Taxation Of Bitcoin And Other Cryptocurrencies
Following the decision of the Council of State of April 26, 2018 , part of this article is now obsolete. Here is my article following this decision.
While the cryptocurrency trade is growing in number, the question of the taxation of bitcoin and its cousins is not trivial. Indeed, at a time when the value of bitcoin is growing steadily despite some hiccups here and there , the gains can be substantial. I am thinking in particular of the visionaries having exchanged their euros for bitcoins before 2017 or those who compare gold to bitcoin . What to do with these gains? What to declare to the tax authorities? As you can see, the answers are not as precise as those for your income from work or your capital gains …
How to fiscally define bitcoin?
I think the first difficulty is a problem that is rarely addressed: basically, what is bitcoin? It is often forgotten, but bitcoin is not officially a stock market investment, nor a bond fund but a currency with which you can make purchases . Yet today it is mainly seen as a speculative investment subject to variations in the supply and demand markets.
An important decision of the Court of Justice of the European Union (CJEU), dated October 22, 2015 , answers many questions about the tax status of bitcoin. In this case, the Swedish tax authorities considered that foreign exchange transactions between so-called traditional currencies ( fiat ) and cryptocurrencies were subject to VAT. An assertion disputed by the natural person practicing these operations.
The CJEU states that bitcoin can not be described as tangible property because ” the virtual currency has no other purpose than that of means of payment ” (point 24). It must therefore be brought closer to traditional currencies on this point (point 25). Consequently, these operations are not deliveries of goods but services (point 26). Finally, as regards VAT liability, Article 135 of the VAT Directive exempts transactions relating to currencies, bank notes and other legal means of payment (paragraph 44).
Above all, ” transactions involving non-traditional currencies, that is to say other than currencies that are legal means of payment in one or more countries, provided that these currencies have been accepted by the parties to a transaction as alternative means of payment to legal means of payment and have no purpose other than means of payment, constitute financial transactions “(paragraph 49).
As a result, foreign exchange transactions between traditional currencies and bitcoin are exempt from VAT because it is an alternative means of payment. Moreover, do not see a contradiction of terms when the CJEU refers to a legal means of payment, in this case the Swedish krona, in the face of bitcoin. The Court of Luxembourg merely points out that Swedish law only recognizes the Crown as a currency in its territory, which does not mean that it explicitly prohibits others. For example, the euro is used by some businesses in Stockholm. An illegal currency must be banned, which is not the case for bitcoin.
In conclusion, this judgment therefore makes it possible to affirm that bitcoin is a means of payment like any other and that it can not, as such, be considered as a mere speculative investment or a stock market investment . Nevertheless, everything would be too simple if we stopped at this decision … Because, indeed, there is no legislation specific to cryptocurrencies. We must look at the French tax provisions to try to see even more clearly.
What is bitcoin within the meaning of French tax legislation?
Above all, this article should be limited to bitcoins and cryptocurrencies held by lambda individuals. Indeed, if you are at the head of a legal company and declared specialized in the exchange between crypto-currencies and traditional currencies, your business model is mainly based on transaction costs. Taxation is therefore identical to that of fund managers. Regarding individuals, everything is more complex.
Another introductory point, concerning both professionals and individuals, exchanges or trading activities between cryptocurrencies are not taxable. Your added value by selling your bitcoins for ethers does not exist in the eyes of the tax authorities. Indeed, the latter has no direct or indirect control over these exchanges. This is not the case when your cryptocurrency evaluated is repatriated in euros to your bank account.
For the purposes of French tax legislation, cryptocurrencies do not have their own category. In a response to a pioneer in possession of bitcoins (as early as 2013, lucky!), The tax administration linked them to non-commercial profits (BNC). NBCs are a bit of a catch-all category because they have revenues that do not fall into any other category. It would then be enough to fill the box corresponding to the BNC by entering the gains acquired through bitcoins . By gains, we mean the capital gain perceived in relation to the initial investment when bitcoins are exchanged in euros on a trading platform (Kraken, Coinbase, etc.). For the vast majority of people, we even talk about micro-BNC since the capital gains do not exceed 33 200 € HT over the year . HT? What taxes are we talking about? We do not know too much about bitcoin. In addition, which rebate is applied to the NBC? Difficult to give a clear answer … So it’s quite opaque to tell you everything. Above all, I will come back to the difficult determination of the starting point.
