tax administrations must keep pace with the challenges posed by new business models and new technologies. A special challenge is the growing emergence and use of cryptocurrencies in everyday situations. Although this is a new business environment, the cryptocurrency market cap amounts to significant $ 271,867,731,76[1]. Cryptocurrencies are used for investing, trading and as a means of payment for goods and services. When it is observed that, for example, cryptocurrency trading increases the economic strength of the taxpayer, of course the question of how to tax also arises. However, some countries find economic interests in cryptocurrencies and strive to be crypto friendly. On the other hand, countries see potential dangers and challenges in the use of cryptocurrencies, so they try to keep them under control as much as possible, or even ban them.

It is clear how important it is to legally and procedurally regulate the area of ​​cryptocurrencies, especially in order to facilitate their use and prevent frauds. The basic question is how to do this in an acceptable and reasonable way, especially within tax legislation, because one of the most important strategic goals of tax administrations is to increase compliance. Some reasons that may affect the reduction of compliance are: complexity and ambiguity of the legal framework, excessive administrative burden and lack of (or poor) electronic services by tax administrations, excessive impact of repressive measures without targeted strategies, insufficient education of tax officers and inspectors, non-uniformed tax procedures within different regional tax offices etc. These issues are particularly sensitive when it comes to taxpayers operating across borders. They must achieve compliance taking into account the specifics of the legal tax requirements of each country in which they operate.

Tax legislation must fundamentally be simple, clear, applicable and effective in the sense that it does not impose an excessive administrative burden and costs on both parties (the tax administration and the taxpayer). This principle applies to legislation in general, as it ensures an increase of compliance. In the area of ​​cryptocurrencies, such legislation is not clear at this time. Countries individually enact and apply, as a rule, national legislation governing cryptocurrencies and their taxation. The following examples provide a picture of current legislative actions related to cryptocurrencies.

II TAXATION OF CRYPTOCURRENCIES IN CERTAIN COUNTRIES

Argentina – The Federal Administration of Public Revenue, has introduced cryptocurrency tax rulings, which became effective November 1 2019. In an official release[2], the government stated that crypto exchanges in the country must provide details of account holders’ wallet balances on a monthly basis – and that the reports must be made in Argentine pesos, rather than cryptocurrencies[3].

Australia – The Australian Taxation Office defines cryptocurrencies as “Bitcoin, or other crypto or digital currencies that have similar characteristics as Bitcoin”. Any disposal of cryptocurrency is subject to Capital Gains Tax[4].

Austria – For individuals holding cryptocurrencies as non-business assets, any gains (e.g., upon the conversion of Bitcoin into euros) are tax-free if realized upon expiry of the one-year “speculation period” but are taxable if realized before that point in time (with a tax-exempt amount of €440 per annum applying)[5].

Brazil – In early May 2019, the Federal Revenue Service (RFB – Receita Federal) published Normative Instruction RFB no. 1.888 / 2019, which deals with the issue of declaring transactions involving crypto, a term that covers bitcoins and other “virtual currencies” or “cryptocurrencies”. Virtual currencies (including bitcoins) are assets or rights that can be equated with financial assets and the sale of virtual currencies must be subject to taxation as a capital gain[6].

Chile – The Servicio de Impuestos Internos (SII), Chile’s tax agency, in January 2019 is implementing income taxes on profits made from selling cryptocurrencies. Cryptocurrencies are not subject to VAT, because they fell under the exempt category of “intangible assets[7]. Paying income tax from cryptocurrencies ia a part of annual tax return[8].

