International pressure on taxation of crypto currencies
Cryptocurrencies such as Bitcoin have experienced rapid growth in recent years, garnering the attention of investors, corporations, and governments throughout the world. As the cryptocurrency market has grown to over $2 trillion, international organisations are now demanding clear tax policies and reporting obligations for these digital assets. Groups such as the G20, OECD, and IMF have been increasing their pressure on countries to enact cryptocurrency taxation systems.
International organisations’ call for taxation
In 2022, the OECD approved the Crypto-Asset Reporting Framework (CARF), which provides for the automatic exchange of tax information on crypto-asset transactions between countries [1]. The CARF defines which crypto-assets and intermediaries are in scope and aligns with FATF anti-money laundering standards. It requires crypto exchanges and service providers to conduct due diligence to identify their customers and report transactions.
The G20 has strongly endorsed the CARF, with a 2023 leaders' declaration calling for its "swift implementation" along with amendments to the Common Reporting Standard for traditional financial accounts. G20 leaders asked the Global Forum on Transparency and Exchange of Information for Tax Purposes to set a timeline for commencing automatic exchange of crypto tax information between jurisdictions [2].
The United Nations Conference on Trade and Development (UNCTAD) has joined the institutions that take free jabs at crypto assets by publishing a third research warning of the risks of cryptocurrencies, referring to them as "tax havens version 2.0" [3]. Ironically, other branches of the United Nations, such as UNHCR and UNICEF, accept donations made in crypto assets [4]. Or, if one had to adopt the UNCTAD position, those sister organisations seem to fully take advantage of “tax havens version 2.0”.
Unsurprisingly, the UNCTAD paper recommends imposing higher tax rates on cryptocurrency than other assets “to discourage holding and transacting cryptocurrencies.”
The IMF, which works to ensure the stability of the international monetary system, has highlighted several concerns with the rapid growth of crypto markets:
Widespread adoption of crypto assets, especially in emerging markets, could undermine monetary policy effectiveness, circumvent capital controls, and exacerbate fiscal risks [5].
Stablecoins linked to major currencies could potentially replace sovereign currencies in some countries if left unchecked [6].
Lack of effective legal and regulatory oversight in many countries creates financial stability risks, such as inadequate reserve backing for stablecoins.
To address these issues, the IMF has called for comprehensive, consistent, and coordinated policies on crypto-assets. Key recommendations include:
Maintaining robust domestic institutions and monetary policy to defend against currency substitution
Not granting crypto-assets legal tender status
Integrating crypto within existing frameworks for managing capital flows
Clarifying tax treatment of crypto, including for income, capital gains, and VAT [7]
Taxation challenges and approaches
Cryptocurrencies' decentralised and pseudonymous nature presents unique taxation issues. The lack of third-party reporting makes compliance more difficult than with typical financial assets. Specifically, we must address numerous issues.
Classifying cryptocurrencies as property, commodities, or something else for tax purposes
Determining cost basis and taxable gains/losses for volatile crypto assets
Capturing crypto used for unreported income or tax evasion
While bans on crypto are difficult to enforce, governments are focusing on regulating on/off ramps like exchanges. Major crypto exchanges are increasingly complying with customer identification and anti-money laundering rules. Authorities are also leveraging blockchain traceability to investigate criminal activity.
Authorities are grappling with how to fit crypto into existing tax rules while balancing innovation, financial stability, and tax compliance. As crypto adoption grows, a global approach to taxation based on common principles will be essential.
France's evolving approach to cryptocurrency taxation
France, known for its thorough tax system, has led the way in developing a legal framework for cryptocurrency taxation.
Classification of crypto assets
The French tax authorities, the Direction Générale des Finances Publiques (DGFiP), classify cryptocurrencies as movable property or assets, similar to stocks, bonds, and other capital assets. While crypto assets are accepted as a medium of exchange, they do not have the legal status of a currency in France. This classification means that income or capital gains from disposing of crypto are generally taxed as ordinary income [8].
