The expression “crypto-asset” is often used as a blanket term for all digital assets (cryptocurrencies, tokens or virtual assets) designed to work as a peer-to-peer medium of exchange independent of any central bank.

Cryptocurrencies, such as Bitcoin, Ethereum or Litecoin (to name but a few) are rapidly emerging into wider public ownership and usage, leaving tax authorities facing the challenge of how to treat and tax cryptocurrency transactions.

This article examines the current tax treatment of crypto assets in Ireland, taking into account Revenue’s guidance Taxation of cryptocurrency transactions, and the October 2020 OECD report, Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues.

Income Tax / Corporation Tax

The profits and losses arising to both unincorporated and incorporated businesses on cryptocurrency transactions are taxable under normal income tax and corporation tax rules.

Broadly, if an individual or company is regularly buying and selling cryptocurrencies, or receiving cryptocurrencies or other payments in return for generating new crypto-assets (commonly referred to as ‘mining’), such transactions may constitute the activities of a trade (i.e. trading with a view to a profit).  Key factors in determining if transactions may constitute a trade include, the:

  • volume and frequency of activity,
  • level of organisation,
  • risk, and
  • commerciality

 

Proving crypto asset activities constitutes a trade is likely highly nuanced.  Similar issues have previously been addressed in tax cases regarding conventional share trading.  In short, it has been found that even individuals trading in shares in an organised fashion with a high degree of volume and frequency are making investments rather than trading in shares and it is thought that the same logic may apply to crypto assets.

If engaged in a trade of crypto-assets, receipts and expenses may form part of the calculation of trading profits.

It is likely that profits derived from crypto mining activities, whether carried on by an individual or a company, would be regarded as trading profits subject to income tax/corporation tax rather than CGT.  The amount of profit subject to tax would be determined using the financial accounts prepared in respect of the mining business.  If the mining activity does not amount to a trade, the value of any crypto-assets or fees received for successful mining, less allowable expenses, may be taxable as miscellaneous income.

 

Capital Gains Tax

Revenue have clarified that where a profit or loss on a currency contract is not within trading profits, it would normally be taxable as a chargeable gain or allowable loss for both individuals and companies.  Section 532 TCA 1997 outlines that any currency other than the currency of the State is regarded as an asset for the purpose of capital gains tax.

Agents should be wary where one crypto asset is exchanged for another.  It is our view that a gain or a loss arises when a crypto-asset is disposed of, whether this be for regular currency or another crypto-asset.

In certain circumstances, it may be possible to claim a loss where a crypto asset has become of negligible value.  However, if an owner loses their private key and can no longer access the crypto asset, this likely does not mean it is valueless, and Revenue are unlikely to accept a claim for a tax loss in such circumstances.

 

VAT

Supplies of Good/Services

VAT arises in the normal way for suppliers of any goods or services sold in exchange for any cryptocurrency.  The taxable amount for VAT purposes will be the Euro value of the cryptocurrency at the time of the supply.

Financial Services

The Court of Justice of the European Union held that Bitcoin constitutes a currency for VAT purposes.  Revenue considers cryptocurrencies as ‘negotiable instruments’ and exempt from VAT.

Exchange of cryptocurrencies for traditional currencies are exempt from VAT, where the company performing the exchange acts at the principal.

Cryptocurrency Mining

Revenue advise that income received from 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.

 

PAYE

Where an employee’s wages are paid in a cryptocurrency, the value of the wages for the purposes of calculating payroll liabilities is the Euro amount attaching to that cryptocurrency at the time those wages are paid to the employee.

 

Stamp duty

An instrument transferring crypto assets from one person to another may be subject to Irish stamp duty but this is dependent on a number of factors.

 

Inheritance tax/gift tax

The receipt of an inheritance or gift of a crypto asset would be subject to capital acquisitions tax (“CAT”).

 

Conclusion

Revenue have been very proactive in devising and issuing guidance on the usage, investing, trading and mining of cryptocurrencies.  However, given that crypto assets are fast-moving and ever evolving, Revenue’s views may also change as these new assets develop further.

Further advice

For further advice on the taxation of crypto-assets or initial coin offerings contact one of our team:

Mark Doyle
Paula Keaney
Amanda-Jayne Comyn