Bitcoin should therefore be declared under a NBC. We stop there? It would be too simple…
For the French tax administration, bitcoin is both a BIC and a BNC
BICs (industrial and commercial profits) are a much less opaque category than the BNCs because they are the income received by a natural person in the course of a commercial, industrial or craft activity . What is the bitcoin doing in there? The answer is here , a note from the very serious Official Bulletin of Public Finances-Taxes (BOFIP) dated July 11, 2014. These are legal and doctrinal clarifications relating to certain professions.
Here is what § 730 says: ” Bitcoin is a virtual unit of account that can be valued and used as a speculative tool. Consequently, in accordance with the provisions of Article L. 110-1 of the French Commercial Code which deems a deed of commerce any acquisition of movable property for the purpose of resale, the purchase – resale of bitcoins exercised as usual and for its own purposes. account is a commercial activity by nature whose income is to be declared in the BIC category pursuant to article 34 of the French General Tax Code (CGI). On the other hand, the revenues derived from this activity on an occasional basis are revenues falling under the forecasts of article 92 of the CGI ( BOI-BNC-CHAMP-10-10-20-40 at XXIX § 1080 “) .
Thus, if a person trades, he is subject to the BIC. But, if it’s small profits from time to time, it’s BNC.
Does this seem clearer to you? At least, the difference is clear. But, you will tell me, bitcoin is a means of payment for the CJEU. If I buy with my bitcoins, am I taxed?
A LEGAL way to (maybe …) escape the imposition of its bitcoins?
I capitalized the legal term to show that the purpose is not to defraud! In any case, this is the way I interpret the current legislation (December 2017) by putting my legal training to work. In fact, it does not really exist … It all depends on the interpretation that one makes of the doctrine of Bofip or Bofip in general.
If you exchange your bitcoins in euros on a trading platform and transfer them to your bank account, this is BNC that must be declared on your tax notice to avoid any problem. If the gains are small, you will not be taxed in any case for an allowance or a threshold of non-taxation. Finally, a priori, we do not know anything about the BNC … or micro-BNC! For the latter, the tax base would be 29% and the reduction 71%. First hitch, to be imposed under the BNC, revenue collected are, for the tax administration, a turnover. The latter is the tax base. But to have a turnover, you need a registered company … This is not the case with bitcoin. But, let’s skip this first difficulty, which is essential, because it does not deserve more comment.
Similarly, if you spend your bitcoins to buy any product, what happens? Remember that the judgment of the CJEU of 22 October 2015 considers that cryptocurrency is an alternative means of payment. One could think that any purchase made in bitcoin from a merchant accepting them should not be subject to taxation on income tax.
Except that, the BOFIP, in the 2nd note that I quote, this one relating to the BNC, specifies that ” the gains are taxable, whatever is the nature of the goods or values against which the bitcoins are exchanged (exchange of bitcoins against euros, but also purchases of goods of any kind settled by bitcoins: in this case, the gain must be determined by reference to the value in euros of the property acquired ) “.
For example, you exchange euros for bitcoins when the bitcoin was worth $ 10, say 3 bitcoins for € 30 worth. A few weeks later, the value of bitcoin rose to 100 €. The same day, you buy a printer for 2 bitcoins on the internet (a quality printer given the price!). You still have 1 bitcoin and a nice added value. According to the BOFIP, you must declare the gain. This rule is based on an interpretation of Article 92 of the CGI mentioned above. But this note from the BOFIP is questionable both legally and technically.
Legally, reading section 92 makes it very difficult to attach bitcoin to a category of NBC. Paragraph 1, to which we will return in the next paragraph, defines the BNC. Paragraph 2 (1), dealing with stock exchange transactions, provides an example. An example that might interest bitcoin. Would it be comparable to financial operations? In this case, the BOFIP and the CJEU would be on the same wavelength. For me, the answer is no because the ECJ spoke only about foreign exchange transactions that would be financial transactions . As for bitcoin, it would only be an alternative means of payment. In addition, the article refers to ” stock market transactions carried out under conditions similar to those which characterize an activity performed by a person engaged in a professional capacity for this type of transaction “. With bitcoin, it seems a long way from investing professionally for 95% of people lambda!