Taxation of crypto transactions
France’s taxation distinguishes between occasional and professional traders when it comes to taxing crypto transactions.
Capital gains by occasional traders
Capital gains received by taxpayers who sell cryptocurrencies as part of the management of their private assets are subject to specific tax regulations in France. Here is a detailed and verified overview of the taxation rules:
Flat tax rate:
Capital gains from the sale of digital assets are generally taxed at a single flat tax rate of 30%, which includes 12.8% income tax and 17.2% social security contributions.
This flat tax rate applies regardless of the frequency of transactions, whether occasional or habitual.
Option for progressive tax scale:
Taxpayers have the option to waive the flat-rate taxation and opt for the progressive income tax scale if it is more beneficial. This option is specific to digital asset capital gains and can be selected by ticking box 3CN on the income tax return.
The progressive tax scale ranges from 0% to 45%, plus 17.2% social security contributions.
Conditions for income tax
If the following criteria are satisfied, income tax applies to capital gains:
Individuals fiscally domiciled in France: This includes both direct and indirect fiscal domicile.
Capital gains from the sale of digital assets: Applies to both occasional and habitual sales.
Specific tax regimes
Occasional sales:
Article 150 UA of the General Tax Code (CGI) specifically taxes capital gains on movable property for occasional sales.
Habitual sales:
For habitual sales, the capital gains are taxed under the industrial and commercial profits regime (BIC).
Mining activity:
Gains from mining activities are taxed under the category of non-commercial profits (BNC).
The acquisition value for calculating the taxable result is zero when bitcoins have been awarded for free.
Small transactions: An exemption applies if the total sales in the year are less than €305 per household.
Taxable events
Taxable events may include selling crypto for fiat currency and receiving crypto profits from activities like mining, staking, airdrops, and hard forks. Notably, crypto-to-crypto trades, gifts of crypto, and unrealised gains are not taxable events.
Capital gains by professionals
As of January 2023, new guidance treats professional crypto trading income as non-commercial profits (BNC) rather than industrial and commercial profits (BIC), subject to progressive income tax up to 45%. This aligns the treatment of professional crypto trading with that of crypto mining rewards.
Transactions carried out on a professional basis will be subject to the tax scale and social security contributions, subject to a 34% allowance (micro-BNC regime) or expenses related to the activity (controlled declaration regime).
This will apply to investors who carry out numerous and sophisticated transactions on cryptos throughout the year and who use the same tools and techniques as professional traders for this activity. These investors will thus be subject to the same tax regime as taxpayers who operate on the stock markets under conditions similar to those of stock exchange professionals and as taxpayers who engage in "mining" (the activity of creating cryptocurrencies) [9]
The French government has also taken steps to combat tax evasion and money laundering related to crypto. In 2022, the DGFiP gained the authority to request customer information from crypto service providers to identify taxpayers. France is also participating in the EU's DAC8 directive for automatic exchange of crypto tax information between member states.
Belgium’s approach on crypto taxation
In Belgium, the taxation of cryptocurrency income depends on the investor's profile.
Categories of Investors
There are three main categories:
"Reasonable" investors: 0%
This category includes individuals who manage their crypto investments prudently and conservatively. Typically, a "bon père de famille" opens a single account with a modest amount invested and does not engage in frequent trading or high-risk activities. They hold their cryptocurrencies for a long period, reflecting normal management of private assets.
Capital gains from crypto investments are not taxed for these "good fathers" as long as the investments are managed within the framework of normal private asset management [10].
Investors and speculators: 33%
This category includes individuals who have more knowledge of cryptocurrencies and engage in more complex activities such as DeFi protocols, staking, or occasional trading. These activities are considered outside the scope of normal asset management and are thus subject to taxation.
Capital gains realised by investors and speculators are taxed as "miscellaneous income" at a flat rate of 33% [11].
Professionals: 25% to 50%
This category includes individuals who make cryptocurrency trading their main source of income. Professional traders often engage in frequent and complex trading activities, including mining, futures, and other advanced financial products.
