"Although cryptoassets are still considered a new
phenomenon, from a tax perspective, the same rules apply to them as to other
types of assets. Dainius Daugirda, a partner at the law firm NOOR, tells how
the practice of declaring cryptoassets is taking shape, and why, in order to
avoid the tax administrator's displeasure, it is necessary for those investing
in digital currencies to do their homework.
According to the lawyer, until there are established rules,
taxpayers and tax administrators understand them differently. In order to avoid
misunderstandings, it is important to delve into how the state perceives
cryptoassets.
"First of all, you need to
assess the amounts at your disposal and determine the business model.
If a person, investing in
cryptoassets, earns up to 2,500 euros per year, he does not need to worry -
this is not considered a significant amount, and if there is no other income
from the sale of assets, there is no need to pay taxes," the lawyer
explains.
Exchanges need to be recorded
According to D. Daugirda, people acquire and value crypto
assets differently – some are active, others simply buy and wait for the
investment to “shoot”.
“The infrastructure of crypto assets
is completely transparent – you can find and check every transaction.
The problem is that the means by which transactions are carried
out or information about them (e.g., a crypto wallet address) must be
preserved, because it is impossible to remember this information”, – he says.
The interviewee says that sometimes it happens that after
acquiring crypto assets, a person forgets about it or loses access data.
“It also happens that a person accidentally discovers
information they had and realizes that the value of the forgotten asset has
increased. Then the question naturally arises: what to do with that asset – do
you need to pay taxes”, – the interviewee draws a hypothetical situation.
D. Daugirda explains that tax administrators have a clear
answer: if a person purchased a crypto asset and later sold it for euros or
dollars, i.e., for the so-called “fiat” currency, such a transaction is
considered completed and gives rise to a tax liability. In other words, you
have suffered a loss or earned a profit, and this must be recorded for tax
purposes.
The lawyer clarifies that any case where one crypto asset is
exchanged for another crypto asset is also considered a transaction for tax
purposes – an exchange that must be recorded, the financial result calculated,
and, if a gain occurs, declared in accordance with the applicable procedure.
“The rule is as follows: if a person
has crypto asset “A” and, when selling, exchanges it for crypto asset “B”, then
the market price of crypto asset “B” at the moment it is exchanged is
considered income. For example, if I purchased bitcoins 10 years ago and now
use them to buy ether, the market price of ether is equal to my income, and the
cost of acquiring ether will be considered the cost of the bitcoin purchased 10
years ago. Based on this, we record our profit or loss,” explains D. Daugirda.
According to him, the formula can be
continued: if a person purchased bitcoin 10 years ago, bought ether instead of
it 6 years ago, and now wants to sell it, he must record both the transaction
that took place 6 years ago and the profit that was earned by exchanging
bitcoin for ether.
“The transaction must be recorded
because it is a source of income. Only in this case, it will not be necessary
to file a declaration and pay taxes, because the statute of limitations has
expired, and both the person and the tax administrator have missed the
deadlines,” comments D. Daugirda.
It is important to note that the
expenses related to the performance of transactions can reduce taxable profit.
“Information substantiating these
costs can be obtained from the cryptocurrency exchange and presented as
justification when calculating tax costs,” the interviewee advises.
A completely different situation
arises when we are not talking about a single transaction, but about consistent
trading: when the number of transactions grows, more operations appear, each of
which generates a profit or loss.
“In such a case, we can already talk
about signs of economic activity, and the activity must be assessed according
to the individual activity taxation model. This means that the income received
must be declared as income from individual activities. Of course, everything
also depends on the scale of the activity, the number of transactions and the
total volume,” the interviewee clarifies.
Shaping rules and practices
D. Daugirda says that uncertainties remain even after the
decisions of the Supreme Administrative Court of Lithuania, which attempt to
form clearer practice regarding the signs of individual activity in the field
of crypto assets. According to the lawyer, it is important to assess how the
courts currently view the definition of individual activity in the context of
cryptocurrencies.
“If a person buys a crypto asset, over time its value
increases, and later it is sold in order for the person to purchase, for
example, a car, real estate, etc. or other more expensive item, from the
court's point of view, this is not considered economic or individual activity,
although the cryptoasset is sold in several transactions. Such a one-time sale
of assets can be compared to winning the lottery: the assets in question are
simply exchanged for a more acceptable form (currency or other asset) in order
to purchase the necessary item.
In this case, there is no constant
activity, which is characteristic of business or economic activity,” the lawyer
comments.
And vice versa: if a person actively
invests, regularly trades cryptoassets and carries out many operations, his
activities acquire the characteristics of individual activity.
“This means that the person carries
out purposeful, constant and systematic activities, which are considered individual
activities and must be taxed accordingly,” D. Daugirda points out the
difference.
