In recent years, the Treasury has been heavily filled with income from taxpayers who have taken advantage of the voluntary improvement scheme that has been in place since 2001. In addition, black savers have been actively hunted down and tracked down by the tax authorities themselves. The risk of discovering foreign bank accounts has increased in recent years thanks to the tax authorities’ insight into bank information on black savers. In particular through group requests to the Swiss tax authorities to provide information from Dutch people with a bank account with UBS, Credit Suisse and recently Julius Bär. The taxpayers that the tax authorities themselves will identify are too late to make use of the above voluntary disclosure scheme. In addition, there were tipsters or bank information was leaked to investigative journalists. The chance of discovering previously unannounced foreign assets (thanks to international data exchange) is now considered to be so great that the voluntary disclosure scheme for notifications of foreign assets has even been abolished per. January 1, 2018. However, a new challenge is currently. in progress for the tax authorities: cryptocurrencies. . This is what Kim Helwegen from Jaeger lawyers-tax experts writes in this blog.
For black savers, the abolition of the voluntary disclosure scheme means that they risk criminal prosecution from 2018, regardless of whether they report voluntarily. For the sake of clarity, Kim Helwegen notes that it is still possible to report foreign assets for declarations that have been or should have been submitted before 1 January 2018. However, this is conditional on this happening before the tax authorities become or become aware of a taxpayer. For example, as long as inquiry letters have not been sent to the other Swiss banks, taxpayers can still make use of the voluntary disclosure scheme. But what about owners of cryptocurrencies who want to make money?
As for all black savers, it will in principle still be possible to voluntarily improve for hidden cryptocurrencies for declarations that have been submitted or should have been submitted before 1 January 2018. The question is how the tax authorities will relate to hidden cryptocurrencies in the returns after 1 January 2018. The abolition of the voluntary information scheme is limited to foreign box-3 incomes. In Kim Helwegen’s view, it can be argued that given the grammatical interpretation of the legal text, the qualification ‘foreign capital’ cannot be applied to cryptocurrencies. This will mean that voluntary use can still be made of the voluntary information scheme for notifications submitted after 1 January 2018.
There is no central server in a distributed peer-to-peer network and the geographical location of the cryptocurrencies can not be determined. In Kim Helwegen’s view, this cannot provide a tax basis for determining that cryptocurrencies are stored abroad. Cryptocurrencies are completely virtual, borderless and a global phenomenon. Transactions can be performed in a blockchain without having to rely on anyone else. There is no central administrator in the Bitcoin network. It is a consensus-based system that ensures that value transactions are verified in a database, without the need for a third party. In the case of bitcoin, owners have a ‘private key’ to prove that they own bitcoin in the Bitcoin network. With this ‘private key’, transactions are signed to send value to a new owner. The control of bitcoin is thus completely in the hands of the crypto owner. Each cryptocurrency has a copy of the blockchain, and the contents of the general ledger are the same for each cryptocurrency. There is no physical location in the geographical sense where the location of bitcoin is.
The voluntary disclosure scheme was used as a pressure by black savers with foreign accounts and has over the years been tightened and abolished as the tax authorities have gained more insight into foreign account holders’ bank information. Analogously, the same reasoning could apply to cryptocurrencies. In addition to the tax debate, whether there is foreign capital or not, Kim Helwegen argues that the tax authorities should stimulate the voluntary improvement of crypto capital as much as possible. All the more so to remedy any tax disadvantage that has not benefited the Treasury and to prevent it for the future. It is undesirable that owners of cryptocurrencies may feel compelled to continue tax evasion because of a potential penalty hanging over their heads like a sword of Damocles. The Danish Tax Agency may have confidence in the automatic exchange of data on savers of foreign accounts, but Kim Helwegen doubts whether the same increased risk of being caught applies to cryptocurrencies (depending on the type and nature of the cryptocurrencies).
In the absence of clarity and views from the tax authorities, Kim Helwegen believes that taxpayers who have cryptocurrencies should be treated mildly because they are still in the dark, just like the tax authorities themselves. In that sense, Kim Helwegen believes that the voluntary disclosure system can certainly fulfill a useful function for cryptocurrencies to prevent the Dutch treasury from missing out on tax revenue, all the more so because there is no automatic disclosure, as is the case with foreign bank. accounts. Transactions involving Dutch people must first be filtered, whereby a lot of data must be analyzed before the identity of the users can be traced.