Income from professional crypto trading is taxed according to the progressive income tax scale, ranging from 25% to 50%, depending on the total income and other factors [12].
Possibility of tax ruling
The Advance Rulings Service (SDA) in Belgium provides a mechanism for taxpayers to obtain clarity on the tax treatment of their crypto activities. The service offers a questionnaire to help determine the investor's profile and the corresponding tax obligations. Taxpayers can request an advance ruling to understand the tax consequences of their specific transactions or situations involving crypto assets.
The advance ruling provides legal certainty and helps taxpayers comply with their tax obligations by clarifying how their crypto activities will be taxed.
Taxpayers submit a detailed description of their planned transactions or activities to the SDA, which then issues a ruling on the applicable tax treatment based on existing tax laws and regulations.
Luxembourg’s position on crypto taxation
The Luxembourg tax regime for crypto-assets is generally governed by the country's standard tax laws and principles, as there is no separate legislation for crypto-asset taxation. This means that both individual and corporate investors must handle the existing tax framework to understand their obligations towards crypto assets, including cryptocurrencies and non-fungible tokens (NFTs).
Taxation of crypto assets for individual investors in Luxembourg
In Luxembourg, the tax treatment of crypto-assets for individual investors is determined by the general tax rules and principles, as there is no specific legislation for the taxation of crypto-assets.
For individual investors, the taxation of crypto assets depends on the nature of the income derived from these assets. Income can be classified either as business profits (i.e., income derived from a commercial activity) or miscellaneous income (i.e., income derived from the management of the individual’s private wealth). Business profits are taxed on a net basis at progressive personal income tax rates. On the other hand, miscellaneous income-related gains realised within less than 6 months after the acquisition of the crypto-assets are considered speculative and may be subject to tax. However, speculative gains amounting to less than EUR 500 during a specific tax year are exempt from personal income tax.
A specific circular dated 26 July 2018 issued by the Luxembourg direct tax authorities aims to clarify the tax treatment of crypto assets (“2018 Circular”)[13]. This 2018 Circular is expected to apply also to other crypto-assets (MiCA classifications), although this should be confirmed on a case-by-case basis.
Income classification
The tax treatment of different types of income derived from cryptocurrency transactions is determined by the income categorization for individual investors in the context of crypto-assets, which is a critical aspect of taxation in Luxembourg.
Speculative gains
Speculative gains are profits derived from the buying and selling of crypto-assets within a short timeframe, typically considered to be less than six months. This classification hinges on the intent behind the transaction and the frequency of trades. Income considered as speculative gains is taxed at the individual’s marginal tax rate, reflecting the approach towards short-term trading as a taxable activity.
The key criteria for classifying income as speculative gains include the holding period of the crypto assets and the frequency and volume of transactions, which may indicate an intent to profit from market fluctuations in the short term.
Speculative gains are subject to income tax at the individual's standard tax rate. The classification as speculative impacts the tax liability, often resulting in a higher tax burden due to the alignment with income taxation principles.
Capital gains
Profits from the sale of crypto-assets that have been kept for an extended duration, generally exceeding six months, are referred to as capital gains. It is critical to differentiate between speculative gains and capital gains, given that capital gains may be exempt from taxation under specific circumstances, attributable to the long-term nature of the investment.
Capital gains on crypto-assets may be free from taxation under certain circumstances, especially if the assets are retained for a prolonged duration. The purpose of this exception is to promote the adoption of long-term investing strategies as opposed to short-term trading.
Long-term holding
A cryptocurrency owner with a holding period exceeding six months who attains a capital gain is exempt from taxation on said gain. A longer holding duration often supports the classification of capital gains rather than speculative activity, as the holding term is the defining characteristic that differentiates the two.
Short-term speculation
If an individual is considered a speculator, for example, by trading cryptocurrencies within a six-month period, they may be subject to tax at rates between 22% and 25%.
Mining, Staking, and other rewards
Different treatment applies to income obtained by mining, staking, or receiving incentives in the form of crypto-assets compared to gains realised from the sale of those assets. Typically, this form of revenue is categorised as company income or other income and is liable to be taxed at the marginal tax rate of the individual.
