Bitcoin forks and taxes – Jongbloed Tax Attorneys

In this article, we look at the tax authorities’ policy regarding crypto, forks, NFT, etc. We will also discuss the reporting (return) of bitcoins that are not yet known to the tax authorities. This article has been written because we have gained insight into Tax policy regarding crypto (with a crypto fork). We currently advise taxpayers on a weekly basis with crypto, NFTs and other digital assets. This is primarily due to new legislation coming soon which will oblige crypto platforms/brokers to (automatically) provide information to the tax authorities (DAC 8 legislation).

The Bitcoin fork

A bitcoin fork will mean nothing to my father. Indeed, if a blockchain is large, it is almost impossible to adapt anything to the protocol. For example, consider a bitcoin. When a blockchain splits (differentiates the protocol), something else emerges. The most well-known example is bitcoin cash. A fork is a (new) fork of an existing cryptocurrency blockchain. This creates two (or more) versions of the same blockchain with different rules. For the enthusiast there are two versions: the soft fork and the hard fork, I’ll leave it at that for now. What does Tax think about a fork?

Tax authorities and cryptocurrency or NFT

The value of an NFT and/or crypto belongs in box 3 (Article 5.3, second paragraph, IB Act 2001). This is different, if you are busy with it, then it could also belong in box 1 (activity/business). The technical development in this world is much faster than the development of tax laws. After the rise of crypto (the best known is bitcoin), digital artworks and other NFTs emerged. An NFT is a digital asset (via certificate) and can be exclusive. The value is usually unclear. The tax treatment of an NFT appears to be similar to that of a cryptocurrency. Assuming the fork fork has value, it can be treated separately. But should you immediately assign a value to a fork? According to the IRS, yes. One of the first parliamentary papers on crypto (from 2018) sets out how to handle crypto.

Tax authorities and bitcoin fork into the tax return

The Tax Agency’s policy regarding the bitcoin fork has been made known via a WOB request (Publicity Act). The most well-known example is bitcoin cash. If a cryptocurrency protocol changes (to make more of them or to make technical adjustments), all participants (nodes and miners) must also accept this. So it’s not easy. Most crypto owners have their own private key, but invest in crypto through an app on an online trading platform. If they already have a key to their crypto holding, it will be held by the platform. If this service provider (platform) would not support the crypto coin created from the fork, no value would accrue to the crypto created. The Tax Office also acknowledges this in the internal document below. However, according to the tax authorities, the basis for the valuation is still that a value must be added to a fork. The key in the wallet of a crypto-coin gives access to crypto-coin A and crypto-coin B in a few steps.

Report crypto in your tax return

The chance that Skat will detect crypto is currently small. What is possible is that people with crypto convert it to hard euros and then buy an exclusive car or boat. It is also conceivable that a (holiday) home is bought. This expense can be calculated by Tax on the basis of your tax return (via a so-called asset comparison).

New European legislation is currently being drafted (DAC 8). From 2023 (or a little later), this legislation will ensure that administrative and financial data exchange will take place from online wallets and exchanges with Tax and Customs. It is unclear whether this will also be retroactive. It is also not known whether exchanges outside the EU must exchange information. We advise crypto owners to stay on top of this new legislation and report crypto ownership to the Dutch tax authorities. The voluntary disclosure scheme no longer exists, but if the person has reported possession himself, this will result in a mitigating circumstance. The new legislation makes it increasingly difficult to keep bitcoins (crypto), NFTs, forks, stablecoins and tokens hidden. This increases the risk of sky-high fines and criminal prosecution.

Note tax lawyer on crypto

More and more crypto and NFT owners report to the Tax Authorities through us. This is primarily due to the upcoming DAC 8 legislation. Feel free to contact one of the specialists below for a consultation. The value to be reported is the value per 1 January in the tax year. A screenshot on January 1 makes it very easy, often looking back is very difficult. Crypto brokers established in the Netherlands are registered with the Dutch bank and these brokers will therefore be the first to exchange information with the tax authorities.

Source crypto NFT and fork

Parliamentary document 31 May 2018 number 34775 AA

WOB request for fiscal policy bitcoin fork February 18, 2022

DJ

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