The draft Amendment Decree (Wartungserlass) concerning the individual income tax guidelines that was published at the start of 2018 in Austria indicated fundamental changes in the area of taxation of cryptocurrencies (elimination of the one-year speculation period and classification of cryptocurrencies as capital assets for tax purposes, see our Newsletter 2/2018). The Austrian Ministry of Finance (Bundesministerium für Finanzen, BMF) then (more or less) withdrew these remarks, but in recent months there has been some uncertainty among the taxpayers concerned regarding the taxation of their cryptocurrency gains.
Cryptocurrency Update: The Amendment Decree 2018 has now been published with effect from 28/05/2018 in Austria. First things first: (almost) everything remains the same, most notably the one-year speculation period in private assets currently still applies. A few new features – which merely concern the exceptional case of interestbearing investments – are set out below.
This article provides a current overview of some of the key areas in the tax-relevant “crypto world”, namely “mining”, transactions and ICOs.
1. Mining of cryptocoins
Income taxes & MIning of cryptocurrencies
If new units of cryptocurrencies are created (“mined”), this is considered to be a commercial activity subject to income tax if the crucial criteria of an independent and lasting activity, the intention of making a profit and participation in economic transactions are met (however, as a rule, the fulfilment of these criteria is “presumed” by the tax office). According to the prevailing opinion, the taxable income from mining activities is calculated based on the market value of the mined units of cryptocurrencies minus the associated operating expenses (e.g. electricity costs and depreciation of the special mining hardware). There is also the alternative view that cryptocurrencies should be capitalised at production cost.
Unfortunately, the Amendment Decree 2018 makes no mention of whether and/or how a distinction can be made between “commercial” mining and “private” mining and instead contents itself with a general classification of mining as a commercial activity. In our opinion, however, a distinction would be useful and necessary in practice for cloud mining, for example.
In terms of value-added tax, cryptocurrency mining is regarded by the tax authorities as not taxable because there is no identifiable service recipient.
Cryptocurrencies are not recognised as a currency and are therefore regarded as an economic asset comparable to a financial asset. The prevailing view is that mined cryptocurrency units which are to be classified as an intangible asset should be recognised at their market value or market price at the time of their acquisition. They should be allocated to fixed assets or current assets. Generally accepted corporate accounting principles must be observed: With price losses, the strict lower of cost or market principle applies in current assets, while in fixed assets a write-down must be carried out if the impairment is expected to be permanent (voluntary if not expected to be permanent). With price gains, the asset must be written up to the acquisition value as a maximum.
2. Update: Taxes for Transactions with cryptocurrencies
In principle (see exceptions below), trading between cryptocurrencies, just like the exchange of cryptocurrencies for legal currencies and/or for trading goods and services, is to be regarded as a taxable exchange transaction. The proceeds of the sale and the acquisition costs of the purchased economic asset are to be valued at the common value of the economic asset provided or the market value of the service.
A distinction must be made for income tax purposes between business assets and private assets:
- There is no speculation period in a business environment. Here profits from cryptocurrency transactions are always taxable income and must be taxed at the progressive income tax tariff. Corporations incur the 25 % corporation tax.
- In a non-business environment, speculation income is to be recognised at the progressive income tax tariff only within the one-year speculation period.
Realised changes in value are only subject to the special tax rate of 27.5 % (also according to the Amendment Decree 2018 concerning the individual income tax guidelines) in the exceptional case of interestbearing investments (lending of cryptocurrencies to other market participants). Pro rata “interest income” is taxed at the tariff.
The Austrian Amendment Decree 2018 has now stipulated – but only for the exceptional case of interest-bearing investments – that taxable value increases are only subject to the special tax rate of 27.5 % upon conversion of interest-bearing cryptocurrencies into euros or into a currency that is stable at the euro exchange rate. Exchange between interest-bearing cryptocurrencies is therefore tax-neutral – like the exchange between foreign currencies. The Amendment Decree 2018 does not contain a provision concerning its effective date so, in our opinion, it should be applied with effect from and including the 2018 tax assessment.
The Amendment Decree 2018 still leaves questions unanswered, such as: Which “assets” come under the cryptocurrency regulations? How should airdrops or a fork be treated for tax purposes? What record-keeping obligations exist for cryptocurrency trading?
TPA TIP: If you have any questions about your tax return, contact your TPA tax advisor who will be happy to help you prepare your records.
If legal tender is exchanged for cryptocurrencies and vice versa, this is a tax-exempt activity according to the case-law of the ECJ.
3. Initial coin offerings (ICOs)
Similar to an initial public offering (IPO), in the case of an initial coin offering (ICO) a company issues a certain number of tokens and in return receives cryptocurrency units or fiat currencies (e.g. EUR or USD) to finance a business idea, for example. The tokens can transfer various rights and can basically be broken down into the following:
- Counterparty tokens, e.g.
– Entitlement to goods or services (utility token)
– Security token
– Right to a share in revenues/profits
– Right to a share in the capital
- Non-counterparty tokens
– Pure increase in the value of the token
For the issuing company, the accounting treatment depends greatly on the individual case. Tokens may constitute a liability or a provision, equity, hybrid capital or taxable income, depending on the rights transferred.
TPA TIP: If you are planning an ICO, contact our TPA cryptocurrency experts in good time!