Mining
Crypto mining involves the use of computer hardware to validate transactions on the blockchain and secure the network, with miners receiving crypto-assets as rewards for their contributions.
Tax classification: Mining activities are typically considered commercial business income when they meet the criteria of Article 14 L.I.R., specifically being "an independent profit-seeking activity carried out permanently and participating in general economic life". This applies particularly when:
There is dedicated space or organization for crypto operations
Borrowed capital is used
Frequent turnover of virtual currency inventory occurs
Trading is done for third parties
Operating expenses like electricity costs and equipment depreciation are tax-deductible if exclusively related to the mining business.
When mining activities don't qualify as a commercial business, they are taxed as miscellaneous income under Article 99, number 3 L.I.R.. This applies to smaller-scale or occasional mining operations that don't meet the commercial business criteria.
Documentation and expenses: Miners must maintain detailed records of the quantity and market value of the crypto-assets received as rewards at the time of mining. Additionally, expenses related to mining activities, such as hardware costs and electricity, may be deductible, depending on the specific circumstances and how the tax authorities view the activity (as a hobby or a business).
All mining income must be declared in euros or an ECB-recognized currency, using exchange rates from CSSF-approved platforms. Commercial mining operations located in Luxembourg are also subject to municipal business tax
Staking
Staking involves holding funds in a cryptocurrency wallet to support the operations of a blockchain network. Essentially, it's an activity where investors lock up their coins to receive rewards.
Tax classification: Based on the current regulatory framework in Luxembourg, the tax treatment of staking activities remains in a gray area, as it has not been specifically addressed in the 2018 tax circular. However, some key points can be outlined:
Staking rewards are likely to be treated similarly to dividends or interest income from savings accounts, making them subject to taxation regardless of the holding period. This differs from regular cryptocurrency trading gains, which become tax-exempt after a six-month holding period.
It's worth noting that until the Luxembourg tax authorities issue specific guidance on staking, there remains some uncertainty about its exact tax treatment, and each case may need to be evaluated individually.
Record-keeping: Investors need to document the quantity of rewards received through staking and their value in fiat currency at the time of receipt. This documentation is crucial for accurate tax reporting and compliance.
Other Rewards
Other rewards may include airdrops, hard forks, or any crypto-assets received as part of promotional activities.
Airdrops: Generally considered as a bonus for holding a specific cryptocurrency, the taxation of airdropped tokens depends on their market value at the time of receipt. This income is typically taxable as other income.
Hard forks: When a cryptocurrency undergoes a hard fork, resulting in the creation of a new cryptocurrency, the tax implications can be complex. The new tokens may be considered taxable income at their fair market value at the time of the fork, depending on the investor's ability to control and dispose of the new tokens.
Promotional rewards: Rewards received from participating in promotional activities or contests are also considered taxable income, based on the market value of the crypto-assets at the time they are received.
Taxation: Given that airdrops and hard forks and other promotional rewards are not explicitly covered by the 2018 Circular, they would likely fall under the general principles outlined in that circular:
Any income must fall within one of the categories listed in Article 10 L.I.R. to be taxable
All cryptocurrency transactions must be valued in euros or an ECB-recognized currency
Documentation requirements apply for proving acquisition dates and related costs
Potential Classification: The received tokens would likely be treated either as:
Commercial income if received as part of a broader commercial cryptocurrency activity
Miscellaneous income under Article 99 L.I.R. if received in a private capacity
However, without specific guidance from the Luxembourg tax authorities on these particular cases, the exact tax treatment remains subject to interpretation.
Taxable events
A taxable event is any transaction that results in a tax consequence for the party involved, such as selling an asset for profit or earning income. Regarding crypoto-assets the exchange of crypto-assets is generally considered as a taxable event, but other circumstances may also trigger taxation.
Exchange of Crypto-Assets:
The exchange of crypto-assets for fiat currency or other crypto-assets (e.g., BTC to ETH) triggers a taxable event. The tax treatment depends on whether the income is classified as business profits or miscellaneous income.
