Tax Alert May 2018 - Cryptocurrency Transactions
Irish Revenue publish guidance on the tax treatment of cryptocurrency
On 15 May 2018 Irish Revenue published Tax and Duty Manual Part 02-01-03 on the tax treatment of cryptocurrency transactions.
The Revenue manual states that normal tax rules apply to transactions involving cryptocurrencies. This position mirrors that of HMRC guidance published in 2014.
Revenue take the position that the tax treatment of various transactions involving cryptocurrencies depends on the activities and parties involved in the transaction. This means that to determine the tax treatment of a cryptocurrency transaction requires an assessment of the activities and parties involved, Revenue’s guidance, case law and relevant legislation.
It is important to note that Revenue confirms that each case must be considered on the basis of the individual facts.
The manual specifies that no special rules for cryptocurrency transactions are required.
There is no change to when revenue is recognised or how taxable profits are calculated. Profits and losses of a company entering into transactions that are reflected in the accounts should be taxable under normal Corporation Tax rules. Gains and losses incurred on cryptocurrency transactions are chargeable or allowable for Capital Gains Tax purposes (for an individual) or for Corporation Tax on chargeable gains (for a company).
As cryptocurrencies are not a functional currency for tax purposes, accounts cannot be prepared in cryptocurrencies.
Revenue’s view is that Bitcoin and similar cryptocurrencies are regarded for VAT purposes as ‘negotiable instruments’ and exempt from VAT in accordance with Sch. 1 para. 6 (1)(c) VATCA 2010.
The exchange of bitcoins for fiat currency are exempt under Sch. 1 para. 6 (1)(d) VATCA 2010, where the company performing the exchange acts as principal.
VAT is due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrencies. The taxable amount for VAT purposes will be the Euro value of the cryptocurrency at the time of the supply.
Income received from cryptocurrency mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes.
Where employee emoluments are paid in a cryptocurrency, payroll taxes are calculated on the Euro value of the cryptocurrency at the time the payment is made to the employee.
As a single “exchange rate” for cryptocurrencies may not be available, Revenue acknowledge that a reasonable effort should be made to use an appropriate valuation for the transaction in question.
If you have any queries on the above or on blockchain and cryptocurrency transactions, please contact a member of the team.