Tax trap Bitcoin: How the EU wants to screen investors

At stake is 375 million euros in taxes due in Austria in 2020 from Bitcoin and Co. Authorities to receive user and transaction data. Those who do not pay taxes on price gains or from winnings in bitcoin casinos because of the supposed anonymity of Bitcoin are in for a rude awakening.

Tax trap BitcoinIn Austria, there are currently about 180,000 investors who bet on cryptocurrencies such as Bitcoin. According to a survey by Linz-based crypto service provider Blockpit, the average investor held a portfolio value of the equivalent of 32,129 euros at the turn of the year and generated potentially taxable gains of 10,836 euros and tax-free income of 7,558 euros in 2020. Those who now think that Bitcoin and Co are anonymous and therefore do not take tax honesty very seriously could soon be disabused of their beliefs.

After all, a lot of money is at stake after Bitcoin quadrupled in value last year. According to Blockpit, it is about 375 million euros that accrued due to the taxation of realized exchange gains in Austria in the previous year. Although the Ministry of Finance does not yet have any figures on taxes paid by private individuals in connection with Bitcoin and the like, it is trying to track down dishonest Bitcoin investors using mathematical and statistical methods. In addition, it is soon to receive a much sharper blade from the EU in the fight for tax honesty.

Transparent investors

The Union is planning to oblige crypto service providers to pass on their customer data to authorities via a regulation, reports Blockpit founder and CEO Florian Wimmer. This would affect trading centers, exchanges and providers of wallets, as electronic purses for storing Bitcoin and other cryptocurrencies are called, throughout the EU. In other words, the financial sector will probably be able to access their user and transaction data from previous years. “Then it will also be possible to deduce in retrospect what profits have been realized,” Wimmer points out.

The Ministry of Finance confirms such plans. “The ball is in the EU’s court,” it says when asked. “Austria supports these efforts and will participate in a European solution.” However, a concrete proposal is not expected to be on the table until the end of the year at the earliest, which means that implementation would probably not be possible until 2022. The price of bitcoin has roughly quadrupled in the previous year and was at just over $34,400 on Wednesday evening, equivalent to 28,450 euros.

Eric Demuth, chief executive and co-founder of the Viennese trading platform Bitpanda, also dispels the fairy tale of the anonymity of cryptocurrencies: “You can’t get your money in or out of Bitcoin in Europe without verifying yourself somewhere.” The legal rules would not allow it any other way, which Demuth certainly welcomes. Otherwise, the cooperation with the card company Visa would probably not have come about.

On February 24, the two companies will jointly launch a debit card, as ATM cards are now officially called. This will make it possible to pay with all asset classes available at Bitpanda – in addition to conventional and cryptocurrencies, also precious metals – in everyday life.

Paying in everyday life

How does it work? In an app, one can set what one wants to spend. For example, you can pay for a sausage roll at the supermarket in bitcoin and your cell phone bill in gold or silver. Bitpanda takes care of the conversion to euros, and then it runs through the Visa network to the merchant.

How much the card will be accepted by Bitpanda’s own reported 1.6 million users remains to be seen. Likewise, to what extent cryptocurrencies will be used for payments in everyday life. After all, Bitcoin has mainly become accepted as an investment. And especially around the turn of the year, when Bitcoin surpassed the old record high of 2017, many new investors joined in Austria, according to Blockpit CEO Wimmer.

In any case, Austria has a “very high density” of Bitcoin users compared to other countries. Wimmer recommends them to fully declare exchange gains realized within one year in the course of an income tax return – with Blockpit offering corresponding solutions. Otherwise, this could boomerang for Bitcoin investors in subsequent years.

How Bitcoin and Co are taxed

  • The taxation of income from cryptocurrencies or crypto-assets is somewhat more complicated for private individuals than for securities, for which the custodian institution usually automatically pays the capital gains taxes. With regard to income taxation, the Ministry of Finance basically distinguishes between two cases in this regard:
  • With interest-bearing investment If cryptoassets are interest-bearing, they represent assets to which the special tax rate of 27.5 percent applies. This applies to both interest income and realized appreciation.
  • If there is no interest-bearing investment, increases in the value of crypto-assets are to be regarded as speculative transactions. If acquisition and sale take place within one year, the income is subject to the personal income tax rate. If a crypto-asset is held that was acquired at different times or at different prices (tranches), in the event of a sale, the decisive factor for the amount of possible speculative income is which of these tranches is sold.
  • VAT Purchase or sale of crypto assets against legal tender such as the euro are tax-free according to ECJ case law.

Investors fear state intervention

Following ECB chief Christine Lagarde, U.S. Treasury Secretary-designate Janet Yellen has also been critical of cryptocurrencies like bitcoin. Investors are fleeing.

The fear of stricter regulation under the new U.S. President Joe Biden (78) has depressed the Bitcoin price on Thursday. The cryptocurrency fell 7.5 percent to $32,779 on the Bitstamp trading platform, trading as much as 10 percent weaker at times. Since its record high of 42,000 dollars at the beginning of January, the cyberdevise has lost almost a quarter.

Weighing on sentiment was that Biden might try to regulate cryptocurrencies, traders said. During a Senate hearing on Tuesday, Janet Yellen, 74, who is expected to lead the U.S. Treasury under Biden, raised concerns that cryptocurrencies could be used to fund illegal activities.

Joseph Edwards of crypto broker Enigma Securities said those comments have led to increased outflows. But he said it was still unclear what steps, if any, the Biden administration would take. “However, we think it’s probably still just momentary weakness and not a fundamental trend reversal,” Edwards said.

ECB President Christine Lagarde, 65, had also recently called for global regulation of the cryptocurrency in light of its extreme price fluctuations. “Bitcoin is a highly speculative asset where there have been some funny trades and some interesting and totally reprehensible money laundering activities, she said in an interview on the online forum “Reuters Next”.

Recently, the price of the oldest cyberdevise had again suffered from strong fluctuations. On Jan. 9, the price reached a record high of $42,100. Two days later, it crashed abruptly and lost around 10,000 U.S. dollars in value within a few hours. As recently as March of last year, bitcoin had temporarily fallen below the $4,000 mark.

Iranian government has already shut down 1,600 Bitcoin data centers nationwide

Authorities had blamed computer farms with servers for the digital currency for the recent power outages, media reported. They had set up shop in Iran because of the country’s cheap electricity, they said. The government has cracked down on computer farm operators with widespread raids, they said. Centers with operating licenses have also been shut down, it said.

Bitcoin data centers, known as mining farms, require massive amounts of electricity for their specialized computers and their cooling. Millions of residents of Tehran and other major Iranian cities had recently been sitting in the dark for hours. Traffic lights were down, and even online classes had to be interrupted because of the power outages.

Former U.S. President Trump had imposed sanctions on Iran in 2018 as part of the country’s withdrawal from the nuclear deal. Since then, cryptocurrencies have boomed in Iran. With the digital means of payment, individuals and companies can circumvent the punitive measures against banks. Iran is now one of the ten countries with the largest mining capacity for Bitcoin in the world.

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