Other activities:
Income from activities such as farming, futures, lending, liquidity pools, airdrops, hard forks, self-employment, and employment in crypto-assets funds may also trigger tax. These events and models should be checked on a case-by-case basis.
Documentation and filing
Individual investors in Luxembourg must follow the documentation and declaration requirements to ensure compliance with tax rules, particularly in the context of crypto assets. The Luxembourg tax authorities require detailed records to be kept for all transactions involving crypto assets, facilitating accurate tax reporting and compliance.
Documentation and detailed record-keeping
Individual investors must maintain detailed records of their crypto asset transactions including:
Purchase and Sale Records: Documentation should include the date of transactions, types of crypto assets bought or sold, quantities, prices in fiat currency at the time of transaction, and the total value of each transaction.
Exchange Transactions: When crypto assets are exchanged for other crypto assets, investors must record the details of both assets involved in the transaction, including the fair market value in fiat currency at the time of the exchange.
Wallet Addresses and Transaction IDs: For each transaction, the associated wallet addresses and transaction IDs should be documented. This aids in the verification of transactions and ownership.
Mining, Staking, and Airdrops: Specific records should be kept for income received through mining, staking, or airdrops, indicating the date of receipt and the market value of the crypto assets at that time.
To explain the stance chosen in their tax returns, taxpayers must maintain consistent and ongoing documentation, including the date of acquisition or development of the virtual currency and any associated charges.
Declaration of income
Income from crypto assets must be reported to the Luxembourg tax authorities on the annual tax return. The type of income (e.g., capital gains, speculative profits, or other income) determines how it is reported and taxed. To appropriately meet their tax requirements, investors must understand how their crypto asset income is classified:
Speculative gains
For assets held for a short term (typically less than six months) and sold at a profit, the gains are considered speculative and must be declared as such.
Capital gains
Gains from the sale of assets held for more than six months are generally not considered speculative. The rationale is that longer-term holdings indicate an investment strategy that is not primarily aimed at capitalizing on short-term market volatility.
If the assets are held for longer than six months, the gains may not be subject to taxation, but the specific circumstances of the transaction need to be carefully assessed. Several factors are considered to determine the taxability of such gains:
Intent and Frequency of Transactions: The tax authorities may consider the investor's intent and the frequency of their transactions. An investor frequently buying and selling crypto assets, even if some are held for longer than six months, may still be seen as engaging in speculative trading.
Integration with Other Investment Activities: If the sale of crypto assets held for longer than six months is part of a broader investment strategy that includes frequent short-term trading, the gains may be subject to taxation.
Use of Professional Trading Platforms and Tools: The use of professional trading platforms and tools may also be a factor in determining whether the gains are taxable, as it could indicate a more speculative approach to crypto asset investment.
Therefore, while the holding period is a significant factor in determining the tax treatment of gains from the sale of crypto assets, it is not the sole criterion. The Luxembourg tax authorities assess the totality of circumstances surrounding each transaction to determine its taxability. This assessment includes examining the investor's overall investment strategy, the nature of the transactions, and the use of trading platforms or tools.
Miscellaneous/other Income
Income derived from mining, staking, or airdrops is considered taxable from the moment it is received and must be declared accordingly.
Tax filing process
The tax filing process for crypto asset transactions involves the submission of the annual tax return, where the investor discloses all taxable events and income from the previous year. The detailed records maintained by the investor serve as the basis for this declaration, ensuring that all taxable income is accurately reported:
Use of Form 100: Individual investors typically use Form 100 for their income tax return, where they must include the relevant sections for income from crypto assets.
Supporting Documentation: While the detailed transaction records do not need to be submitted with the tax return, they must be readily available upon request by the tax authorities. These documents are crucial for substantiating the income declared and the tax calculations made.
Compliance and monitoring
The Luxembourg tax authorities are increasingly focusing on the taxation of crypto assets, with enhanced monitoring and compliance efforts. Individual investors must proactively manage their tax obligations, keeping abreast of changes in tax laws and regulations that may affect the taxation of crypto assets.
