As more crypto currencies are brought to market and their attractiveness as an asset class broadens (despite their wild volatility swings in value), the taxation consequences of same takes on increasing importance, particularly as more individuals / entities find themselves potentially exposed to taxation on returns on such investments. Here we look at the fundamentals of the Irish regime and the opportunities for tax planning efficiencies.
1. Capital Gains tax treatment
Quite simply, Ireland does not have any special tax rules in the context at hand. If a gain is made, then such gain will be taxed at normal Irish CGT rates. Importantly, if a loss is made on a crypto currency, this loss will be available for offset against other gains.
Gains made by non-Irish domiciled individuals
Whilst this article does not set out to dive into the common law concept of domicile, an individual without historic ties from birth (and proposed future business and personal ties) in Ireland will be deemed to be non-domiciled in Ireland. The benefits of this concept in relation to crypto currencies are potentially immense. In short, any crypto currency sold outside of Ireland (as a non-Irish situate asset), with any gain made on same not being remitted into Ireland will be entirely tax exempt, notwithstanding that the individual may well be an Irish resident. Benefits potentially also accrue where under any DTA the gain may have been made in a foreign country (which does tax crypto currency gains) but the taxing rights in relation to same fall to Ireland.
Taxpayers should avoid using any Irish brokerage service and bank accounts to hold any crypto currency or to receive the proceeds from any sale of the crypto currency.
2. Income tax treatment
Individuals accepting crypto currency as payment as part of the course of their trade are required to calculate their taxable profits using exactly the same rules and norms as those individuals who receive fiat money as a remuneration. In short, Ireland has no special rules / provisions in relation to the utilization of crypto currency by individuals in the course of their trade.
3. Corporation Tax treatment
Companies utilizing crypto currencies, akin to individuals, suffer no prejudice arising from same. The taxable profits of the business being calculated in exactly the same manner as they would were crypto currencies not a consideration. The same accounting norms and considerations as to when taxable profits arise will apply.
4. VAT treatment
In keeping with the CJEU Hedqvist case (C-264/14 dated 22.10.2015), crypto currencies have been held to be functional currencies and are exempt from VAT in accordance with Ireland’s domestic VAT legislation.
A further VAT exemption treatment applies to entities buying and selling crypto currencies in their capacity as a principal. As such, the operation of such financial services is exempt.
Supplying goods and services and accepting payment in crypto currency
The taxable amount for the purposes of calculating VAT will be the EURO equivalent at the time of supply - of course, the timing of supply being driven by directives and national legislation. This does from time-to-time present value opportunities (in much the same way that foreign exchange movements do) in that anticipated crypto currency valuation swings can be utilized where there is a delay between the physical delivery of goods and services and the timing of supply of such goods and services for VAT purposes.
Data mining
The act of data mining for crypto currency is outside of the scope of VAT from an Irish perspective in that it is not held to be an economic activity for VAT purposes.
5. Employment income treatment of crypto currencies
Where employee emoluments (of any and all kinds) are paid to employees, and such payments are made in the form of crypto currency, then the value of the emolument for the purposes of calculating payroll taxes is the Euro amount of the crypto currency at the time the payment is made to the employee.
6. Valuing crypto currency for the purposes of establishing its Euro equivalent
Unlike shares which are listed and momentary values in time firmly established and identifiable, the value of crypto currencies can often differ between exchanges. Other crypto currencies operate on grey markets, further adding to the complexity in establishing their Euro value at a point in time. The Irish taxation authorities’ opinion is rather blunt in so much as it expects the holder of such crypto currency to make a “reasonable” effort to establish the crypto currency valuation for any intended transaction. Immediately, the concept of what is “reasonable” arises. The methodology to be used in establishing such a reasonable value is entirely absent. There are clearly benefits in the lack of such prescriptive diktats, and no doubt planning opportunities exist in relation to same. However, just as the lack of a prescriptive diktat provides planning opportunities for the taxpayer, it also provides the same opportunity for the Irish taxation authorities to object to attributed values / methods utilized in establishing reasonable values - thus ensuring a level playing field.
If you wish to discuss these topics, please contact: Sabios, Dublin
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