Forgot crypto when reporting? – Jongbloed Tax Attorneys

More and more Dutch people own cryptocurrencies, such as Bitcoin. In practice, we often help taxpayers who have overlooked the taxation of this cryptocurrency. In this article we explain the consequences. To do this, we first outline the rules of the game, then describe the risks of forgetting to specify cryptocurrencies.

Cryptocurrency and Taxes: Main Rules

Cryptocurrencies represent a value. This value varies widely. The value relevant to your tax depends on how you hold the cryptocurrency. You can observe the following main rules.

Owning cryptocurrencies as an individual: Box 3

You own cryptocurrencies as a private person. This asset falls in box 3. Here, it is relevant what the value was on 1 January of the year you declare. Our experience has shown that it is not easy to get the price on 1 January on the table afterwards. So make sure you do this on time.

Owning cryptocurrencies as a result of private mining or trading: possibly box 1

You are an active private individual because you obtain the crypto by mining or trading above average. eh able to then there is income from a business or a result from other activities. In that case, you must not state the asset in box 3, but in box 1. The law provides both the entrepreneur and the profit seeker with a number of facilities, for example in the form of deduction of costs. NB! It is also important whether you have a profit at all or the prospect of a profit. If you simply always spend more on mining/trading than it gives you, then it is not entrepreneurship or an activity. These rules may apply in a different form if the company’s activities are not coordinated with currency trading. It is therefore advisable to always seek the advice of an expert when it comes to entrepreneurship and cryptocurrencies.

Wages in Crypto: Box 1 and the Payroll Tax Act 1964

Your employer pays you in cryptocurrency. The employer is obliged to withhold (via the Income Tax Act 1964). The employer must always convert the crypto to euros for the salary statement. It is advisable to keep an eye on whether your employer has this in order. Strictly speaking, you are not liable for mistakes made by your employer, but the tax authorities may eventually include you in the case.

You are an entrepreneur and get paid in cryptocurrencies

You are an entrepreneur and you are paid in cryptocurrencies. You must always convert the value into euros and enter it in euros. In practice, this is experienced as an increase in administrative burdens. Therefore, consider carefully in advance whether you want to invest the necessary energy in this.

You trade through a legal entity and pay/trade with crypto

Legal entities that are subject to corporation tax are, apart from exceptions, considered to be operating with their entire assets. The cryptocurrencies then arise in the corporate sphere of the legal entity.

Forgotten cryptocurrencies in the statement: where do the problems arise?

More often than other sources of capital, cryptocurrencies are mistakenly not included in the statement. Two types of taxpayers can be distinguished: those who do this on purpose and those who simply forget. In addition to the sanctions, which we will get into later, the following applies to both groups.

Forgotten cryptocurrencies in the tax return: how do the tax authorities find out?

Currently, tax authorities often find out about cryptocurrencies by comparing assets. Buying cryptocurrencies is a transaction that is often not visible, but as soon as you make money from the crypto, often with a nice profit, this capital is visible in your bank account(s). As a result of an unexplained capital increase, Tax will then ask you specific questions about your tax return and your previous tax returns. In the next section, we discuss the implications of these demand trajectories if it follows that cryptocurrencies have not been included before.

Forgotten cryptocurrencies in the tax return: what can the tax authorities do?

The Tax and Customs Administration may impose the following measures/sanctions if you have mistakenly excluded cryptocurrencies from your tax return:

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In the area of ​​income tax, the Tax Agency will proceed with further recovery. Your box 3 capital, which we use here as an example, was higher than you stated. The tax authorities are normally allowed to go back up to 5 years. However, for assets that are held abroad, an extended term is included in the law. This period is 12 years. We expect that the Tax Office will decide that the cryptocurrencies qualify as capital originating from/held abroad. Skat would then like to ask up to 12 years back in time. The Supreme Court will undoubtedly decide on this in the coming years, but we consider the Tax Agency’s position to be justifiable.

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Tax will proceed with imposing a fine. Thereby, a decision will soon be made that you have acted intentionally. Normally, the maximum fine here is 100% of the amount of the assessment. However, an increased fine of 300% applies for box 3 capital. It has been determined in the policy that Tax will, as a starting point, set the fine at 150%, apart from exceptions. Still a lot of money. In practice, there is often a discussion about the qualification as a set-up. It is best to conduct this discussion with the assistance of an expert.

Burden of proof

Tax and Customs can ask you questions about cryptocurrencies. You can almost think of this as a kind of mini tax audit. It is therefore wise to seek advice in this regard. You are obliged to answer the questions from the Tax Authorities to the extent that they are relevant to your taxation. If you do not do this, Tax can issue a so-called information decision, which you will almost always be confronted with a reversal and an increased burden of proof in the follow-up process (objection/complaint). You must then be able to convincingly demonstrate all your statements, as opposed to the more usual plausible.

Tax can also achieve this reversal and increase the burden of proof by deciding that you have not filed the required return. The Supreme Court has determined that Tax must prove three conditions for this:

  • The tax due according to the tax return is proportionally significantly lower than the actual tax due;
  • The difference is significant in absolute terms;
  • When submitting the tax return, the taxpayer was aware that no significant amount owed would be collected.

Forgot cryptocurrency in the statement: can I still recover this?

Yes, that is possible. You can make improvements on your own at any time. However, pay close attention to this. We have previously stated that it is expected that cryptocurrencies will count as foreign assets. This means that voluntary improvement is possible, but is treated with above-average attention by the tax authorities. The voluntary information scheme is relevant in these situations. We discuss the voluntary disclosure scheme in the next section. A more comprehensive article on the voluntary disclosure scheme can be found via the link at the bottom of this page.

Forgotten cryptocurrencies in the statement: voluntary improvement

Submission is also called voluntary improvement. The law provides an allowance for voluntary improvers. The main rule here is that if you improve within two years, no negligence fine will be imposed. NB! There are relevant exceptions to this in relation to cryptocurrencies. That’s the way it is. Disclosure of assets belonging to category 2 or category 3 never means that a fine is not given according to the law. It is, however, a mitigating circumstance. As a result, the voluntary improvement feels less pain than a person who does not voluntarily improve.

If your cryptocurrencies are not in box 2 or box 3, it is possible that there will be no penalty on redemption, but it depends on all the facts and circumstances. We note the following. Voluntary improvement is tied to an important deadline. As soon as you know or should know that Tax is tracking your property, you can no longer voluntarily improve. The idea is then that there is no voluntariness. In addition, submitting new returns is not necessarily a voluntary improvement. This requires a more explicit action, usually in the form of a letter to the tax authorities with due justification. Both your crypto position and tax law.

Forgotten cryptocurrencies in the statement: the future

Currently, it is still difficult for tax authorities to detect cryptocurrencies unless you proceed to cash out or make a significant investment. This will change in the future. According to the DAC rules, international data exchange related to cryptocurrencies is expected to be established within a few years. We will discuss this in a separate article. Keep in mind that Tax will probably be allowed to go back up to 12 years ago to make further claims. Recovery is often accompanied by fines and interest.

Forgotten cryptocurrencies in the statement: advice

Over the years, we have monitored many voluntary disclosure processes. Initially, it was mainly about foreign bank accounts, but it is increasingly about (significant) crypto-wallets. The taxpayer who voluntarily wants to improve and still submits correct returns can often get away with a good deal. We will be happy to help you achieve that agreement. Feel free to contact one of the authors of this article. An initial conversation is always non-binding.

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