Bitcoin Tax Overview: How countries currently will tax bitcoin

Wednesday 02 April 2014

As bitcoin has increased in popularity and use, it has gained the attention of many governments worldwide. The prevailing questions for governments (and perhaps citizens) would be how bitcoin would be both taxed and regulated. The latter is still being decided upon, however in many countries taxation has already been determined.

This article intends mainly to serve as an overview of how bitcoin is being taxed all over the world, at least where tax policies have already been announced. Keep in mind that more countries will come out and finalize their bitcoin tax policies in the presumably near future, so this is not a be-all-end-all summary.

The United States
The IRS finally announced its treatment of bitcoin regarding taxation only about a week ago. In the eyes of the IRS, bitcoin is to Wall Street on BitScanbe treated as a piece of property, and rules surrounding taxation would be the same as those applied to stocks and barter transactions.

Regarding transactions, if a person receives bitcoin as a form of payment for a good or service, they are to record that as income in terms of the USD value at that given time. So, for example, if 1 BTC is $600, and you receive 0.1 BTC as payment for an item you sold, you will report $60 as income and pay a tax on that when the time comes. Also, if wages are paid to an employee in terms of bitcoin, they are subject to the same federal income tax laws as USD wages.

There is also an additional rule applied to bitcoin that does not in this case apply to USD. If a payment is made using bitcoin, the payors must ask for the payee’s taxpayer identification number (TIN). The payor is then required to withhold 28% of the payment and report it to the IRS if the payee does not provide a TIN

Germany
Germany came out several months ago recognizing bitcoin as “private money”. This would entail that not only would bitcoin be subject to capital gains tax, but also to VAT. However, it is still unclear as to how the German government intends to implement VAT taxation. It may be possible that Germany will follow the same kind of route the US and UK have, but no official word has come as of yet.

The United Kingdom
As it stands the UK does have a means of implementing VAT for bitcoin transactions, which is very similar to the way the IRS handles them. However, they provide a bit more guidance for bitcoin miners. HM Revenue & Customs details that:

UK tax rules on bitcoin1. “Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes…”
2. “Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive”
3. When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.
4. Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above.

HM Revenue & Customs also provides guidance for corporate, income, and capital gains taxes, which can be summarized as follows:

· Corporate tax: Due to the fact that any profits and losses will be made in the company’s “functional currency (the currency in which accounts are prepared)”, there are “no special tax rules for Bitcoin taxes”.

· Income tax: “The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal income tax rules.” In other words, any bitcoin transactions you conduct must be converted to pounds sterling for accounting purposes and follow normal tax procedures.
· Chargeable gains: “If a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules, it would normally be taxable as a chargeable gain or allowable as a loss…”

Canada
Canada flag by Phobophile (wikimedia COmmons)The Canada Revenue Agency (CRA) has provided tax guidance late last year. In essence, rules regarding barter transactionsare going to apply to bitcoin transactions. Reporting taxes on such transactions would mean keeping track of when these transactions took place and what the CAD value of bitcoin was when the transaction took place. This CAD value will then be taken into account as part of your income tax liability.

Also, since bitcoins can be traded for CAD and vice versa, capital gains taxes can also apply if such trades took place. It has already been made clear that “not reporting income from domestic or foreign sources is illegal”, and bitcoin income from any source applies. At the moment, there is no explicit guidance regarding bitcoin miners, however it is implied that bitcoins gained through this fashion must be taken into account as well.

Australia
At the moment, the Australian Taxation Office (ATO) does not have explicit guidance on bitcoin taxation. It has officially stated, though, that it intends to provide such guidance on or before June 30th of this year.

Israel
Currently the Israeli government is taking a “wait and see” approach regarding bitcoin and other digital currencies. Regulators have stated concerns about the volatility, security, and potential money laundering capabilities of bitcoin, but no talks of legislation are taking place.

Norway
In late 2013, the Norwegian government announced that bitcoin was not to be considered a currency, rather a taxable asset like most countries have already. Their director general of taxation has come out and stated that “[Bitcoin] doesn’t fall under the usual definition of money, which means it will be considered as an asset and charged under capital gains laws.” There is currently no explicit guidance from the Norwegian government, however.

Singapore
The Inland Revenue Authority of Singapore (IRAS) views bitcoin as a “good” rather than a currency, which means it falls

Singapore by Rifleman wikimedia Commons

 under its Goods and Services Tax (GST). Similar to other countries, bitcoin transactions are treated as barter transactions, which also fall under the GST.

The amount of GST applied towards companies depends on whether they are “agents” or “principal” in regards to bitcoin transactions. An “agent” company is one that handles bitcoin on behalf of others, such as an exchange. The GST in this case would only apply to the exchange’s commission fees.

If a business is acting in “principal”, which entails buy and selling bitcoins to/from customers, then the GST is applied to the full amount of bitcoins received plus any commission fees.

Regarding any gains made by individuals trading bitcoins for fiat, they are not taxed by any means being that Singapore has no capital gains tax for non-property investments. However, it is unclear how one is going to account for individual income taxes, as there is no explicit guidance at the moment from the IRAS.

Finland

It was ruled in Finland that bitcoin is to be treated as a commodity rather than a currency. According to the guidelines provided by Finnish Tax Administration, any gains made on bitcoin exchanges are to be taxed, however losses are not deductible. It is also required that you pay taxes based on any coins you happen to mine.

Canada image source: Wikimedia Commonds Phobophile

Singapore image source: Wikimedia Commons Rifleman

Daniel Mestre


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