Fine crypto can be up to 300%
More and more Dutch people own cryptocurrency, such as Bitcoin. In practice, we often help taxpayers who have overlooked the taxation of this cryptocurrency. During 2021, new legislation will be introduced within the EU, which means that the owner of bitcoins or other crypto-coins will be known to the tax authorities. In most cases, crypto must be declared in box 3 (value as of January 1), sometimes even in box 1.
Do you have cryptos? We see that many do not (yet) report this to the tax authorities, sometimes consciously, sometimes unconsciously. There are currently European regulations in the pipeline that make it more complex for tax and customs administrations to hide crypto-coins.
New European Crypto and Tax Authority Reporting Legislation
The European Union is working on a directive to make it easier for EU member states to spontaneously exchange information about the holder/owner of cryptocurrencies. The proposal is on the agenda for 2021. After the legislation is adopted within the EU, it must be incorporated into Dutch law, which will take some time. Under the new legislation, crypto companies are forced to store personal data about senders and recipients and ultimately provide it to the EU or the country of residence. It is even conceivable that anonymous crypto wallets will be banned.
In this article we explain the consequences if you have not declared crypto in your tax return and are caught e.g.
Cryptocurrency and tax authorities
Cryptocurrencies represent a value. This value varies widely. The value relevant to your charge depends on how you hold the cryptocurrency. Possession of crypto basically belongs in box 3. If you are an active private person (e.g. due to mining or a lot of trading), then there may be a tax in box 1. The expenses are therefore deductible.
Crypto purchases are rarely visible to tax authorities. If the crypto is sold (at a significant profit), however, there is a visible capital increase, which the Tax Office can see through a capital comparison. Tax will then ask questions about the tax return you have submitted.
Tax and customs administration can then impose an additional assessment for up to 5 years ago, if the crypto is held abroad, this can also be 12 years. We believe that the IRS will state that crypto qualifies as foreign assets (ie a 12-year recovery period).
Tax and customs administration will also impose a fine. Because the crypto is often deliberately not included, the basic premise will be that there is a deliberate under-declaration of wealth. The fine will then amount to at least 100% of the assessment imposed. An increased fine of 300% can also be imposed, which is normally reduced to 150%.
Advice on crypto for tax authorities investigation
Tax will send you a questionnaire. You are required to answer the tax-relevant questions, not other questions. If you do not answer or reject it, Tax issues a so-called disclosure decision. The result of this is that you face a reversal and an increased burden of proof. You must convincingly demonstrate all your propositions in this process, this goes beyond the normal test (make plausible).
It is wise to call in a specialist if Tax finds you. We have extensive experience with this type of process and have also advised hundreds of customers on advance reporting of as yet unknown assets (disclosure scheme).
“I don’t have crypto on my tax return, what now?”
Among other things, due to the announced EU legislation, within a few years, Tax will receive a lot of information about crypto investments. If this is not yet known in your tax return, you run a significant financial risk (fines can amount to 300%). You can voluntarily submit a declaration to the Tax Office about the hidden crypto investments. If you do this within 2 years, no penalty will normally be imposed. However, there are exceptions for crypto investments, in some cases an offense fine is imposed, but this is lower than the stated 150%.
If Skat has already tracked you, voluntary improvement is no longer possible. It is no longer voluntary to give in.
In the short term, it will be much easier for Tax to target crypto-coins.
Advice on escrow of crypto investments
Over the years, we have monitored many voluntary disclosure processes. At first it was mainly about foreign bank accounts, but more and more often it is about (significant) crypto-wallets. The taxpayer who voluntarily wants to improve and still submit correct returns of his own volition 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 meeting is always non-binding.
Source Crypto and Voluntary Disclosure Scheme
Questions and answers EU about crypto
EU directive on crypto July 20, 2021
Proposed EU Crypto Legislation
Questions about the tax implications of crypto investing?
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