Anyone who is intrigued by the fiscal aspects of crypto-currencies will have noticed that consultants with answers to their questions are few and far between. There is a perfectly simple explanation for this, in that appropriate legislation and jurisprudence have to date been conspicuous by their absence. Politicians are slowly but surely becoming aware of the inexorable advance of blockchain technology and crypto-currencies and the need for legal and fiscal regulation. To date, the Dutch Minister of Finance and his State Secretary have provided some insight on two occasions, in March and May of this year. What do we know about the Cabinet’s thoughts on the matter?
Regulation of the providers of exchanges and wallets
The Cabinet intends to render it obligatory for (on-line) providers of currency exchange platforms and crypto-currency wallets to verify the identity of their customers and share financial information with the relevant authorities, as a way of putting a stop to money laundering and tax evasion. This is an aspect which is being addressed at European level (amendment of the EU’s Fourth Anti Money Laundering Directive).
Bringing Initial Coin Offerings (ICOs) into line with “regular” Initial Public Offerings (IPOs) in terms of the governing regime
Investors in companies that float their shares enjoy protection (to a degree, as illustrated by the World Online affair). The Cabinet intends to ensure that participants in ICOs should have the same degree of protection in the future. The precise definition of an ICO will play a pivotal role in all this, as opinions vary wildly where this is concerned (IPOs, by contrast, being a known quantity). More often than not the initiators of ICOs are unwilling to reimburse their participants.
Ban on crypto derivatives
The Cabinet intends to implement EU-wide measures aimed against crypto derivatives such as binary options and bitcoin futures being offered to consumers, as instruments of this kind are considered too high-risk for non-professional investors.
Income tax on crypto-currency mining and trading
The position the Cabinet has adopted is as follows: “with due observance of the facts and circumstances (…) it is not particularly likely that natural persons who engage in crypto-currency mining and trading will derive income from the relevant activities”. “Deriving no income” means: not liable for Box 1 income tax. Although it has as yet remained unclear as far as mining is concerned where the boundary between investment (not liable for tax) and operating profit (liable for tax at a rate of up to 52%) should be drawn, it would appear that the Cabinet is erring on the cautious side where this is concerned.
“Box 3” valuation of crypto-currencies
In view of the fact that crypto-currency prices vary between exchanges, the Cabinet intends to go with the price as at the first of January of the relevant fiscal year on the providing platform. Full disclosure must be made to the Tax and Customs Administration of all crypto-currency holdings. Omissions may be construed as tax evasion, which is an offense.
Crypto-currencies in use at the level of sole traderships or private limited-liability companies
Payments denominated in crypto-currencies are directly converted to euros for turnover tax, income tax, and corporation tax purposes. Price gains resulting from actual conversion to euros are liable for tax (while price losses can be docked for tax purposes). According to the Cabinet crypto-currencies qualify as stocks (inventory) rather than as cash resources, and as such should be valued at cost or lower market value. The upshot of this is that there is no taxable gain as long as there is no sale. We would recommend in this respect that sole tradership-held crypto-currencies should be withdrawn from the business as soon as an appreciation in value is in the offing, such appreciation not being liable for “Box 3” tax. In fact, the Cabinet would seem to encourage this approach by stressing that long-term superfluous resources mandatorily constitute private assets (which tend to be liable for “Box 3” tax) for business owners having liability for income tax.
For your information: The Tax and Customs Administration is busy preparing information material for online dissemination. Keep watching this space for further developments!
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