Either way, it will be a challenge for the IRS to gather the necessary information, not to mention the discussions that will arise about the tax classification of cryptocurrencies. According to Kim Helwegen, there may even be different tax qualifications per. cryptocurrency. This will partly depend on:
- the nature of the cryptocurrencies (for example, there are even cryptocurrencies that entitle you to a periodic payment);
- the possibility of a reasonable profit forecast and;
- the possible or possible influence on the share price.
Despite the fact that cryptocurrencies are not considered legal tender, tax on crypto assets still has to be paid. In the absence of clarity, there is room for discussion with the tax authorities, which can also be seen as an advantage for a taxpayer. A position that is ultimately found to be incorrect by the court, but which is justifiable, cannot be fined or punished (read more about: an argument that can be discussed). There is as yet no national case law on taxation and cryptocurrencies. However, the following aspects (non-exhaustive) seem to be somewhat clear:
- Possession of crypto assets basically leads to taxation in box 3 (‘other assets’). The rationale behind this is that there would be a purely speculative prospect of gaining an advantage.
- Situations are conceivable where a box-1 activity could possibly be involved. Think of a cryptomine farm where, for example, a box-1 discussion could arise;
- According to the Court, the exchange of virtual currency (bitcoin) with legal tender (and vice versa) is a VAT-free transaction.
Unlike the US Internal Revenue Service (IRS), which provides guidance on digital currencies, such guidelines are currently lacking on the part of the Dutch tax authorities. There are many tax issues surrounding cryptocurrencies, such as:
- To what extent can the tax qualification of foreign and domestic assets on cryptocurrencies be disclosed? This is relevant for the recovery period. For assets held or arising abroad, a term of 12 years applies. The normal recovery period is five years. Regardless of the discussion as to whether these are foreign assets, the tax authorities will probably be inclined to state that an extended recovery period applies due to the insufficient control powers. The reason here is that this will be justified and allowed to ensure the effectiveness of tax control. There is, of course, something to argue against. This will depend in part on the type of cryptocurrency. The control options with monero will be more limited than with, for example, bitcoin. Especially when using hot wallets, the control options will certainly not be more difficult than with an offshore bank account.
- What stock price should be used to determine the value of cryptocurrencies on January 1st?
- Can you appreciate cryptocurrencies at the exchange rate given the extreme volatility? Can there be a lower valuation in Box 3 to tax the real return? In light of the sharp exchange rate fluctuations, it can be argued that a taxpayer is faced with an excessive burden. This is because a non-existent (at least fictitious) income is charged on cryptocurrencies.
- How should cryptocurrencies be handled where the private key has been lost? And how will the tax authorities check and / or verify this in the future? It may be necessary for public addresses, if private keys have been lost, to be registered in a system to verify that no value transfer can actually take place. Or, for example, a ‘tag’ can be placed, as is done, for example, with bitcoins coming from the dark web.
- What about spontaneous force? In other words, cryptocurrencies that you can claim after a so-called hard fork? And what if cryptocurrencies are not claimed by a taxpayer after a so-called hard fork? Should a taxpayer – whether a cryptocurrency is claimed or not – count this as part of his box3 assets?
In short, adequate tax issues around cryptocurrencies that can be prosecuted in the future.
Despite the fact that it is not possible to pay tax with crypto assets, there is therefore an obligation to include crypto assets in the tax return. The consequences of not settling cryptocurrencies with the tax authorities can be serious and can even be prosecuted. This may be due to tax evasion (deliberate submission of incorrect reports), but also due to money laundering. Tax is not yet helped by the automatic exchange of data, as is the case with foreign black savers, but it is possible to make information requests. This happened, for example, with the credit and debit card project). Transaction data enabled the tax authorities to identify Dutch taxpayers with foreign assets. In relation to cryptocurrencies, a lawsuit has recently been filed for the provision of information from Coinbase to the United States Tax and Customs Administration (IRS). The U.S. Treasury Department has already acquired sufficient control capabilities to detect hidden cryptocurrencies. Coinbase – a cryptocurrency repository – has been required to provide data (data from customers who traded more than $ 20,000 between 2013 and 2015) about their users to the U.S. tax authorities. The IRS will use this data to investigate whether Coinbase users have complied with their reporting obligations. The future will show which ‘crypto projects’ are launched in the Netherlands or in an international context.
A warned person counts for two?
Sir. KMT (Kim) Helwegen
 U.S. v. Coinbase, 17-01431, U.S. District Court, Northern District of California (San Francisco)