Speaking about individual activities,
the lawyer emphasizes that there are cases when a person provides services for
remuneration in cryptocurrency.
“This is considered an economic
activity and means that when keeping accounts, income must be recorded at the
exchange rate of the day the crypto asset was received and converted into
euros. In Lithuania, taxes are paid in euros, therefore, regardless of the form
in which income is received or expenses are incurred, everything must be
recorded in euros in accounting,” he says.
If a person has performed a lot of
operations and accounting for them is extremely difficult, the tax
administrator offers the opportunity to calculate the annual result of the
cryptocurrency held, i.e., compare its value on June 1 of that year and
December 31. However, the lawyer clarifies that such a formed practice does not
yet exist.
D. Daugirda reminds that when keeping
accounts, it is possible to use the tables and accounting forms proposed by the
State Tax Inspectorate, but, in the lawyer’s opinion, they are quite archaic.
“For example, the declaration system
works on the principle of a wizard: a person enters data, and the system
automatically provides the result, without revealing specific calculations.
However, more flexible accounting solutions can also be used, the main thing is
to record the data clearly and correctly,” he advises.
The lawyer emphasizes that the crypto-asset activity is new,
the amount of information processed is huge, and the tool that provides the
final result is not yet perfect.
“Therefore, we always suggest that clients do their homework
and delve into how to get to the final result. The tax administrator may have
questions, so it is better to prepare answers in advance, and not when they
ask,” says D. Daugirda.
New rules of the jungle
The lawyer says that over the past decade, crypto-assets,
which serious market players have long ignored, have gained recognition and, in
a broad sense, have become an alternative to the traditional package of
financial services.
“The situation is reminiscent of the changes in the energy
sector – in the days when it was ruled by monopolies, no one imagined that
consumers would be able to generate electricity on their balconies. Similar
changes are taking place here too – the world needs to reorient itself,”
believes D. Daugirda.
The change is clearly signaled by the
MiCA regulation, which aims to recognize the crypto market and ensure the
security of operations: to register crypto sector participants, establish clear
rights and obligations for them, and require necessary information.
“The MiCA regulation is, first and foremost, a consumer
protection act, which aims to reduce the risks associated with the crypto asset
sector and protect the consumer from factors that he cannot control. This is a
necessary condition for the development of a mature and reliable ecosystem,”
emphasizes the NOOR lawyer.
According to D. Daugirda, until now the crypto asset sector
has in many cases operated as if in a “jungle”: participants assumed full
responsibility, had to assess the risks themselves, “vaccinate” themselves
against possible threats, and be prepared for surprises.
"Now the situation is changing - MiCA, one could say,
is starting to build a city in the jungle: standards, boundaries of
responsibility and a clearer operating model are emerging. Those who want to
continue to remain in an unregulated space can theoretically do so - for now
there are alternatives. And for those who choose the "city" model,
i.e. regulated environment, it will inevitably be necessary to adopt common
rules,” says the interviewee.
More transparency
Although crypto-assets are often presented in the public
space through success stories, this area requires a great deal of knowledge,
responsibility and the ability to assess risks.
“The regulation does not apply to
individual users, but to service providers – i.e. to those entities that create
conditions for the exchange, storage or other related activities of
crypto-assets. Clear requirements are set for them, including licensing
procedures, information collection and the responsibility to transfer it to
state institutions when necessary – for example, in order to combat money
laundering, terrorist financing or ensure consumer protection,” reminds D. Daugirda.
The regulation creates a system for
collecting information about customers, creating the prerequisites for
government institutions to use this information for tax administration
purposes.
“In this way, the digital financial ecosystem becomes more
transparent, responsible and more focused on protecting public interests,” says
the interviewee.
According to him, just as people naturally gravitate to
cities, looking for more convenience and less risk, the regulated financial
environment becomes more attractive to those who want transparency, security
and clear rules of the game.
“It is important for the consumer not
only to collect data, but also to understand its content. With clear records,
it is possible to reasonably declare income or, conversely, to prove that there
was none. It is important to be honest: sometimes only the person himself knows
that his activities did not bring any real return. It is important to form a
clear picture of the activities, assess the result and answer the question for
yourself: did I earn money or not? Only in this way can you consciously and
responsibly participate in this ecosystem,” emphasizes D. Daugirda.
However, he reminds that MiCA is
valid only in the European Union. In addition, each member state implements it
at the national level.
“This means that there may be some
differences, depending on local regulatory practices. In Lithuania, the
licensing transition period will end in the first half of this year, so service
providers will have to adapt to the new operating conditions in the near
future,” emphasizes D. Daugirda.”
Komentarų nėra:
Rašyti komentarą