A fresh boost to the tax and control of cryptocurrencies is being sought by the Ministry of National Economy and Finance. The ministry’s special task force that had been tasked since February to draft the new framework is being abolished, on the grounds that its remit needs to be changed. According to reports, the aim is to broaden its scope to cover all aspects of digital money and intangible assets that are currently not taxed.
Despite the huge proliferation of investments in virtual currencies – which is now becoming an Airbnb-like fashion – there remains a huge “hole” in their taxation in our country. There is still no clear provision in tax law for profits from such investment vehicles, and users of the currencies are operating in a grey area.
Especially at the time of filling out the E1, many people wonder whether and how they have to record transfers in euros from international exchanges (Bitcoin, Bitstamp, etc.), and how they will justify them if they are asked by the tax authorities.
The bitcoin is treated for tax purposes as a means of payment and not as an investment product, so its purchase and sale is not subject to VAT, and there is no provision for taxation on the income side when bitcoin is held as an asset that can generate capital gains on its sale.
But even if it is included in the tax law, many doubt whether and how the accuracy of the relevant declaration can be verified for income tax or capital gains tax etc.
The end result is that usually those who declare it are usually unemployed or inactive to justify their living! They choose this solution if they have no other income but received e.g. 10,000 euros from bitcoin and received it via remittances. Then they declare them, because they know that every deposit accrual is now tracked by the tax authorities.
Audits by the Inland Revenue often detect movements of thousands of euros in remittances, which come from the conversion of cryptocurrencies into euros or other foreign currencies. But from an initial investigation, it appears that very few people declare the gains from such currency transactions in their E1 income tax return. In fact, it is observed that mainly unemployed people or people without income but with significant real estate, who want to cover presumptions to avoid paying taxes, declare such income.
As the tax framework has loopholes, the most “consistent” choose to declare the acquisition value first and then the sale value of cryptocurrencies in codes 743 and 781 of form E1 when filing the annual income tax return.
