Accounting for crypto-assets in Luxembourg: a guide

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The recent turmoil in the US banking system has presented a new opportunity for the crypto market. Despite this difficult environment, the financial sector has seen growing interest in this asset class. Major banks are forming specialist groups dedicated to blockchain technology and cryptocurrency, while institutional investors, especially those focused on alternative funds, find the efficiency of fund tokenization appealing.

In the EU and Luxembourg in particular, there have been new developments in the world of crypto assets. The Commission de Surveillance du Secteur Financier updated its Virtual AssetsUndertakings for Collective Investment FAQ on April 6, 2023. Essentially, the FAQ states that Luxembourg alternative investment fund managers investing in virtual assets through one or more target funds are not required to apply for another-other virtual asset fund license. At the EU level, progress should be made following the decision of EU central banks to launch the implementation phase of its central bank digital currency project in the third quarter of 2023.

Crypto assets are becoming more prevalent and the trend is expected to continue. However, this new asset class raises an important question: how should crypto assets be accounted for under Luxembourg GAAP?

Currently, there are no specific Luxembourg guidelines or regulations for the accounting treatment of crypto assets. It is therefore difficult to anticipate what might be an acceptable accounting treatment under Luxembourg GAAP.

However, examples can be drawn from French and international standards such as IFRS. In 2019, the Accounting Standards Authority (ANC) in France published guidance (in French standards) on the accounting treatment of cryptocurrencies, while the IFRS committee also provided guidance on the subject.

Below are examples of different classifications that may apply to crypto assets.

Most crypto-assets could fall within the definition of intangible assets in IAS 38. This approach has been validated by the IFRS crypto-currency committee on the grounds that:

(i) It may be separated from the holder and sold or transferred individually; And

(ii) It does not entitle its holder to receive a fixed or determinable number of monetary units.

This could, in principle, apply to all crypto assets held for long-term investment purposes, and especially those for which IAS 2 does not apply (see inventory below). Moreover, in French standards, the ANC has validated this approach (but not for all cryptographic assets) with the possibility of amortizing and/or depreciating the assets.

If an entity (broker-dealer) intends to sell crypto-assets in the normal course of business or resell them in the near future, it can apply IAS 2 to treat the crypto-assets as inventory. This approach has also been validated by the IFRS Committee.

Crypto assets such as bitcoin and stablecoins are increasingly used as a means of exchange for goods and services. El Salvador became the first country to make bitcoin legal tender in September 2021, offering financial incentives to those who use the cryptocurrency for payment. Big companies are following suit, with brands like Balenciaga and Gucci, under the Kering group, accepting crypto payments. The partnership between Shopify and crypto.com allows merchants to accept payments in 20 different coins. More and more restaurants are also accepting such payments, including popular chains like Subway, Starbucks and Taco Bell.

However, even though some cryptocurrencies can be used as a medium of exchange for goods or services, the IFRS Committee has concluded that cryptocurrencies are not cash (or cash equivalent). Indeed, they do not present the cash characteristics as described in paragraph AG3 of IAS 32.

As the importance of crypto assets increases, the industry would benefit from guidance on the accounting treatment of these assets. Players in this space will need to exercise professional judgment and expertise, not only for accounting, but also for tax and legal purposes. This is fundamental for those wishing to capitalize on potential opportunities and address current and future challenges in this changing landscape.

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