Irish Revenue Commissioners Clarify Tax Liability of Crypto Trading:
The Revenue Commissioners recently released updated guidelines (for tax purposes only, as it does not cover regulatory and other aspects) aiming to alleviate concerns around the taxation of crypto transactions. While of some use, the Revenue guide is far from definitive and lacks in some specific areas.
In summary, Revenue have taken the stance that no unique tax rules are required for crypto assets - as such, the taxation of income or gains arising from crypto assets is subject to Ireland’s existing tax principles, on a case-by-case basis - namely Capital Gains Tax (CGT), Income/Corporation Tax, VAT, PAYE and Stamp Duty.
Most importantly, businesses accepting crypto payments for goods or services or investors trading in crypto assets should keep records of all crypto transactions. No special rules have been introduced so far and taxable profits should be calculated according to the current tax legislations most appropriate in the circumstances of any given crypto asset exchange.
Income Tax & Corporation Tax Vs. Capital Gains Tax:
Perhaps the most common question arising is whether the profits and/or losses from crypto-asset transactions are subject to Income, Corporation or Capital Gains Tax.
If your crypto asset transactions are regarded as a trading activity of your business, the profits would be subject to income tax/corporation tax. Alternatively, CGT applies to crypto assets that are held as investments.
Having faced similar scrutiny in previous years, it has been found that even individuals trading in shares in an organised fashion, at a high volume and frequency - are making investments rather than trading in shares we believe the same logic will apply to crypto-assets.
There is also confusion amongst many investors as to when a gain or loss is realised for CGT purposes; We believe realisation occurs the moment a crypto asset is disposed of, be it for traditional currency or in exchange for an alternate crypto asset. Calculated by recording the euro amount at the time of sale (old) and purchase (new) of the crypto assets in question.
The bar for a company to be regarded as trading as opposed to investing, is naturally lower than that for an individual. Revenue accepts the possibility that a company can operate by dealing in shares, hence, the same analysis should apply to crypto assets. Positively though, these profits would be subject to tax at 12.5%.
Crypto mining activities, on the other hand, (individual or corporate) will likely be regarded as trading - making crypto mining profits subject to income tax/corporation tax, not CGT. If the mining activity does not amount to a viable trade, considering end of year profits and expenditure, the value of any crypto assets or fees received for successful mining, less allowable expenses, may be taxable as miscellaneous income.
Are Crypto Assets Subject to Value Added Tax?
Lacking common European guidelines on how to treat cryptocurrencies for tax purposes, member-states must base their VAT policies on a ruling by the EU Court of Justice in 2015 - drawing a parallel between “virtual currencies” and fiat money, when used for payments. Ireland is now joining these countries confirming that bitcoin constitutes a currency for VAT purposes.
As a result, cryptocurrencies are labelled “negotiable instruments” making them exempt from VAT in accordance with the Irish VAT Consolidation Act of 2010. The Revenue’s Guidebook notes that this applies to companies buying and selling cryptocurrencies and acting as owners of crypto holdings. On the other hand, value added tax is due from suppliers of goods or services sold for cryptocurrencies. The taxable amount, however, should again be calculated in euro and at the time of the supply.
Talk to Lalor and Company about your investments and tax affairs. Lalor and Company are Ireland’s leading tax accountants offering services in Dublin and Wicklow. Contact us today.