Excerpt from the original Italian version also posted by @Koinsquare
The recent surge in Bitcoin price and the ICO frenzy raised great interest toward tax issues related to owning and dealing with cryptocurrencies.
Tax laws rarely keep up with such fast developments, so that interpretation is often needed to understand how to comply with incumbent tax obligations.
In Europe, the Court of Justice recently ruled about VAT application in purchase and sale of Bitcoin (Case C264/14), and stated that since Bitcoin can be assimilated to a “currency” VAT is not applicable.
The decision is based on the understanding that “Bitcoin does not serve any purpose beside that of a mean of payment” (sub 52).
Also Italian tax authorities have ruled about Bitcoin exchange transactions, and basically adhered to the interpretation given by the EU Court.
They also mentioned that, being Bitcoin similar to a foreign currency, spot purchase and sale transactions do not generate taxable income. This is a peculiar Italian stand, since currency spot transactions are regarded as "not speculative by nature".
This statement generated widespread enthusiasm in the crypto community, as it may be interpreted in the sense that ANY dealing with ANY cryptocurrency should essentially go untaxed.
But is it wise to rely on such an optimistic stand? Actually not at all.
Bitcoin is the most famous cryptocurrency, though not the only one: Ethereum, Ripple, Monero and now-famous Tether are some of the hundreds of “currencies”, “tokens”, “digital assets” released in the cyberspace over the last years.
Everybody knows each of them actually is very different from others in terms of structure, purpose and value.
Take Tether (USDT) as an example: based on information available on the official website, USDT is exclusively issued by “Tether Limited”, a limited company incorporated under the Hong Kong Companies Ordinance.
This is a substantial difference as compared to Bitcoin, since Bitcoin is “mined” by a community of miners.
Also, page 4 of Tether whitepaper reads ”Tethers may be redeemable/exchangeable for the underlying fiat currency pursuant to Tether Limited’s terms of service”, which clearly means that Tether Ltd is committed to exchange USDT against US Dollars on a 1:1 base. Noone committed to convert Bitcoins in any currency whatsoever.
USDT must therefore be regarded under all respects as a liability of Tether Limited, and that is confirmed in the “Tether Update” of early February 2018, stating that “The company considers all tethers outstanding to be liabilities…”.
Correspondently, Tether holders own a claim toward Tether Ltd. More precisely, they own a “de-materialized” debenture issued by an Hong Kong entity, denominated in USD.
From a tax perspective, a debenture is fairly different from a currency, and subject to a different set of rules about reporting and taxation.
This example shows quite clearly that cryptocurrencies CAN be very different from one another, also from a tax standpoint, and this difference must be duly appreciated in order to avoid substantial risks.
Also, holding cryptos in a wallet is different from holding them with an exchange, and forks, airdrops, leverage or forward dealings have very complex tax implications, which we will explore in future posts.
In the meantime, knowing that cryptos are NOT all alike is the first step to sound management and risk control.
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