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Home page // Tax when investing in bitcoins
For tax purposes, bitcoins are not a traditional currency and are therefore not subject to...
April 24, 2018

Tax when investing in bitcoins

Cryptocurrencies and bitcoins in particular have been much talked about in the media, and many may have been tempted to invest to share in any gains. In two recent decisions, the Danish Tax Council has ruled on the tax treatment of bitcoins.

In a decision back in 2014, the Danish Tax Council ruled that bitcoins are not a traditional currency for tax purposes. Therefore, bitcoins are not covered by the rules of the Capital Gains Act or other special legislation.

In the new decisions, the Tax Council has therefore followed the basic provisions of the State Tax Act, which are more than 100 years old.

Tax Council: Investing in bitcoins is speculation

The Tax Council found that from a speculative point of view, the investors were taxable on gains on bitcoins. This is a specific assessment that must be made at the time of acquisition and which concerns whether the purchase is made with the purpose of obtaining a gain.

In connection with the first decision, SKAT has issued a press release. Here, the chairman of the Tax Council states that, although it is a matter of a specific assessment, in the Council's opinion, investing in bitcoins will be speculation for tax purposes. It will therefore be SKAT's absolute starting point that any gains on bitcoins must be taxed, just as there will be tax deductions for losses.

Taxation of gains and losses

In the decisions, the Tax Council states that a person's gains are taxed as personal income without labor market contributions, i.e. up to a marginal tax rate of 53%, while any losses are tax deductions, i.e. with a deduction value of approximately 27%.

Calculation of gains and losses

The Tax Council also states that gains and losses must be calculated according to the so-called FIFO principle. This means that for tax purposes, it is always the first bitcoin purchased that is considered the first bitcoin sold and that the profit is therefore calculated as the difference between the sales price and the actual acquisition price less any trading costs.

The tax council also stated that all bitcoins must be viewed as a whole, even if they are distributed in different accounts or so-called "wallets".

In the opinion of the Tax Council, this is not a net statement within the income year. In other words, the Tax Council believes that a profit and loss account must be prepared for each sale, where any gain must be reported as personal income, while losses must be reported as a tax deduction. Such a separation of gains and losses is completely unreasonable, which is why the area should be legislated so that the statement is at least a net statement within the year.

In addition, the tax authorities have stated that losing codes to a virtual wallet is not a deductible loss for tax purposes.

Investing in cryptocurrencies via futures contracts

According to the Danish Tax Council, any leverage when investing in bitcoins and other cryptocurrencies should be treated as forward contracts for tax purposes, where any gains are taxed as capital income, while losses become so-called "source-limited" losses.

Such a calculation is made net for the year, where a total loss can only be deducted to the extent that there have been taxable gains on the contracts in previous years.

More information

If you have any questions or would like to know more about taxation of bitcoins, please contact the inforevisiontax department.

Contact us

Flemming Saabye
Head of the tax department
T: 39 53 50 38
fsa@inforevision.dk

Bo Sponholtz
State Authorized Public Accountant
T: 39 53 50 33
bsp@inforevision.dk

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