The Irish Revenue has issued an eBrief to clarify how “normal tax rules” apply to transactions involving cryptocurrencies.
The eBrief, published on the Revenue’s website on May 15, states that the treatment of income received from and charges made in connection with activities involving cryptocurrencies will depend on the activities and the parties involved. Therefore, the relevant legislation and case law must be applied to determine the correct tax treatment. The brief stressed that each case must be considered on the basis of its own individual facts and circumstances.
For businesses that accept payment for goods or services in cryptocurrencies there is no change to when revenue is recognized or how taxable profits are calculated. Businesses are required to maintain records of any transactions in relation to cryptocurrency where there is an underlying tax event. As such, no special tax rules for cryptocurrency transactions are required, the eBrief states.
The eBrief sets out the treatment of cryptocurrency transactions under income tax, corporation tax, capital gains tax, value-added tax, and pay-as-you-earn (PAYE) wage withholding as follows:
- For income tax purposes, profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in the business’s accounts and will be taxable on normal income tax rules;
- For corporation tax purposes, profits and losses of a company entering into transactions involving cryptocurrency should also be reflected in accounts and will be taxable under normal corporation tax rules. The eBrief also clarifies that cryptocurrencies are not a functional currency for the purposes of preparing tax accounts;
- For capital gains tax (CGT) purposes, gains and losses incurred on cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for corporation tax, on chargeable gains if they accrue to a company.
For VAT purposes, the Revenue, taking into account the European Court of Justice ruling in the Hedqvist case (C-264/14), regards Bitcoin and similar cryptocurrencies as “negotiable instruments” and therefore exempt from VAT. Financial services consisting of the exchange of bitcoins for traditional currency are VAT-exempt where the company performing the exchange acts as principal (i.e. buys and sells cryptocurrencies acting as the owner of the virtual currency).
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.
For PAYE purposes, where emoluments payable to an employee are paid in a cryptocurrency, the value of the emoluments for the purposes of calculating payroll taxes is the euro amount attaching to the cryptocurrency at the time the payment is made to the employee.
It terms of valuing cryptocurrencies, the eBrief states that a “reasonable effort” should be made to use an appropriate valuation for the transaction in question, given that the value of cryptocurrencies may vary between different exchanges.