Certain transactions involving crypto-assets and NFTs may be subject to reporting under the mandatory disclosure regime. The EU DAC-8 directive and its implementation should be monitored for any changes in reporting requirements.
Corporate investors in Luxembourg
For mining activities linked to proof of work networks, the tokens received as compensation for securing the network should be fully taxable for Corporate Income Tax (CIT)/Municipal Business Tax (MBT) purposes. Operational and amortisation expenses related to the IT devices used are fully deductible as long as they have been incurred.
The gains realised upon the disposal of cryptocurrencies by corporate taxpayers constitute commercial income, subject to Luxembourg CIT and MBT at an aggregated rate of 24.94%. Conversely, losses are fully deductible.
Taxation of crypto assets
Corporate investors in Luxembourg are subject to a range of tax considerations when it comes to crypto assets.
Corporate income tax on gains
Corporate investors are subject to corporate income tax on gains realized from the sale or exchange of crypto assets. The tax rate is determined by the corporate income tax regime applicable in Luxembourg, which considers the taxable income of the corporate entity. The specific treatment of such gains (whether as capital gains or business income) depends on the nature of the transactions and the corporate entity’s main activities.
Capital gains
Here "capital gains" refers to the profit a company realises when it sells a crypto asset for more than its purchase price. Generally, gains from the sale of crypto assets held as part of the investment portfolio of a company may be treated as capital gains. The tax treatment for capital gains can vary, with potential exemptions available under certain conditions.
Classification of capital gains
In Luxembourg's tax framework, gains from the sale of crypto assets by a corporate entity are classified based on the nature of the holding and the intent behind the investment. Crypto assets held as part of a company's investment portfolio are generally considered capital assets. The gains from the sale of these assets, if viewed as part of the normal management of the company's investment portfolio, may be classified as capital gains.
Tax treatment variability
The tax treatment of capital gains on crypto assets can vary for several reasons:
Exemptions under specific conditions: Luxembourg tax law may allow exemptions or preferential tax treatment for capital gains realised on certain investments, including crypto assets, under certain situations. These restrictions frequently concern the duration of the holding period, the proportion of ownership, and the nature of the assets.
Participation exemption regime: The "participation exemption" regime is a crucial mechanism that can have an impact on capital gains taxes. Gains from the sale of eligible participations may be excluded from corporate income tax under this scheme. Although crypto-assets are a relatively new asset class, the concepts behind the participation exemption may apply if they are considered to meet the regime's standards.
Holding period considerations: Similar to the treatment for individual investors, the length of time a corporate entity holds a crypto asset before selling it can influence the tax treatment of the gains. Although there isn't a straightforward holding period rule for capital gains on crypto assets as there is for traditional securities, the concept of a holding period influencing tax liability is a consideration in determining the nature of the gain.
Valuation Requirements
Crypto asset must be evaluated for net wealth tax purposes in accordance with the Luxembourg Valuation Law of October 16, 1934 (Bewertungsgesetz).
Crypto currencies must be valued at their fair market value when assessing the unitary worth of company assets and calculating net wealth tax for collective entities (corporate taxpayers). The valuation must be completed in euros or a currency for which the European Central Bank (ECB) publishes exchange rates, with rates obtained from platforms approved by the Luxembourg Financial Sector Supervisory Commission (CSSF).
Implications for corporate investors
Corporate investors must carefully consider how their cryptocurrency holdings are classed and the associated tax system. The possibility of varying tax treatment emphasises the significance of careful tax planning and documentation. The proper classification of crypto assets in an investment portfolio, as well as knowing the conditions under which capital gains on these assets may be exempt from taxation, are crucial for maximising tax outcomes.
Business income
If the transactions related to crypto assets are frequent or part of the entity’s operational business activities, the gains may be considered business income and fully taxable.
