After some delay the Irish taxation service, the Revenue Commissioners, have finally issued guidance on how they see Cryptocurrency being taxed in Ireland. This is very helpful to everyone who has bought, sold and held Cryptocurrency in the last 12 months in particular.
The guidance states:
As with any other activity, the treatment of income received from / charges made in connection with activities involving cryptocurrencies will depend on the activities and the parties involved.
For businesses which accept payment for goods or services in cryptocurrencies there is no change to when revenue is recognised or how taxable profits are calculated.
Where there is an underlying tax event on a transaction involving the use of a cryptocurrency there is a requirement in the tax code for a record to be kept of that transaction which will include any record in relation to the cryptocurrency.
Therefore, no special tax rules for cryptocurrency transactions are required.
This clarification right at the beginning of the guidance will put many business owners minds at rest in particular.
The detailed rules which apply to each form of transaction with Cryptocurrency are:
The profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal Income Tax rules.
The profits and losses of a company entering into transactions involving cryptocurrency would be reflected in accounts and taxable under normal CT rules. Section 402(1) TCA 1997 defines a company’s functional currency, and recognises that companies can prepare their accounts in a currency other than the Euro where that other currency is their functional currency.
Interestingly the guidance states ‘As cryptocurrencies are not a functional currency as defined, accounts, for tax purposes, cannot be prepared in cryptocurrencies, Euro or functional currency accounts must be prepared’.
Capital Gains Tax and Corporation Tax on Chargeable gains
If a profit or loss on a currency contract is not within trading profits, it would normally be taxable as a chargeable gain or allowable as a loss for CT or CGT purposes. Gains and losses incurred on cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for CT on chargeable gains if they accrue to a company.
What about VAT ?
Well here it gets interesting. The Court of Justice of the European Union (CJEU) held in the Hedqvist case (C-264/14) that Bitcoin constitutes a currency for VAT purposes.
‘It is Revenue’s view that Bitcoin and similar cryptocurrencies are regarded for VAT purposes as ‘negotiable instruments’ and exempt from VAT in accordance with Paragraph 6(1)(c) of the VAT Consolidation Act 2010′.
Financial services consisting of the exchange of bitcoins for traditional currency are exempt pursuant to Paragraph 6(1)(d) of the VAT Consolidation Act 2010, where the company performing the exchange acts as principal (i.e. buys and sells cryptocurrencies acting as the owner of the virtual currency.
VAT is due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrencies. The taxable amount for VAT purposes will be the Euro value of the cryptocurrency at the time of the supply.
In terms of Mining; Income received from cryptocurrency 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.
The guidance goes on to note that coming up with a valuation for your holdings can be difficult as prices vary widely by exchanges so simply ask you to make a ‘reasonable effort’. A very practical approach.
Well done to the Irish taxation service for coming up with this practical guidance. You can read the full guidance note here.