‘Normal’ Tax Rules for Cryptocurrency Transactions: Ireland

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By Ali Qassim

Irish-based businesses making transactions involving cryptocurrency are subject to the “normal” rules applied for income tax, corporation tax, capital gains tax, value-added tax, and pay-as-you-earn (PAYE) wage, the country’s tax authority has said.

The Irish Revenue Commissioners made the comments in May 15 guidance in response to a wave of queries from businesses and individuals on how cryptocurrency transactions are taxed, a spokesman told Bloomberg Tax in a May 18 email.

The tax office “felt that to assist taxpayers be voluntarily compliant it was necessary to publish guidance to remove any uncertainty that some taxpayers may have had,” he said.

Ireland is one of many countries worldwide grappling with the tax treatment of digital currencies. To try and stitch together the existing patchwork of tax policies around the digital economy and electronic money that goes with it, the Group of 20 are set to develop a menu of policy options for consideration when they meet in July.

“There is a realisation that while cryptocurrencies may not be for everyone, they are growing in popularity,” Caroline Devlin, a tax partner at Dublin-based law firm Arthur Cox, told Bloomberg Tax in a May 18 email.

“The essence of fintech is mobility — technology can bypass borders, so governments need to be agile to respond to challenges this will bring,” she said, highlighting that the Irish government “indeed is — considering cryptocurrencies in every sense — tax, regulatory, securities aspects.”

No Guidance on Initial Coin Offerings

Devlin pointed out the guidance “does not deal with Initial Coin Offerings (ICOs) and in particular the tax position of the offering company.” ICOs can take many forms such as utility token payment tokens, “and each will raise their own tax issues,” she said.

Companies “will therefore still need to undertake a careful tax analysis along with considering regulatory and securities law aspects,” she said. “There is clear demand in the market to locate ICO issuing companies in reputable jurisdictions, and as such we expect the issues will become clearer over time.”

‘Normal Tax Rules’ Apply

Devlin said the guidance was useful as “there does indeed appear to be some lack of clarity in the area of transactions involving cryptocurrencies.”

By spelling out in its guidance that “there are no special rules for cryptocurrency transactions,” Devlin said the tax authority “confirmed our view that basic tax rules apply to transactions involving cryptocurrencies.”

The guidance also upheld the fact that “usual principles would apply” in deciding “what might be considered a capital or income (trading) type of transaction,” she said.

In its document, the tax authority said “normal tax rules” that apply to cryptocurrencies include rules for:

  •  Income tax (IT): the profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal IT rules.
  •  Corporation tax: profits and losses of a company entering into transactions involving cryptocurrency would be reflected in accounts and taxable under normal CT rules. The tax authority said that companies can prepare their accounts in a currency other than the euro where that other currency is their functional currency. However, cryptocurrencies are not a functional currency as defined for accounting and tax purposes, so businesses are not allowed to prepare their accounts using cryptocurrencies.
  •  Capital gains tax, corporation tax on chargeable gains: businesses that incur gains and losses 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.

VAT Exemptions

The tax authority considers bitcoin and similar cryptocurrencies as “negotiable instruments” for VAT purposes and therefore and exempt from VAT (Paragraph 6(1)(c) of the VAT Consolidation Act 2010).

Financial services consisting of the exchange of bitcoins for traditional currency are also exempt from VAT in cases where the company performing the exchange acts as principal-or the owner of the virtual currency.

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, tax authority said.

VAT, Payroll

Suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrencies will be taxed for VAT purposes on the euro value of the cryptocurrency at the time of the supply, the tax authoirty said.

In cases when businesses pay emoluments to an employee in a cryptocurrency, the taxable value of the emoluments for calculating payroll taxes will be in the euro value of the cryptocurrency when the payment was made.

To contact the reporter on this story: Ali Qassim in London at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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