Cryptocurrency taxation and (tax) procedures

In the area of cryptocurrency in taxation, many questions still exist and the necessary tax procedures can be expected. Despite the fact that paying taxes is not possible with cryptocurrency, there is indeed an obligation to include crypto wealth in the tax return. The consequences of failing to account for crypto wealth with the tax authorities can be severe and even subject to criminal prosecution. This can be on the basis of tax fraud (intentionally making false returns) as well as money laundering.

The tax qualification of cryptocurrency trading

The most frequently asked question is how to qualify cryptocurrency trading for tax purposes. The daytrader, investor, professional trader or the one who trades using a trading bot may be treated differently for tax purposes, yet the starting point is that trading cryptocurrency is speculative in nature. The facts and circumstances of the specific case must be assessed in light of the speculative nature to determine whether the activities are taxed in Box 1 or Box 3.

New regulations: sharing data with tax authorities

Crypto-exchanges, like banks, will soon be required in the European Union to share the financial data of their users with the tax authorities of the state in which they are based. This obviously has major implications for cryptocurrency trading as it will allow the tax authorities to understand the size of assets in the near future. If the crypto assets have not yet been declared to the tax authorities, it is wise to do so as soon as possible by correcting the returns (“turning in”).

Cryptocurrency and (tax) criminal proceedings

FIU Netherlands has established money laundering typologies for cryptocurrency trading since 2017. It is a trend that both the Public Prosecution Service and FIU are active in detecting criminal offenses committed using cryptocurrencies such as Bitcoins, Ethereum, Ripple, etc. For now, these are criminal cases where clients are suspected of laundering criminal assets. This is because the FIOD is able to link wallets to a user and assess whether the addresses used in certain transactions, for example, appear on Darknet markets and may be from crime.

European and national regulations on the way

The European parliament has reached an agreement with member states on stricter anti-money laundering and terrorism regulations for crypto companies. In the Netherlands, crypto companies offering wallets (custodial wallets) and exchanging cryptocurrency and euros are already covered by the Wwft (see this blog). Under the new regulations, all crypto companies must start complying with anti-money laundering provisions.

The regulations are intended to combat the misuse of cryptocurrency. The new regulations therefore also introduce the “travel rule”: information about the sending and receiving party must accompany every crypto transaction. In the context of a criminal investigation into money laundering, the crypto company must provide this information. This could have major implications for criminal law practice. The new rules have yet to be transposed into national law. It is expected that the new money laundering regulations for crypto companies will apply from 2024.

Assistance from the lawyers at Jaeger

The lawyers of Jaeger closely follow the fiscal and criminal (technological) developments surrounding crypto-currencies. We can assist you in (potential) disputes with the tax authorities and prosecution by the Public Prosecution Service. If it comes to a hearing, we will be at your side as a crypto lawyer. If necessary, we will litigate up to the highest level.

We do not provide tax advice but can provide you with legal assistance in tax and criminal proceedings related to cryptocurrency. If you have a question and/or problem regarding the tax side of cryptocurrency, please contact mr. W.G.G. (Woody) Jansen de Lannoy or mr. T.J. (Thijs) Droog. Should you have a criminal law problem related to cryptocurrency, mr. E.G. (Ilse) Engwirda will be happy to assist you.