Will they also tax profits from cryptocurrencies?

Cryptocurrencies have established themselves as a medium of exchange and investment in the global market. 

Every day, various issues arise that place cryptocurrencies at the center of interest, simultaneously causing concern for the identity, function, and future development they will have.

A recent example is Finiko in Russia, an investment company that issued its cryptocurrency shortly before it went bankrupt, swept the market, and disappeared, leading its investors to a massive capital loss.

Cryptocurrencies have certainly come to stay, and this will lead to a change in global transactions. 

Still, it is necessary to have the required control and supervision by monetary authorities.

It is also a fact that more and more people are involved in buying and selling cryptocurrencies, which makes it imperative for the Administration to clarify how tax revenue is treated.

 On the occasion of the daily questions about cryptocurrencies, we will record our assessment of how this income is taxed in this article.

We will note at the outset that it is tough to declare profits from cryptocurrencies because thousands of transactions for purchases and sales occur in each beneficiary account.

 It becomes more difficult to calculate, as many transactions are made in most cases. 

Cryptocurrencies, making valuation impossible.

After all, the tax authorities are skeptical about filing declarations with profits from cryptocurrencies because many are trying to launder money from illegal transactions.

Description and key features of cryptocurrencies today. 

Cryptocurrency is a digital currency without a physical form.

Today it is produced privately on a modern technology computer and distributed through an internet system of advanced technology, the so-called blockchain.

In short, everyone can produce their cryptocurrency if they have the funds, know-how, and what is required for the production process.

It follows from the above that production is not controlled, anonymous, and independent of Governments and Banks; there are no legal rules, and therefore there is no legal protection or guarantee.

 Of course, there is a high risk of fraud.

The obvious dangers.

In this context, the price of cryptocurrencies varies greatly.

As a digital currency, it was established to carry out transactions with simplified procedures in money circulation, with greater flexibility, incredible speed, lower costs, and anonymity in transactions.

However, in the process, it turned out to be an investment product to make a profit from the goodwill (if it is positive) that is created between the purchase and sale of the currency.

Tax treatment today.

There are two categories of cryptocurrency income:

A) of the producer, who does the mining, and the income constitutes income from commercial enterprises. 

The profits arising after deducting the operating expenses will be taxed according to the general provisions and the applicable tax rates.

B) Holders of cryptocurrencies

B1) the holder (investor) of cryptocurrencies. 

The goodwill that may arise (positive difference between purchase and sale) will be taxed under the general provisions if the holders are legal entities.

B2) If the owners are natural persons, ordinary investors believe that according to article 42 of the Income Tax Law (tax legislation), they will be taxed at 15% as capital gains income.

 Future gains from the same source over the next five years; this is just one example in a European Union country.

The taxable value of the cryptocurrency is the goodwill offered by its holder who sells it.

Goodwill means the difference between the acquisition price paid by the taxpayer and the sale price received.

 By Article 42 (3), costs directly attributable to the purchase or sale of the securities shall be included in the acquisition and sale prices." Therefore, the tax rate is 15% on the goodwill earned, and it is worth mentioning that its income is subject to a solidarity contribution.

Considering the assumption made above, that is, that cryptocurrency is viewed as an investment and speculative product, the amount allocated for purchasing cryptocurrencies should be declared in code 743 of table 5 of the tax return.

 (expenditure paid for the purchase of companies, corporations' shares, and securities in general) of the tax return to be included in the calculation of tax evidence. 

( example for one European country). 

If goodwill arose during the sale of the cryptocurrencies, it should be stated as a profit from (transfer of foreign securities) to calculate a 15% tax.

Given the enormous dimension of cryptocurrency trading and its use as an investment derivative, we are confident that there will be a unified international approach to how this investment will be handled by the tax authorities, according to the latest statements of its President. European Central Bank.

Regarding Value Added Tax (VAT), an EU decision exempts transactions from VAT and how companies display cryptocurrency transactions.

European governments (EU) are approaching the issue and giving directions. Still, because its implementation is moving in uncharted waters, it is logical and expected that many problems would arise for discussion and resolution. 

The scientific community is waiting for state legislative interventions and final decisions from the European authority.

Furthermore, the payment of suppliers - to recognize the costs - should be paid exclusively through the banking system; therefore, this kind of payment with cryptocurrencies is not considered a recognized payment method to reduce costs.

Finally, due to the structural nature of cryptocurrencies based on encryption, in combination with the anonymity it offers, it has been, in several cases to date, a transaction of persons associated with illegal criminal activities and persons who wanted to evade taxes.

Identifying its owner by the tax authorities is extremely difficult, considering the means required and the know-how needed to detect such activities.

 Recently, the European Union passed a bill and issued a relevant directive on money laundering to establish a register in the Capital Market Commission, service providers for virtual and digital wallets.

In closing this article, we want to point out what we have recorded in our approach to which we hold every reservation until the issue is finally resolved.

 Of course, we should all be cautious until a regulatory framework gives definitive answers to how everything is handled issues around cryptocurrencies.

This text is for informational purposes only and in no way replaces the specialized consulting services.

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