Crypto taxation: the new finance law

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A veritable marathon where obstacles, even of a procedural nature, were not lacking on the road to approval, mostly due to skirmishes in the courtroom between the political forces of the opposition and those of the government : here is the point on crypto taxation in Italy.

As expected, the final approved version of the text does not deviate significantly from the source text. On the other hand, the maneuver was armored with the imposition of confidence, in order to cross the finish line by the end of December and thus dismiss the specter of the provisional exercise.

It is a maneuver in which tax measures take center stage and, for the part that affects users and operators in the world of cryptocurrencies, see for the first time the light of tax provisions expressly dedicated to what are called “crypto-assets” in the law and of which we have largely anticipated in these columns.

The provisions have been brought together in paragraphs 126 to 144 of article 1 of Law 197/2022.

As far as the crypto world is concerned, the central aspect lies in the creation of an ad hoc typology of capital gains income from crypto-asset transactions within the broader category of income. various.

With regard to this type of income, a substitution tax of 26% is introduced, which is triggered when capital gains in excess of EUR 2,000.00 are accrued.

For the past, the law specifies that any income derived from transactions on crypto-assets falls within the scope of so-called miscellaneous income (art. 67 TUIR), therefore subject to the substitution tax as it was previously regulated. That is still 26% on capital gains, which are only triggered in the event of holding assets whose equivalent value exceeds the threshold of 51,645.68 euros for seven consecutive working days.

Another principle that has been enshrined in the finance law is the obligation to declare crypto-assets for the purposes of controlling foreign assets, and therefore their registration in the famous RW form of the tax declaration.

There are then a number of provisions aimed at bringing to light held crypto-asset holdings and addressing non-reporting in Form RW in the past.

As already written in recent weeks, this law has advantages and disadvantages.

It is certainly positive that the way has been opened for explicit regulation of the tax aspects affecting cryptocurrency transactions and, more generally, the various crypto assets.

This way, at least, there can be a modicum of additional clarity and awareness for taxpayers and some check on the all too often arbitrary and contradictory interpretations of financial offices.

On the other hand, there are still many, too many aspects that this law leaves unanswered.

And if (as we see) one of the main objectives that the legislator intended to pursue was the emergence of a taxable matter related to the world of cryptography, the way this law is drafted, it is not certain that this objective will be achieved.

Let’s see why.

Limits and infrastructure of the new crypto taxation

First, underlying the various tax obligations established in the new law is the concept of “crypto-assets”. That is to say, there is no recourse to the concept of “virtual currency” as defined by the anti-money laundering legislation (Legislative Decree 231/2007).

According to the newly passed law:

“The term cryptographic asset means a digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology.”

If the definition contained in the AML law was already too broad, even compared to the definitions established at European level, the newly introduced concept of “crypto-assets” ends up subjecting any type of good, immaterial asset or application to the same tax treatment, simply because they are based on distributed ledger technologies.

In other words, the regulations do not take into account the differences in function of the (many) different types of crypto assets.

So, for example, the holding and resale of an NFT that represents a work of art for tax purposes ends up being regulated in exactly the same way as the holding and resale of a cryptocurrency that has the function a means of payment: thus potentially subject to the substitution tax and appearing to be subject to the same reporting requirements in the RW form.

If the artist who created it chose to create the same work of art in physical form, rather than in digital form on a non-fungible cryptographic file, whoever would become its owner would be subject to completely different obligations: no capital gains substitution tax; no declaration in the RW form (if the work remains physically in Italy).

A problem closely related to the introduction of the new substitution tax (which largely replicates the pattern of the substitution tax on capital gains and foreign exchange) is that it still remains laborious and debatable to determine the basis of calculation on which to determine the differential realizable value in determining whether and by how much a capital gain (or capital loss) has been realized.

Indeed, in the absence of official scales and in the presence of quotations which can be significantly divergent according to the different platforms (some living from arbitration), the determination of the basis of calculation lends itself to being questioned too easily. Thus, the risk of being subject to audits and controls despite compliance with reporting obligations is far from negligible.