Croatia – Croatian Tax Administration has issued few opinions about tax treatment of crypto currency with reference to the judgment of ECJ (C-264/14, on 22 October 2015)[9]. The judgment is about transactions performed by an exchange office. Namely, this is one way by which a natural or legal person can become the owner of a crypto currency (by exchanging some of the so-called fiat currencies for bitcoins or other crypto currencies on various web portals offering such a service). In addition, crypto or virtual currency can be purchased or exchanged for one of the fiat currencies on specialized ATMs. According to the ECJ judgment, crypto currencies trading in Croatia is considered a financial transaction, and the income generated by the sale of crypto currencies is subject to personal income tax on the basis of capital gains, since it is the gain on the basis of the sale of that currency, which is an equivalent to money market instruments. Income is determined as the difference between the purchasing price (i.e. the value at which the crypto currency was purchased by the tax payer, measuring in one of the fiat currency, ex. in USD, euro or kuna) and the selling price (i.e. the value at which the crypto currency was sold by the same tax payer, measuring in the same fiat currency), less any potential trading costs (ex. entry and exit fees paid to the online trading platform). This means that the purchase or acquisition of a crypto currency itself (or its holding in an e-wallet) does not entail any tax liability, but the tax liability arises only after that crypto currency is sold.  Income from capital based on capital gains shall not be in the case that the financial assets are alienated two years from the day of procurement, i.e. acquisition of those assets. It is possible to replace one crypto currency for another (for ex. bitcoin is replaced for Ethereum), but in this case no taxable income is determined.

France – France will tax cryptocurrency gains when they’re converted into “traditional” currency, but crypto-to-crypto transactions remain tax exempt.[10] VAT is to be applied to cryptocurrency transactions only when they are used to acquire an asset or a service[11].

Germany – A sale could be the sale of Bitcoins for euros via a trading platform. However, the use of Bitcoins as a means of payment also constitutes a sale, if the Bitcoin owner uses Bitcoins to pay for the acquisition of goods and services. In both cases, private sales transactions– also known as “speculative transactions” – exist within the meaning of Section 23(1) no. 2 of the German Income Tax Act. For tax purposes, the classification as an object of speculation means that capital gains are completely tax-exempt after a holding period of at least one year. If the sales transaction is made within the one-year holding period, at least a tax exemption limit of EUR 600 p. a. is effective – the tax exemption limit applies, however, to all private sales transactions in the relevant year, therefore relates not only to Bitcoin transactions of the taxpayer[12].

Japan – Cryptocurrency trading, mining, lending and other income is classified as miscellaneous income, subject to a tax[13].

Malta – The government recognizes bitcoin “as a unit of account, medium of exchange, or a store of value.” Malta does not tax long-held digital currencies, either for capital gains or VAT. However, crypto trades executed within the day are considered similar to day trading in stocks or foreign exchange, attracting tax as business income[14].

Portugal – Cryptourrency sales cannot be taxed. Essentially, what this means is that Portugal is viewing cryptocurrencies as a means of payment – i.e. like any other currency, – rather than just an asset[15].

South Africa – Cryptocurrencies are not to be treated as currency for tax purposes and that the normal tax principles should apply to cryptocurrencies as if they are intangible assets[16].

UK – Any sale of cryptocurrency is subject to capital gains tax[17].

USA – Cryptocurrency is treated as a capital asset, and any sale of crypto is subject to capital gains tax[18].

III THE NEED FOR COMMON DEFINITIONS AND TAXONOMY

Different definitions of cryptocurrencies and ways of taxation create an additional burden on business and taxation. A uniform approach seems to be a good and necessary solution that can contribute to the simplicity of paying and collecting taxes. In this context, the European Union’s efforts to meet this goal need to be emphasized.

Namely, the European Commission services are working towards a new Digital Finance Strategy for the EU. Key areas of reflection include deepening the Single Market for digital financial services, promoting a data-driven financial sector in the EU while addressing its risks and ensuring a true level playing field, making the EU financial services regulatory framework more innovation-friendly, and enhancing the digital operational resilience of the financial system.[19] Consultation of working document[20] is closed on 12 March 2020. For the purpose of this consultation, cryptoassets are defined as “a digital asset that may depend on cryptography and exists on a distributed ledger”. A basic taxonomy of cryptoassets comprises three main categories: ‘payment tokens’ that may serve as a means of exchange or payment, ‘investment tokens’ that may have profit-rights attached to it and ‘utility tokens’ that may enable access to a specific product or service. The crypto-asset market is also a new field where different actors – such as the wallet providers that offer the secure storage of crypto-assets, exchanges and trading platforms that facilitate the transactions between participants – play a particular role.

