The Federal Ministry of Finance (BMF) is considering massive changes with respect to the tax treatment of cryptocurrencies. Realised accretions are going to be subject to a special tax rate of 27.5 % in future.
As for cryptocurrencies held as private assets, the BMF now intends to provide for partial conformity with capital assets instead of the previous treatment as speculation gains (see TPA Journal no. 3/2017 and TPA Newsletter no. 7/2017). Accordingly, realised accretions from cryptocurrencies are proposed to be subject to the special tax rate of 27.5 % in future (regardless of the holding period).
The BMF published the draft of the 2017 amending decree of the income tax guidelines on its website late in 2017. The income tax guidelines (Einkommensteuerrichtlinien, EStR) constitute an aid for interpretation of the Income Tax Act (EStG) and are issued by the fiscal administration. They are a reference document for administrative and operational practice. Please find below a brief summary of the major amendments proposed by the fiscal administration:
1. Cryptocurrencies (e.g. bitcoins) are no currencies
As before, the BMF starts out from the assumption that cryptocurrencies (e.g. bitcoins) are not recognised as actual currencies and accordingly considered as assets comparable to financial assets.
2. Exchange of cryptocurrencies against euros within private assets
According to previous statements by the BMF, the exchange of cryptocurrencies against euros within private assets is only relevant in fiscal terms if the period between acquisition and disposal is not more than one year (speculative transaction). Such speculative transactions are subject to the progressive tax rate of up to 55 % income tax. Now, the draft of the interpretation aid provides for cryptocurrencies such as bitcoins to be relevant in fiscal terms at all times, as are capital assets (e.g. shares). Accordingly, realised
accretions are proposed to be subject to the special tax rate of 27.5 % in future, regardless of the one-year speculation period.
3. Trading between cryptocurrencies held as private assets
Also, according to the view previously held by the BMF, trading between cryptocurrencies held as private assets is only relevant in fiscal terms if the period between acquisition and disposal is not more than one year (speculative transaction). In future, the exchange between cryptocurrencies outside an operational context is not going to be relevant in fiscal terms any more (unless the respective cryptocurrency is a voucher or another investment vehicle) – similar to certain foreign currency conversions and regardless of the one-year speculation period. Only the conversion into euros or any currency with a stable exchange rate relative to the euro will constitute a taxable exchange subject to the special tax rate of 27.5 %.
4. Realised accretions from interest-bearing investments
In case of realised accretions from interest-bearing investments, no changes are expected as things stand today (as for tax treatment see TPA Journal no. 3/2017). In practice, we think that such interest-bearing investments will be rare, as normally appropriation will not change.
5. Changes in the operational sphere of physical persons
For trading between cryptocurrencies and exchange against legal currencies within the operational sphere of physical persons, no changes are currently expected. If, however, the special tax rate of 27.5 % applies to cryptocurrencies held as private assets in future, this special tax rate will also apply within the operational sphere under certain conditions.
As regards mining and its assessment as a commercial activity, no changes are planned (as for tax treatment see TPA Journal no. 3/2017).
7. Missing transitional regulations
The BMF has not made any statements as to transitional regulations. Therefore, it is currently unclear which transactions are meant to be, and will be, affected by the proposed amendments.
8. Supreme Administrative Court jurisdiction and open questions
Only late in 2017, the Supreme Administrative Court (VwGH) has made it clear (VwGH dated 18/12/2017, Ro 2016/15/0026) that foreign currency liabilities are not equivalent to negative capital assets (asset within the meaning of section 27 EStG) and accordingly any debt relief would only be taxable within the one-year speculation period, as no investment income (e.g. interest or dividends) can be obtained from foreign currency liabilities as a matter of principle.
Cryptocurrencies (e.g. bitcoins) frequently do not bear any interest or income either (as is also the case, for instance, with physical gold). Accordingly the question today is how the BMF is going to deal with this decision, handed down only recently, and whether the proposed amendments regarding the exchange of cryptocurrencies against euros and trading within private assets are actually going to take effect.
Moreover, the draft bill leaves open many other questions, for instance: which assets will be subject to the regulation concerning cryptocurrencies and are accordingly meant to be affected by trading? Does this also include trading in tokens? What about the tax treatment of airdrops or a fork?
Therefore, based on the draft as currently published on the homepage of the BMF and considering the currently existing uncertainties, we recommend that you desist from overhasty acts. We will keep you informed about further developments regarding the topic of cryptocurrencies.