Introduction to Cryptocurrency Taxation

In the global financial landscape, cryptocurrencies are now a well-established reality. They are defined as digital currencies that, due to their ability to function as a medium of exchange, assume the function of a unit of account in the market of goods and services, just like fiat money, i.e. legal tender such as the euro, dollar, or pound. Cryptocurrencies, being exclusively digital, are stored in “electronic wallets” (so-called wallets).

Thanks to the equivalence between real and virtual currency, and since the purchase and sale of cryptocurrencies can lead to an economic return, there is interest in the relationship between cryptocurrencies and tax law. The question arises as to which discipline they fall under, particularly in the area of taxation. It should be noted that the “life cycle” of a cryptocurrency is made up of three successive moments: creation, deposit, and exchange.

The latter is the moment when, based on current provisions, there is a taxable event because the cryptocurrency is used to acquire goods/services or exchanged with a different currency and therefore subject to taxation.

This consideration arises from the certain fact that virtual coins are used in the same way as traditional currency: as a method of payment, to carry out exchange operations in financial markets, or to buy securities or goods.

The difficulty in analytically framing the taxation of cryptocurrencies derives from the fact that our legal system does not have specific legislation; the tax classification, in fact, is derived from a somewhat unclear practice and some jurisprudential decisions that make it uncertain to define the demarcation line in the matter.

The key point is that taxes are calculated only on profits earned once exchanges have been made, specifically when the so-called capital gains are generated, particularly when these amounts exceed a certain value.

For these reasons, when referring to the tax classification of cryptocurrencies, it is necessary to focus on Resolution 72/E/2016 of the Italian Revenue Agency (in coherence with the EU Court of Justice Judgment C-264/14 of 22.10.2015), which has been a watershed in the uncertainty. In this ruling, the Revenue Agency assimilated cryptocurrencies to foreign currencies, resulting in the application of the taxation system provided for by Article 67 of the Consolidated Income Tax Act (so-called TUIR), which provides:

• paragraph 1, letter c): “diverse taxable income is constituted by capital gains realized through the onerous sale of foreign currencies, subject to term cessation or arising from deposits or current accounts”;
• paragraph 1-ter: “capital gains resulting from the onerous sale of foreign currencies arising from deposits and current accounts contribute to the formation of income, provided that during the tax period, the balance of deposits and current accounts held by the taxpayer, calculated according to the exchange rate in force at the beginning of the reference period, is higher than one hundred million lire for at least seven consecutive working days”.

In summary, the certain case is that financial income of a diverse nature, subject to a substitute tax of 26%, is constituted by all those capital gains resulting from the term cessation of cryptocurrencies if the amount held by the taxpayer exceeds the threshold of 51,645.69 euros for seven consecutive working days during the year. The different financial income, if the conditions mentioned above are met, must then be shown on the RT section of the PF model (as will be seen later).

In support of this interpretation, the Italian Revenue Agency (also known as “AdE”) recently reaffirmed with Resolution No. 788/2021 that “the euro value of the average balance in virtual currency must be calculated based on the reference exchange rate at the beginning of the tax period, i.e., on January 1st of the year in which the taxation requirement arises.”

Even with this ruling, the AdE emphasized that the cornerstone of this regulation is based on the quantitative limit (identified in the law) which, once exceeded, crystallizes the speculative purpose necessary to attract taxation on the capital gain realized. Therefore, for the purposes of income tax for individuals holding virtual currencies, the general principles governing transactions involving traditional currencies apply to the latter.

in-depth links:
– Taxation of Virtual Currencies on an International Level.