Taxation Implications on Bitcoin & Cryptocurrencies

Taxation Implications on Bitcoin & Cryptocurrencies

Yesterday went from bad to worse for the crypto bears and believers as they saw their favorite cryptocurrency Bitcoin crash almost 50% from its all-time high hit earlier this year. This also dragged down the values of other cryptos (‘alt coins’) making it a day to forget for all teams involved. We can’t tell you whether Bitcoin and Cryptos are here to stay as stores of value and means of currency exchanges. But as a hub of tax advisory services, we can at least guide you regarding the tax treatment of the same.

Cryptocurrency is a digital currency in which transactions are verified and records are maintained by decentralized authority using cryptography rather than centralized authority (i.e. a bank). Bitcoin is the original and most popular cryptocurrency in the world. According to tax consultants, the feature that makes cryptocurrency a favorable investment among investors is its easy and cost-effective exchange across the globe.

Around this time last year, the Irish Revenue published guidance about the taxability of cryptocurrency transactions. According to Revenue’s guidance, tax transactions on cryptocurrencies are no different from other products/commodities (i.e. 33% CGT). However, you can reduce the amount of capital gains tax that you pay with the 1270 euro annual exemption. But it’s very important to note that this exemption goes across all of your gains which includes stocks, cryptocurrency and real estate etc.

Whether someone or an entity is deemed to be trading or not will depend on case law and many factors including but not limited to the motivation, the subject matter and the level of activity undertaken. An individual carrying on a trade will be taxed at income tax rates while a company carrying on a trade will generally be chargeable to tax at 12.5%.

Irish Revenue’s guidance explains that for businesses that accept payment for goods or services in cryptocurrencies there is no change to when income is recognised or how taxable profits are calculated. The guidance also states that where there is an underlying tax event on a transaction involving the use of a cryptocurrency, the tax law requires a record to be kept of it which will include any record about the cryptocurrency. Therefore, income or corporation tax will apply to the resulting trading profits.

Where a person or company is not considered to be trading in the currency/asset, they will be subject to regular Capital Gains Tax (CGT) rules – any gains or losses arising on such disposals will be chargeable allowable for CGT purposes. Given the high CGT rate, the highly encouraging Bitcoin philosophy and mantra to hold or ‘HODL’ the asset, together with Revenue’s currently limited visibility on such transactions, tax Revenue on such transactions may not yet prove to be a substantial yield for the exchequer.

Further to the above, where emoluments payable to an employee are paid in a cryptocurrency, the value of the emoluments to calculate payroll taxes is the Euro amount attaching to the cryptocurrency at the time the payment is made to the employee. Returns to Revenue must be shown in Euro amounts and remittances made appropriately.

Revenue’s final line in the guidance states that a reasonable effort should be made to use an appropriate valuation for the transaction in question. So, while they have tried to provide some guidance and to a degree some certainty about the tax treatment of same, they acknowledge that uncertainty exists given the evolving and ever-changing nature of the market.

For more information on Irish’s revenue guidelines, you can visit Revenue.ie. If you still have any queries on the above or any other tax-related matter, you can always take benefit of our tax advisory services. Our highly experienced accountants and business advisors will be glad to guide you in all your tax-related issues.
Full guidance can be found on Revenue.ie