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

Whether it is the newspaper, LinkedIn or Facebook, something is written about Bitcoins and cryptocurrency almost every day. It is clear that it is very important, also in tax matters. The Secretary of State has stated several times that cryptocurrencies must be considered an asset in box 3. The tax authorities will also emphasize that Bitcoins must be included in the tax return. These warnings appear to be motivated primarily by a mistrust that these currencies are sometimes kept out of sight of tax authorities. So far, however, it has not been discussed whether cryptocurrencies can inherently be considered Box 3 assets. Are cryptocurrencies subject to Box 3 tax at all?

Activate in box 3

Article 5.3, subsection 2 The Income Tax Act of 2001 determines which assets belong to the return base in box 3. The remaining category of assets that are taxable in box 3 are ‘other property rights’ with commercial value. Cryptocurrencies do not fall under the heading ‘money’ because cryptocurrencies are not legal tender. 1 It also does not fall under the category of “movable property” as cryptos 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 cryptos qualify as property rights, refer to Article 3:1 of the Dutch Civil Code. Article 3:1 of the Dutch Civil Code provides that property law generally applies to “business and property rights”. The law does not provide a strict definition of the concept of ownership. However, Article 3:6 of the Dutch Civil Code sets a number of requirements for property rights, including that they must be transferable. It can be argued that cryptocurrencies are transferable because they can be transferred from one wallet to another. Another requirement is that the rights holder 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, the literature argues that classifying cryptocurrencies, such as Bitcoin, as asset rights is problematic. 3 The background for this is that a property right is a personal right, which is matched by a passive asset (liability). This is not the case with Bitcoin. A Bitcoin is a series of encrypted codes with a specific value. A Bitcoin therefore does not give the owner the right to the value that the Bitcoin represents, but has that value itself. We support this view. In our view, this also means that the owner of a Bitcoin or any other form of crypto does not own the blockchain where the series of encrypted codes originates and is maintained. No one owns the blockchain, that is the whole idea behind the creation of the cryptocurrency. The owner of a Bitcoin only has access to the blockchain where the Bitcoins are stored, but does not own the blockchain itself.

Tax qualification of assets

It can be inferred from the parliamentary discussion of Article 5.2 of the Income Tax Act 2001 that the terms “assets”, in particular “property rights”, and “debt” have a wider meaning for the purposes of Box 3 than in civil law, and that according to ‘other property rights ‘ in any case, all rights with any value in economic traffic are understood. The Supreme Court has expressed that there must be a legal relationship and that this legal relationship leads to such rights that there is a property right in the sense of box 3. 4 Partly in light of the above, it is, in our opinion, debatable whether such a legal relationship exists in the case of ownership of cryptos. As mentioned, there is nothing passive-active about owning cryptos. The question arises with whom or what the holder of cryptocurrencies has a legal relationship with. After all, there is no regulatory authority or other body that manages the cryptos.

On the other hand, this category has been explicitly designated by the legislator as a residual category, which includes all rights that have a certain economic value and do not fall under any other category. 5 The evaluation of the 2001 tax reform stated that this broad category causes all kinds of bottlenecks and that clear standards are needed. The foreign minister rejected that criticism at the time. 6 Whether the Supreme Court will be convinced that the text of the law precedes the legislator’s intention is, of course, still unclear. This does not change the fact that in this context it also appears that the text of the tax legislation is not in accordance with the current digitization of taxation.

In relation to capital gains tax, questions are already being raised about the fixed approach to the return and the limited time at which it is calculated, namely (exclusively) 1 January. For us, there is another bat in the hen house when now, based on the definition of civil and tax law in the law and case law, it remains to be seen whether cryptocurrencies can be considered box 3 assets. The legislator’s intention 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 cryptos as property rights. Up to here and no further?

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1 Court of Overijssel 14 May 2014, ECLI:NL:RBOVE:2014:2667.
2 Folketingspapierer I 2017/18, 34775, AA, p. 7.
3 WAK Rank, “Bitcoins: Civil and Regulatory Aspects in: Bitcoins Civil and Tax Aspects in View”, Wolters Kluwer: 2015, p. 36.
4 HR 15 February 2013, ECLI:NL:HR:2013:BZ1294, BNB 2013/118.
5 Folketingsdokumenter 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, point 3, UN 2006/21.12.

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