Deductibility of expenses and losses
Corporate investors can deduct expenses directly related to their cryptocurrency activity from their taxable revenue. This includes the costs of acquiring, mining, and maintaining crypto assets. Furthermore, losses obtained from the sale or exchange of crypto assets can be used to offset taxable gains, subject to certain restrictions and limitations, such as the requirement to carry losses forward to succeeding fiscal years.
Mining activities and compensation
In Luxembourg, mining activities are usually qualified as business activities. The tokens received as compensation for securing a proof of work network should be fully taxable for Corporate Income Tax (CIT)/Municipal Business Tax (MBT) purposes. Operational and amortisation expenses related to the IT devices used are fully deductible as long as they have been incurred.
Annual Net Wealth Tax (NWT)
The Annual Net Wealth Tax (NWT) in Luxembourg applies to corporate investors, including those holding crypto assets.
General rates
Corporate entities in Luxembourg are subject to an annual net wealth tax (NWT) on their assets, including cryptocurrencies. The NWT is levied at a rate of 0.5% on the taxable base up to EUR 500 million. For the taxable base exceeding EUR 500 million, the NWT is EUR 2.5 million plus 0.05% on the component of the NWT base above EUR 500 million. There is no cap set for the NWT.
Valuation of assets
Generally, assets are taken into account at market value, except for real estate, which is subject to a special regime. Shareholdings that qualify for the participation exemption are generally exempt from NWT.
Inclusion in Net Wealth:
Crypto assets held by corporate investors are considered part of the company's net wealth and are thus subject to NWT. These assets should be valued at market value for the purposes of calculating the NWT.
Exemptions and specific regimes:
While the general principles apply, it's important to note that specific exemptions or adjustments may apply depending on the nature of the assets and the company's overall tax structure (ex. Qualifying shareholding, debts deductibility, IP regime etc).
Taxable events and transactions
For corporate investors, taxable events include trading crypto for fiat currency, crypto-to-crypto exchanges, and the use of cryptocurrency for purchasing goods or services. These events are considered a form of deemed disposal and may trigger tax liabilities. The sale value at the time of disposal will be the base cost for the new crypto assets purchased.
Documentation and reporting
Corporate entities must maintain accurate records and documentation of their crypto-asset transactions. This includes the date of acquisition or creation of the virtual currency, the related costs, and any income or gains derived from these assets. Gains, revenues, or losses realised by a corporate taxpayer should be declared in their annual tax returns.
Consistent and continuous documentation is required to justify the position taken in tax returns. Accurate documentation and reporting are essential to ensure compliance with tax obligations and to optimise the tax position of the corporate entity.
MiCA's influence on crypto-taxation
While MiCA primarily focuses on the regulation and supervision of the crypto-asset markets, rather than direct tax implications, its introduction could indirectly influence the tax treatment of crypto-assets in several ways:
MiCA seeks to standardise regulatory regulations across the European Union, influencing how corporate entities interact with crypto-assets, including compliance with expanded due diligence and reporting duties.
MiCA provides transparent definitions and classifications for various forms of cryptoassets, which may assist Luxembourg tax authorities in better categorising these assets for tax purposes. This may result in more consistent tax treatment, as well as new tax guidance or legislation that aligns with the regulatory framework.
With MiCA's focus on transparency and disclosure requirements for crypto-asset issuers and service providers, there will be more information available to tax authorities. This could result in changes to tax reporting and enforcement practices, as authorities will have better access to data on crypto transactions.
Impact on corporate investors
MiCA introduces precise legal definitions and classifications for crypto-assets, providing the foundation for consistent tax treatment across EU member states. This clarity is particularly crucial for businesses and investors who have long struggled with varying interpretations across jurisdictions.
One of MiCA's most significant impacts lies in its transparency requirements. The regulation ushers in a new era of crypto transaction visibility, fundamentally changing how tax authorities monitor and assess digital asset activities.
The introduction of DAC8 alongside MiCA creates a comprehensive reporting framework. Crypto service providers must now maintain detailed transaction records and implement robust customer due diligence procedures. This systematic approach ensures tax authorities receive accurate, standardized information about crypto transactions.
