taxation and cryptocurrencies in 2023

As everyone knows by now, the Finance Act passed at the end of December 2022, introduced several new tax provisions for those who earn income from what is called crypto assets.

Net of all discussions about the shortcomings of the approved law, it offers some opportunities that, depending on the case, can be extremely advantageous to take advantage of.

Let us try to examine them concretely.

Careful management of cash flows: cryptocurrencies and taxation

If until yesterday there was room to question the very basic assumptions of taxation of income from cryptocurrency trading activities, today this possibility is no longer there.

The law clearly states that capital gains from cryptocurrency trading are subject to a 26 percent substitute tax (for cashouts made on or after January 1, 2022).

The prerequisite under which the tax is triggered is that these capital gains exceed the amount of 2,000 euros in the tax year.

Of course, it is necessary to be clear under what conditions a taxable capital gain is considered to have accrued.

For this condition to occur, it is necessary that, during the year, there is not only an increase in the value of the cryptocurrencies held (and thus a differential between the purchase value and the value reached during the year) but also that the cryptocurrencies held in a wallet are converted into fiat currencies or when acts of disposition are carried out that, according to the legislator, in essence, “land down” the value of virtual currencies in the real world. And that is what is referred to as “dispositions for consideration” and includes a wide range of transactions.

It is important to know that exchange transactions between cryptocurrencies with the same functions and characteristics, according to the law, are tax neutral. Thus, they are not among the transactions for consideration that trigger the tax liability.

Beyond the issue (for which clarification from the Italian tax agency Agenzia delle Entrate would be needed) when, in the case of an exchange, one can talk about crypto assets that do or do not have the same functions and characteristics, the central issue is that since these are the rules, there are many options to keep under control the possible tax burden that may arise from the activities of buying, holding, converting and moving cryptocurrencies or crypto assets.

To this end, documenting and keeping track of transactions, monitoring the counter values of cryptocurrencies held, and planning for cashout transactions or those that integrate “sale for consideration” under the law, is of paramount importance to “dose” the amount of any taxable capital gains.

How? First and foremost, it can be useful to use specific applications created specifically to document and monitor crypto values and movements. Such applications, by the way, offer great practical help when it comes time to file a tax return.

Equally important is to be supported by professionals, accountants, and accounting experts, with specific expertise in cryptocurrencies, who know how to manage this particular type of asset. This is a perceived need, to the point that the business and tax consulting firm AllCore S.p.A. has created a special division called Crypt&Co. [cryptandco.com], in which a pool of professionals in the crypto tax, legal and accounting fields is made available to clients to offer targeted services of this kind, related to the management and legal and tax implications of crypto assets.

The opportunity for “amnesty”

Perhaps the expression “amnesty” is not the most technically appropriate one, but within the package of regulations included in the Finance Act there are specific measures to induce the emergence of cryptocurrency holdings and regularize the tax position of taxpayers who, in the past, that is, in the period preceding the approval of the regulations, failed to declare their possession.

Paragraphs 139 and 140 of Article 1 of the Budget Law, therefore, provide for the possibility of filing an emersion petition for crypto assets held until 12/31/2022, through the submission of a special declaration.

The purpose pursued by the rule is to rectify the error or forgetfulness, for not having made in due time the declaration of holding or any income within, respectively, the RW and RT forms of tax returns and implies the need to provide for the payment of sums, the amount of which varies depending on whether or not income was earned during that period.

So, if no income has been earned, an amount equal to 0.5 percent must be paid for each year, concerning the total value of the cryptocurrencies not declared in the RW return (para. 139).

If, on the other hand, income has been earned, then, to rectify the failure to comply with the declaration obligation, an amount equal to 3.5 percent of the value of the crypto-assets held at the end of each year or at the time of realization will have to be paid. In addition, they will have to pay an additional amount, equal to 0.5 percent of the same value for each year of holding, by way of penalties and interest, for failure to declare in the RW panel.

Finally, Paragraph 133 of the Budget Law provides for the possibility of revaluating crypto-assets held as of January 1, 2023, subjecting it to a substitute tax in the amount of 14 percent, which can be paid in three years, the first of which by June 30, 2023.

An option that becomes convenient if the carrying values of the cryptocurrencies held for the past are significantly lower than the current value or, in those cases where the carrying values cannot be traced, and in these cases, even if the law does not expressly provide for it (and well would have done the legislature to include and regulate this possibility) the use of an expert opinion on the value of the assets held could be of great use also in the perspective of possible future disputes by the tax authorities.

In conclusion, after a period of total confusion, the law today offers an opportunity to regularize one’s position on cryptocurrencies for the past as well. And it is an opportunity that, although it entails costs, should be carefully considered, and if possible, seized.

It is also a time to leave improvisations behind and manage your crypto assets wisely, planning choices and operations for the future.

It is an interesting time and harbinger of opportunities for businesses as well, because the regulatory framework with these greater certainties may allow the use of crypto-assets, now typified and regulated by law, for capitalization operations.

All of this, however, cannot be left to chance and, above all, cannot ignore the need to be supported by professionals, lawyers, and accountants, equipped with specific skills.