The bat in the crypto box: Bitcoins and cryptocurrencies ≠ box 3?

Whether it’s the newspaper, LinkedIn or Facebook, something is written about Bitcoins and cryptocurrencies almost every day. It is clear that it keeps people very busy, also in the tax area. The Secretary of State has repeatedly stated that cryptocurrencies should be considered an asset in Box 3. The tax authorities will also emphasize that Bitcoins should be included in the tax return. These warnings appear to be primarily motivated by a distrust that these currencies are sometimes kept out of sight by the tax authorities. So far, however, it has not been discussed whether cryptocurrencies by their nature can be considered as Box 3 assets. Are cryptocurrencies subject to the Box 3 tax at all?

Property in box 3

Article 5.3, para. 2 The Income Tax Act of 2001 determines which assets belong to the return basis in box 3. The residual category of assets that are taxable in box 3 is ‘other property rights’ with market value. Cryptocurrencies do not fall into the category of ‘money’ because cryptocurrencies are not legal tender. 1 It also does not fall into the category of “chattels”, as cryptocurrencies are not physically tangible. The Secretary of State has taken the position that possession of Bitcoins and other cryptocurrencies therefore falls under ‘other property rights’. 2

Civil law classification of property rights

For the question of whether cryptocurrencies qualify as property rights, reference should be made to Article 3: 1 of the Dutch Civil Code. Article 3: 1 of the Dutch Civil Code stipulates that property rights generally apply to “business and property rights”. The law does not provide a strict definition of the concept of property rights. § 3: 6 in the Dutch Civil Code, however, sets a number of requirements for property rights, including that they must be transferable. It can be argued that cryptocurrencies can be transferred because they can be transferred from one wallet to another. Another requirement is that the rightholder receives material benefits. The value of cryptocurrencies lies in the fact that they can be exchanged for money on an exchange platform. So far, the requirements have been met.

Nevertheless, it is argued in the literature that classifying cryptocurrencies, such as Bitcoin, as asset rights is problematic. 3 The reason for this is that a property right is a personal right which is offset by a passive asset (debt). This is not the case with Bitcoin. A Bitcoin is a series of encrypted codes with a specific value. A Bitcoin does not give the owner the right to the value that Bitcoin represents, but has that value itself. We support this vision. In our view, this also means that the owner of a Bitcoin or some other type of crypto does not own the blockchain where the series of encrypted codes originates from and is maintained. No one owns blockchain, that’s the whole idea behind the creation of the cryptocurrency. The owner of a Bitcoin only has access to the blockchain where Bitcoins are stored, but does not own the blockchain itself.

Tax qualification of assets

It can be deduced from the parliamentary debate on Article 5.2 of the Income Tax Act 2001 that the terms “assets”, in particular “property rights”, and “debt” have a broader meaning in connection with Box 3 than in civil law, and that according to ‘other property rights’ in any case means all rights with any value in economic traffic. The Supreme Court has stated that there must be a legal relationship and that this legal relationship leads to such rights that there is a right of ownership within the meaning of Box 3. 4 In the light of the foregoing, it is, in our view, debatable whether such a legal relationship exists through the ownership of cryptocurrencies. As mentioned, there is no passive asset in owning cryptocurrencies. The question arises with whom or what the holder of cryptocurrencies has a legal relationship with. After all, there is no regulator or other body that administers the cryptocurrencies.

On the other hand, this category has been explicitly designated by the legislature as a residual category, which includes all rights that have a certain economic value and do not fall into any other category. 5 The evaluation of the 2001 Tax Reform concluded that this broad category causes all kinds of bottlenecks and that clear standards are needed. That criticism was rejected by the Foreign Minister at the time. 6 Of course, there is still doubt as to whether the Supreme Court can be convinced that the text of the law goes beyond the legislator’s intention. This does not change the fact that it also appears in this context that the text of the tax legislation is not in accordance with the current digitization of the tax legislation.

In relation to the capital return tax, questions are already being raised about the fixed-rate approach to the return and the limited time at which it is calculated, namely (exclusively) on 1 January. For us, there is another bat in the chicken coop when it is now, based on the definition of civil and tax law in law and case law, left to see whether cryptocurrencies can be considered as box 3 assets. The intention of the legislator is in favor of a broad interpretation of the other property rights, but this does not change the fact that the definition in the law must be violated in order to designate cryptocurrencies as property rights. Until here and no longer?

1 Court in Overijssel 14 May 2014, ECLI: NL: RBOVE: 2014: 2667.
2 Parliamentary Papers I 2017/18, 34775, AA, p. 7.
3 WAK Rank, “Bitcoins: Civil and Regulatory Aspects in: Bitcoins Civil and Fiscal Aspects in Prospect”, Wolters Kluwer: 2015, p. 36.
4 HR 15 February 2013, ECLI: NL: HR: 2013: BZ1294, BNB 2013/118.
5 Parliamentary Documents II, 1998/99, 26 727, no. 3, p. 234.
6 Letter from the State Secretary for Finance of 7 April 2006, Folketingspapirer II 2005/06, 30 375, no. 3, pkt. 3, UN 2006 / 21.12.

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