However, even though bitcoin trading is exempt from VAT, any gain in bitcoin transactions may be subject to other taxes such as “capital appreciation or income tax” and the taxation depends on the EU country. Germany: Although Bitcoin is described as private money, gains from the elimination of less than one year may be subject to taxation. However, the incremental gain from the sale of bitcoins that do not exceed 800 euros or held for more than one year is a tax exemption.
United Kingdom: “Bitcoin” is considered foreign currency. The rules governing currency gains and losses apply to “bitcoin” transactions. However, “speculative bitcoin transactions” may not be subject to any taxation, and the U.K.’s HM Revenue and Customs (“HMRC”) provides unclear information on tax practices relating to bitcoin transactions (Revenue and Customs Brief 9/2014: Bitcoin and other cryptocurrencies). Every case related to bitboin “will be assessed according to its own personal facts and circumstances.” The relevant legislation and jurisprudence will be applied for proper taxation. Denmark: VAT excluded from virtual currency purchases and virtual currency sales. Japan Bitcoin sales are exempt from consumption tax starting from July 1, 2017.• Virtual money is accepted as a commodity. Virtual currencies are considered asset-like values that can be “used and made digitally payable.” For this reason, the gains from the bitcoin trade are attributable to the business earnings. Accordingly, income and capital gains are treated for tax purposes. Australia According to the Australian Tax Administration, bitcoin is not a “money or foreign currency,” but an asset that can generate value-added earnings. On the other hand, the bitcoin transaction for personal use is exempted from taxation under two conditions: (i) Bitcoin is used as a payment instrument for personal use goods and services; and (ii) The value of the transaction is less than AU$10,000. The end result of bitcoin is the emergence of bitcoin and the exchange of commercial purposes in Australia is considered to be stock trading and taxed accordingly. Canada The Canadian Revenue Administration (“CRA”) announced in 2013 that crypto currencies like bitcoin are “commodities” such as gold, silver or natural gas, according to the legislation. Accordingly, bitcoin will be taxed either as a commercial gain or as a gain of value (in case of loss, this approach is also valid). In summary, taxation of bitcoin gains in countries vary significantly. Some countries treat bitcoin as a currency, while countries such as the U.S. and Australia consider it an asset or a commodity. Bitcoin Overview of the Regulatory Agencies in Turkey and Buying/Selling Earnings Genre I will evaluate the topic in terms of real persons and corporate entities. For corporate entities, assessment is easy as the subject is corporation tax. Because any kind of income the institutions get is subject to the corporation tax including exchange gains arising currency valuation and trading. The problem becomes complicated when the “real person” is the owner of bitcoin gain. Why? In Turkey, there are seven types of gains or types in the Individual Income Tax Law, according to which the types of gains is classified one by one. The income for taxation must be covered by one of these. On the other hand, the value increases of any foreign currency are not subject to taxation. According to the news in the media, the Capital Markets Board (“CMB”), the Banking Regulatory and Supervisory Agency (“BRSA”) and the Central Bank of Turkish Republic (“CBTR”) are evaluating bitcoin. Alternatives of bitcoin definitions are “securities”, “commodity” or “money/currency.” However, there is no official announcement yet. Let’s consider these three alternatives according to their bases. Is there a Definition of Bitcoin According to CMB Legislation? According to Article 3 of the Capital Markets Law, “money, checks, policies and bonds” are not covered by “securities definition.” The definition of “capital market instruments” in the same item is “other capital market instruments that are determined to be included in the CMB, including securities and derivative instruments and investment contracts.” Is there a Definition of Bitcoin in Foreign Exchange Legislation? According to Article 2 of the Decree No. 32 on the Protection of the Value of Turkish Currency, numbered 1567, “all foreign countries in the form of banknotes” are “effective,” “all kinds of accounts, documents and instruments that provide payment by foreign currency including effective.” “All kinds of Turkish and foreign securities traded in the capital and money markets” in the same article are made of “securities,” “gold, silver, platinum and palladium in all kinds and shapes,” “precious metals,” “precious metals or precious stones” goods containing them “is defined as” valuables.“ Bitcoin does not belong to a country, so it does not fit the foreign currency or its effective definition. Is there a Definition of Bitcoin in the Tax Legislation? In the 70th Article of the Income Tax Law, income from real estate or assets capital income is defined. However, the definitions in this article are far from the concept of “digital age” goods, rights and services. Nevertheless, can the definition of “rights such as the right to use, or the right to use on a secret formula or a manufacturing procedure, with knowledge gained from industry, commerce and science …” in Chapter 5 of this article be used for bitcoin? It’s hard to say anything clear. But when you look at the operation of bitcoin it is obvious that there is an encrption or a secret code. If this approach is accepted, the gains on the purchase and sale of bitcoin may be considered as capital gains in the Law. If bitcoin is accepted as a commodity, such transactions will be subject to VAT under a continuing business, i.e. number of transactions in any calendar year. In summary, it is difficult to quantify bitcoin gains within the definition of seven income types unless there is an amendment. Therefore, any effort/approach based on existing legislation is more likely to create dispute between individuals from bitcoin and tax administration. For More Information Abdulkadir Kahraman is Partner and Head of Tax at KPMG Turkey.