Additional guidance on Belgian tax treatment of cryptocurrency gains
Could gains realised on the sale of virtual currency (Bitcoin among others) be taxed as miscellaneous income? If these gains would derive from "speculation" they would be taxable, unless the applicant can prove that the gains relate to "normal transactions of management of private wealth". In its 2017 annual report, the Belgian ruling commission sheds additional light on tax treatment of cryptocurrency gains.
In several prefiling requests, the question was asked to the ruling commission whether the gain that would be realized on the sale of virtual currency (Bitcoin among others) would be taxed as miscellaneous income as provided by Article 90, 1° of the Belgian Income Tax Code (i.e. taxation of gross gains at +- 35%)
The applicant had acquired cryptocurrency at various occasions between 2014 and 2016. In the course of 2017, these cryptos would be sold with large gains.
The question was essentially whether or not such gains would derive from "speculation", in which case they would be taxable, unless the applicant would be able to prove that the gains relate to "normal transactions of management of private wealth".
The ruling commission's report quotes Belgian's Supreme Court (Hof van Cassatie), which defined speculation as follows:
Acquiring goods with the risk of loss but with the expectation to realize gains upon reselling the goods because of appreciation thereof
According to the ruling commission, speculation does not require that the reselling occurs shortly after the acquisition, but case law would emphasize that the tax subject takes a risk with the hope to obtain a profit.
Further, speculation would require:
- the taxpayer takes an important risk upon acquisition; and
- the intention to realise important gains has to be clearly present at the moment of acquisition.
Applied to the case at hand, still according to the ruling commission:
- there was a risk of loss upon acquisition of the cryptocurrencies. In fact, the National Bank of Belgium, the Financial Services and Markets Authority and the European Banking Authority, as quoted by the press, have warned the public at several occasions about the risk involved in cryptocurrency trading. Furthermore, a there is no body exercising prudential supervision and the deposit guarantee mechanism as exists for bank accounts does not apply to virtual currency.
- at the moment of acquisition of the cryptocurrency, there was already the anticipation of the increase of the value of the goods within a short period of time. In any case, the acquisition would have been done with the purpose to realise profits within the short or long term as a result of the increase of the market value of the acquired securities.
The exception that the gains would relate to "normal transactions of management of private wealth", excluding taxation of any gains, would not apply in the case at hand. The phrase would refer to the management of private wealth by a bonus pater familias, a normal prudent head of a family. The transactions would not be normal transactions of management of private wealth because of:
- the amounts invested;
- the frequency and the number of the acquisitions;
- the risk inherent to virtual currency and the platforms on which these are traded.
The above corresponds to the general view on cryptocurrency gains expressed by the ruling commission in an earlier press release. While the ruling commission generally displays some degree of flexibility in applying rigid tax laws and regularly goes against the views of the central tax administration, the proliferation of ruling decisions confirming absence of taxation of cryptocurrency gains, was clearly to be avoided for reasons of tax policy.
One thing is clear, it is unlikely that the ruling commission will grant positive decisions on the absence of taxation of cryptocurrency gains as miscellaneous income, unless where the absence of speculation and the presence of normal management of private wealth would be crystal clear (for instance one single acquisition of ten Bitcoins in 2012 out of curiosity and selling in one go five years later, without any other crypto transactions). However, in less straightforward cases, it appears that taxpayers are de facto being deprived from a very important instrument of Belgian tax law and cannot obtain legal certainty prior to filing their income tax returns.
That is a pity, as there are cases where the assessment of speculation and/or normal management of private wealth is far less clear-cut than would appear from the above. In fact, the risk inherent to virtual currency and the platforms on which these are traded is relative because it depends from case to case and moreover is in itself not sufficient to prove speculation. Moreover, amounts relative to total wealth and frequency of acquisition and selling vary from taxpayer to taxpayer. There is abundant case law and there are enough positive ruling decisions with respect to capital gains on shares and other securities that support a more flexible approach towards the assessment of taxability of cryptocurrency gains. Taxpayers subject to Belgian income tax who have realized cryptocurrency gains must now decide whether or not they will mention the gains in their tax return (there is no option to explicitly claim non-taxation in the tax return). Such taxpayers would benefit from professional tailored advice prior to filing their returns.