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By Jan Stojaspal
Cryptocurrency income must be taxed, the Slovak Ministry of Finance announced, just days ahead of the April 3 filing deadline.
“Revenue (proceeds) derived from the sale of a virtual currency is subject to tax,” the Ministry of Finance said in general guidance released March 23, adding that “any type of exchange, for example, an exchange of a virtual currency for an asset” or its “exchange for a service rendered or its paid transfer, including its exchange for another virtual currency” is considered to be a taxable sale under the general guidance.
The guidance is the first “unequivocal confirmation that the ministry intends to tax cryptocurrencies and to do so on a relatively broad scale that includes exchanging one cryptocurrency for another,” Miroslav Marcincin, senior manager, personal income tax, EY Slovakia, told Bloomberg Tax March 27.
Slovakia is the latest example of a country grappling with the taxation of bitcoin, ethereum and other types of cryptocurrency, a booming industry. Australia, Israel, and Germany are among those focusing on the issue.
The guidance follows confusion in early January when Peter Kazimir, Slovakia’s finance minister, said the country wants to start paying attention to taxation of cryptocurrencies, which some took to mean that income from cryptocurrencies wasn’t being taxed for the time being, Marcincin said.
In addition, the guidance is significant because “it clarifies the accounting regime,” he said. “This was really unclear, and people did not know whether to book” cryptocurrencies “as financial assets or inventory, or whether to put them in the balance sheet or off-balance sheet.”
Anyone struggling to meet the April 3 filing deadline may apply for a three-month extension, Marcincin said.
Income from the sale of a virtual currency is to be listed under “other income” in personal income tax returns, and it can be lowered by corresponding costs but only to the level of the income obtained, the Ministry of Finance said.
For businesses, income from the sale or exchange of a virtual currency is to be treated as income from financial assets, such as equity securities, which means recognizable losses from trading can’t exceed income from trading in a given tax year, nor can the losses be carried forward, according to tax practitioners.
Virtual currencies are to be booked as “short-term financial assets other than money,” the guidance said, and they are to be priced at market value the moment of transaction.
Cryptocurrencies directly obtained from mining are to be kept on the off-balance sheet until they are sold or traded, at which point they will booked at market value, the guidance said.
“In my view, this is a preliminary solution meant to cover the year 2017,” Christiana Serugova, partner and tax leader at PwC Slovakia, told Bloomberg Tax March 27. “For sure, additional legislative measures are to be expected.”
For instance, the guidance doesn’t address value-added tax, she said. And while it is understood that transactions involving goods or services are subject to VAT, even if they are conducted using cryptocurrencies, it needs to be determined whether the sale of a cryptocurrency itself, which some may regard as a commodity or a product, should also be subject to VAT, Serugova said.
While the guidance isn’t binding, it is hard to image that “someone would proceed in ways other than described,” Peter Pasek, partner and managing director at Accace Slovakia, told Bloomberg Tax March 27.
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