Taxes: Cryptocurrencies in Private Assets, Change in Taxation?

A few weeks ago, the Austrian Ministry of Finance (BMF) published a draft of what is called a “maintenance decree for the Income Tax Guidelines EStR 2000.”

A brief explanation of what this means: The basis is the Income Tax Act (EStG), which is not being changed here. Laws and amendments always require parliamentary approval. What we are dealing with are the Income Tax Guidelines, which are issued by the Ministry of Finance. These guidelines are meant to help tax offices and taxpayers correctly apply the Income Tax Act and ensure a consistent interpretation of the legal text across all of Austria.

The current draft amendment to these Income Tax Guidelines now includes several provisions affecting cryptocurrencies like Bitcoin. This is currently only a DRAFT, and comments could be submitted until January 31, 2018, which we at Bitcoin Austria have done.

Income from Capital Assets or Speculative Transactions #

Both amendments concern the crucial tax law distinction of whether realized gains from cryptocurrency price appreciation constitute “income from capital assets” under Section 27 of the Income Tax Act (taxed at 27.5% regardless of the holding period), or whether they qualify as speculative transactions under Section 31 of the Income Tax Act, where the holding period matters (held up to one year: taxable at the individual rate; held longer than one year: tax-free).

The (Problematic) Amendments #

BMF Draft on Margin Note 6143, amendments shown in bold #

”(…) What matters is not whether an economic good actually generates income from the provision of capital for the specific taxpayer, but merely whether it is designed by its nature to generate such income. Therefore, for example, conversion gains on loans and realized appreciation in cryptocurrencies (Bitcoin) fall under Section 27 para. 3 EStG 1988. (…)

In our statement, we point out that cryptocurrencies like Bitcoin are NOT designed by their nature to generate income from the provision of capital. Holding cryptocurrencies cannot constitute a capital claim, since there is no claim against anyone. Rather, holding cryptocurrencies is comparable to holding cash or physical precious metals.

The blanket conclusion that realized appreciation of cryptocurrencies like Bitcoin therefore falls under Section 27 para. 3 EStG 1988 is wrong. This would also give tax offices the ability (nota bene without any legal basis) to levy taxes, even retroactively, on previously tax-free gains, which would contradict all tax law and constitutional principles of legitimate expectations.

A consistent and technically correct formulation would instead be: “Therefore, for example, conversion gains on loans and realized appreciation on loans denominated in cryptocurrencies (Bitcoin) fall under Section 27 para. 3 EStG 1988. (…)”

BMF Draft Margin Note 6201, the last sentence is added: #

(…) If these principles are applied to foreign currency claims, the conversion of such a claim into euros or into a currency with a stable exchange rate to the euro constitutes a taxable exchange. If the foreign currency claim generates income from the provision of capital within the meaning of Section 27 para. 2 EStG 1988 (as is particularly the case with foreign currency deposits at banks), the exchange is taxable under Section 27 para. 3 EStG 1988. This also applies to the conversion of cryptocurrencies (Bitcoin).”

We believe this blanket addition is highly misleading and contradicts Section 27 para. 3 EStG 1988. A technically sound formulation that would provide clarity would be: “This also applies to the conversion of claims denominated in cryptocurrencies (Bitcoin).”

Bitcoin Austria’s Conclusion #

The amendments proposed by the BMF would broadly classify all gains under Section 27 as income from capital assets, but they are technically incorrect and effectively contradict the legal text of Section 27 EStG. These changes would therefore primarily create legal uncertainty, and taxpayers would likely have to pursue costly litigation through the courts.

In this spirit, we hope that our statement will be taken into account and that the revised guidelines will provide clarity and legal certainty rather than achieving the opposite.

Links:

• Section 27 EStG — Income from Capital Assets
• Section 31 EStG — Speculative Transactions