Tax competition in the crypto world

Now, given that the 26% tax rate isn’t exactly cheap, and given all of the possible additional complications, it’s easy to predict that, in particular, those who end up having accumulated wealth in cryptographic assets of all kinds (therefore not only two-way crypto-currencies, but also NFTs, or tokens of various natures and with various functions), whose equivalent value today is of a non-negligible magnitude, could find it much more convenient to move their tax residency to countries where taxation on crypto assets is clearer and less aggressive. You don’t need to be in Dubai for this. Switzerland and Portugal are just around the corner and much more crypto-friendly.

On the other hand, the finance law, in its article 133, offers the possibility of determining the capital gains as an alternative to the purchase or purchase value, using the criterion provided for in article 9 of the TUIR , which is basically what is called their “normal value”. by the standard. This option can only be exercised on the condition of paying a substitution tax of 14%.

It is necessary to mention now that for an ordinary taxpayer to understand how the normal value must be determined according to the test governed by art. 9 (and thus understand the real usefulness of using this quantification criterion) can be a source of headaches that only the help of a good accountant (as well as the use of a good dose of aspirin) could alleviate .

Another issue: under the new law, crypto-assets are subject to monitoring obligations, i.e. their declaration in the RW form. However, the way the rule is written, a crucially important knot is not unraveled. Namely, whether this obligation is triggered indiscriminately or only when the crypto-assets can concretely be qualified as foreign assets.

It should be recalled, in fact, that the Italian Revenue Agency (Agenzia delle Entrate) itself, in response to an interpellation a few months before the adoption of the law, affirmed the principle that if crypto- currencies are held in a custodial wallet at an exchange platform under Italian law, there is no reporting obligation, in the event that the private keys of the wallets in which the cryptocurrencies are allocated are held in Italy.

This risks opening the door to possible disputes over reporting obligations, also because, let’s not forget, since 2022 all stock exchanges, to operate in Italy, are de facto, by express provision of the law and related regulatory regulations, under Italian law, as they can only operate by creating at least one permanent establishment or legal structure in Italy and obtaining registration in the OAM register.

The issue is also of particular importance because specific provisions are included in the new law, the ultimate goal of which is to provoke the emergence of crypto assets already held by Italian taxpayers, through a kind of amnesty in cases of non-declaration for the past, the amount of which varies depending on whether capital gains have been realized or not.

In the event of no income, for each year of holding undeclared crypto-assets, 0.5% of their equivalent value; in the event of realization of income, on the other hand, 3.5% of the value of the assets held will have to be paid (again for each year of holding) plus an additional 0.5% as penalties and interest.

Thus, in this case, the amnesty is decoupled from the actual amount of the capital gains.

Crypto taxation: lack of clarity even on anti-money laundering measures

Now, in addition to the difficulty of objectively and uncontroversially establishing the size of the counter value, the fact that it is not clear if and when the holding of crypto assets should be reported in RW form, there are reasons to believe that this will also greatly condition the choice of whether or not to accede to this form of amnesty.

Another chapter on which it is to be expected that there will be no lack of doubts and possibilities of litigation is that of the provision (paragraph 142) which provides that this type of, say, “regularization” does not have any effects only on the income and the non-application of sanctions, but it remains firm on “the demonstration of the legality of the origin of the sums invested”.

It remains however to understand how such a demonstration can be provided.

In fact, one of the problems with this law, even in light of this specific provision, is that it lacks a link with the anti-money laundering provisions currently in place, and it remains to be understood how it will be able to connect with the regulatory framework that could be significantly implemented in 2023 following the adoption of important European legislation, from the remittances regulation to the new AML directive.

In a nutshell, the risk is that Italian taxpayers, after having paid substantial taxes, end up with a number of assets which they may not be able to take advantage of due to the significant restrictions in the field of the fight against money laundering.

It would have been reasonable, of great interest, and a strong incentive for emersion, for the legislator to have provided for a kind of anti-money laundering “safe-conduct” by which, after fulfilling their tax obligations, a form presumption on the legitimate origin of the assets would be triggered, including for the purposes of their bankability.

The possibility of improving the legal provisions is still there, in the meantime, however, other countries are applying for the role of hub and creating favorable conditions to attract economic and financial initiatives, capital and digital nomads.

Hopefully the new law can be the first step in building a system that is receptive to innovative companies, and doesn’t just remain an end in itself to scrape the bottom of the barrel by squeezing some extra revenue for the treasure chests.

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