For crypto businesses, MiCA's implementation demands significant operational adjustments. The licensing requirements and compliance obligations create a more structured environment for tax reporting and assessment. Service providers must invest in sophisticated systems to track and report transactions effectively.
Luxembourg may need to explore whether its tax policy should vary between different types of crypto-assets, such as asset-referenced tokens (ARTs), e-money tokens (EMTs), and other crypto-assets, given that MiCA does.
As the crypto industry becomes more integrated with traditional banking as a result of MiCA developments, financial institutions, including those in Luxembourg, may need to alter their products and services. This could result in new tax considerations for products that combine traditional financial instruments with cryptocurrency assets.
MiCA is anticipated to require increased due diligence on the part of corporate investors, which may have an influence on tax documentation and reporting standards.
MiCA mandates crypto-asset market participants to disclose information about their environmental and climate footprint. This could have an impact on tax policy relating to the environment, such as tax incentives or penalties.
Impact on individual investors
MiCA strives to improve investor protection, which may influence individual investment plans and, as a result, tax events linked with crypto-assets. Individual investors will benefit from increased safeguards and a safer investment environment. For example, the legislation specifies requirements for the custody of customers' assets, ensuring that investor funds are better protected from theft or loss.
The increased transparency and record-keeping that MiCA mandates may also facilitate the tax reporting process for individual investors. With clearer transaction records and standardized reporting from service providers, individual investors might find it easier to report taxable events and comply with tax obligations related to their crypto-assets.
[1] OECD, Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard, 10 October 2022, https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.htm
[2] G20 calls for ‘swift’ creation of crypto tax reporting rules and info exchange, Mike Dalton, 9 September, 2023, https://cryptoslate.com/g20-calls-for-swift-creation-of-crypto-tax-reporting-rules-and-info-exchange/
[3] UNCTAD The cost of doing too little too late: How cryptocurrencies can undermine domestic resource mobilization in
developing countries, UNCTAD, July 2022, https://unctad.org/system/files/official-document/presspb2022d10_en.pdf
[4] UNICEF launches crypto donations fund, October 9, 2019by Miranda Wood, https://www.ledgerinsights.com/unicef-launches-crypto-donations-fund/
[5] The Changing Landscape of Crypto Assets—Considerations for Regulatory and Supervisory Authorities
IMF-FSB-OCC Crypto Conference, February 23, 2024, Tobias Adrian https://www.imf.org/en/News/Articles/2024/02/23/sp022324-changing-landscape-crypto-assets-considerations-regulatory-and-supervisory-authorities
[6] Crypto Needs Comprehensive Policies to Protect Economies and Investors, Tobias Adrian, Dong He, Arif Ismail, Marina Moretti, July 18, 2023, https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors
[7] Ibid.
[8] Crypto Taxes France: Complete Tax Guide [2024], Florian Wimmer, 2May, 2024, https://www.blockpit.io/tax-guides/crypto-tax-france
[9] Comment déclarer les plus ou moins-values sur cessions d’actifs numériques (cryptomonnaies ..) ?, Direction générale des Finances publiques, 26 Mars 2024, https://www.impots.gouv.fr/particulier/questions/comment-declarer-les-plus-ou-moins-values-sur-cessions-dactifs-numeriques
[10] Are cryptocurrencies taxed in Belgium? Valesca Wilms, 21 December, 2023, Accountable, https://www.accountable.eu/blog/tax-on-cryptocurrencies-belgium/
[11] BELGIUM CRYPTO TAX, https://rue.ee/blog/belgium-crypto-tax/ , Belgium tax: the Belgian crypto speculator investor profile, Emilie Jurdic, 16 February 2024, https://www.waltio.com/be-en/blog/taxation/tax-belgium-profile-investor-speculator-crypto/
[12] What taxation for crypto-assets in Belgium? Léo de Waltio, 17 May 2023, https://ngrave.io/en/blog/what-taxation-for-crypto-assets-in-belgium
[13] Circulaire du directeur des contributions, L.I.R. n° 14/5 – 99/3 – 99bis/3 du 26 juillet 2018