But what does paragraph 1 of the same article 92 say? It provides that “are considered from the exercise of a non-commercial profession or as income related to non-commercial profits, the profits of the professions, and from offices whose holders do not have the quality merchants and all occupations, profitable holdings and sources of profits not related to another category of profits or revenues “. The last part of the sentence is very ambiguous, probably deliberately to include anything and everything. Paragraph 2, including § 1 above, merely cites examples of what would be a non-commercial benefit. These examples would not, it seems, be an exhaustive list through the use of the adverb in particular . Two remarks are necessary.
The first, the use of the adverb in particular allows to estimate that the list is not complete. Except that today, neither the law, nor the regulatory power, nor jurisprudence, have attached bitcoin and crypto-currencies to the BNC, outside the BOFIP. It is not appropriate to play with the IRS, which is stronger than you, but there is no doubt that a clearer provision is needed to officially attach cryptocurrencies to Article 92.
The second is that this last part of the voluntarily vague Article 1 means that you should declare ALL your “ancillary” income in the BNC box. Your sales on Leboncoin, your car rented twice a year on Drivy, your carpools on Blablacar, your little baby-sittings, etc. Sums are often ridiculous, which rarely exceed 1000 € over the year, for the majority screenante population. Bercy believes that some of these activities are taxable, while others do not. See for example the card for a carpooler, it must respect 3 conditions to see his activity not taxed. Above all, sales of goods , excluding precious metals valued at more than € 5,000, are not taxable! Thus, as bitcoin is so far a “nothing at all” legal, it could very well be considered that it is a good that we sell against euros … but we would leave the framework of the BNC because it does not do not include property! Well, I confuse you with my multiple interpretations but it proves that the subject is oh so complex!
In addition, to return to the taxation of the surplus value following the purchase of a property in bitcoin, this rule should be applied to the entire exchange of currencies. Thus, you exchange 100 dollars against euros when 1 euro is worth 1 dollar. So you end up with 100 euros. A few months later, your 100 euros are now worth 200 dollars. You exchange with the same exchange office and you end up with the $ 200 a few days before going on vacation in New York. Are you taxed on this added value? If you do not have a currency account or are not a trading operator, no. Why would bitcoin be subject to another treatment while it is also a motto and means of payment according to the CJEU?
Finally, the determination of the gain ” by reference to the value in euros of the property acquired ” deserves to be specified because it is far from being clear.
Technically, the situation may seem impossible. Imagine that you have acquired bitcoins in several times. You traded 100, 50, 80 and 70 euros in bitcoins. Given the volatility of cryptocurrency, it is impossible for the exchange rate to remain stable! If you later buy a good in bitcoins, how to calculate the gain? What date do you have to leave? The tax administration provides no answer. And, between us, it would be a monumental puzzle! Those who tell you that the calculation could be likened to that of the actions are wrong because the cryptocurrencies are not actions. We do not sound analogous in terms of tax law.
In conclusion, according to my analysis and because of the current legal vacuum, the purchase of legal products on legal internet sites or from legal merchants by paying with its bitcoins, can hardly be imposed. The CJEU, Article 92 of the CGI and the legislation relating to other currencies are rather on your side. The legal value of the BOFIP is rather difficult to grasp. Admittedly, the tax doctrine of the BOFIP is opposable to the administration. But what about when it is inaccurate or even wrong? Far be it from me to make you want to defraud. I advise you to put something in the BNC box. The difficulty is that I do not know which figure would be more relevant than another …
Nevertheless, look forward to future legislation on this point because I doubt we would stay the same because of the sudden appreciation of bitcoin in 2017 and even other crypto-currencies. My article will then be updated.
Moreover, if you let your bitcoins sleep on a wallet like Ledger or an app like MyCelium, you will of course not be imposed … and this is perhaps the wisest decision.