By the end of this year, the adoption of a new Digital Finance Strategy is expected, which will certainly contribute to better and simpler solutions than before. However, the area of ​​cryptocurrencies is evolving every day so it will be necessary to continuously monitor these challenges. Especially by tax administrations to facilitate tax collection and reduce the complexity of tax payments by taxpayers.

[1] https://coinmarketcap.com/charts/
[2] ADMINISTRACIÓN FEDERAL DE INGRESOS PÚBLICOS, Resolución General 4614/2019, RESOG-2019-4614-E-AFIP-AFIP – Procedimiento. Herramientas y/o aplicaciones informáticas relacionadas con movimientos de activos virtuales y no virtuales. Regímenes de información. Su implementación. Ciudad de Buenos Aires, 24/10/2019, available on: https://www.boletinoficial.gob.ar/detalleAviso/primera/219709/20191025
[3] https://cryptonews.com/news/argentina-introduces-cryptocurrency-tax-rules-11-more-crypto-4982.htm
[4]https://koinly.io/guides/crypto-tax-australia/
[5] http://publications.ruchelaw.com/news/2017-12/guidance-taxation-bitcoin-cryptocurrency.pdf
[6]https://tersi.adv.br/en/how-to-declare-bitcoin-and-other-cryptocurrencies-in-the-2019-income-tax/
[7] https://coingeek.com/chilean-tax-bureau-requires-crypto-profits-declared/
[8] https://www.ccn.com/chilean-citizens-will-begin-paying-cryptocurrency-taxes-in-2019/
[9] http://curia.europa.eu/juris/liste.jsf?num=C-264/14
[10]https://news.bloombergtax.com/daily-tax-report-international/france-wont-tax-crypto-to-crypto-trades-but-will-hit-gains-cashed-out
[11]https://cointelegraph.com/news/france-wont-tax-crypto-only-trades-will-tax-crypto-to-fiat-sales
[12] https://www.winheller.com/en/banking-finance-and-insurance-law/bitcoin-trading/bitcoin-and-tax.html
[13]https://tokentax.co/guides/crypto-taxes-in-japan/#:~:text=In%20Japan%2C%20cryptocurrency%20trading%2C%20mining,tax%20rate%20up%20to%2055%25.&text=However%2C%20non%2Dresidents%20are%20taxed,to%20pay%20upon%20leaving%20Japan.
[14] https://news.bitcoin.com/eight-countries-that-dont-tax-your-bitcoin-gains/#:~:text=Malta,at%20the%20rate%20of%2035%25.
[15] https://www.portugalhomes.com/news/article/170/cryptocurrency-is-tax-free-in-portugal#:~:text=The%20Portuguese%20Tax%20Authority%20(PTA,exchange%20will%20be%20tax%2Dfree.
[16] https://www.nichemarket.co.za/blog/money-talks/tax-cryptocurrency-south-africa
[17] https://koinly.io/guides/hmrc-cryptocurrency-tax-guide/#:~:text=There%20are%20no%20taxes%20on,when%20you%20eventually%20sell%20them.
[18] https://www.exodus.io/blog/cryptocurrency-taxes-usa/#:~:text=In%20the%20US%2C%20crypto%20is,subject%20to%20capital%20gains%20tax.&text=Using%20this%20information%2C%20you%20can,time%20of%20sale%20or%20exchange.
[19]https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12089-Directive-regulation-establishing-a-European-framework-for-markets-in-crypto-assets/public-consultation
[20]https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2019-crypto-assets-consultation-document_en.pdf

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