The Irish Revenue Commissioners have produced a guidance manual on the taxation of cryptocurrencies and anyone holding, trading or accepting cryptocurrencies should take note, as should their tax advisors.
The purpose of the manual is to give guidance on the tax treatment of various transactions involving cryptocurrencies and to remove much of the uncertainty surrounding how cryptocurrencies are treated from a taxation perspective.
As with any other economic activity, the treatment of cryptocurrency related income received or charges made will depend on the particular activities and the parties involved. Tax advisors must continue to apply the relevant legislation and case law to determine the correct tax treatment. Each case will still be considered on the basis of its own individual facts and circumstances. Importantly for the growing number of businesses which accept payment for goods or services in cryptocurrencies, there is no change to when revenue is recognised or how taxable profits are calculated. Where there is an underlying tax event on a transaction involving the use of a cryptocurrency there is a requirement in the tax code for a record to be kept of that transaction which will include any record in relation to the cryptocurrency. Therefore, no special tax rules for cryptocurrency transactions are required.
The manual goes on to explain how cryptocurrencies will be assessed for income tax, CGT, PAYE, and Corporation tax. Interestingly the manual sets out the VAT treatment in some detail. It states that 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.
Revenue acknowledges that many cryptocurrencies, such as Bitcoin, are traded on a number of exchanges. Unlike shares or commodities, the value of the cryptocurrencies may vary between exchanges. Therefore, there is not always a single “exchange rate” for cryptocurrencies. Therefore, Revenue expects a reasonable effort to be made to use an appropriate valuation for the transaction in question.
The guidance manual issued by the Revenue Commissioners is very clear, almost surprisingly so, and is very much in line with the expectations of the experienced taxation experts whom I have spoken with on this subject. This clarity from the Revenue Commissioners is to be welcomed and can be viewed as another step towards the mainstream adoption of cryptocurrencies.