Topic: Tax when buying bitcoins in an exchange (Read 6043 times)

Out of curiosity, did you get this in writing? Is advice given by whoever you asked binding, or is it more "as far as we know at the moment"?

You can ask government officials many things, but their words may often not be legally binding.

Could you please tell me what was a process of confirming that bitcoins are not a financial instrument?  If you mentioned somewhere else could you post a link to that post. Thank you.

Dont admit to anything (tm)

The three months have elapsed without any answer: that means I can apply the tax treatment I presented until the law changes and it wont be retroactive.

In most countries, VAT (or a similar tax) will be paid by the seller, not the buyer. So you should expect the exchange you are using to be paying the tax if they have to. If they happen to reside in a country where the VAT has to be indicated, you should have received an invoice stating the tax amount, otherwise they'll most likely not have paid the tax.

If you want to run your own exchange, it depends on you local laws. But most countries will have some regulations to prevent double taxation of VAT for the same goods, and to prevent VAT to be added to the purchase price of used goods on their resale. You should look at how your country's tax laws handle these cases, then you'll probably be able to come up with a strategy for having the tax applied to only your service fees. This might well require some record-keeping to be done.

When BTC is accepted as a currency in a country, this issue will most likely be greatly simplified. On the other hand, it might not be advisable to press for such a change as this would cause many interesting new services invented by BTC-enthusiasts to be subject to banking laws.

Anyone feel like admitting they paid capital gains taxes on their US tax return due April 17, 2012?

I haven't found anyone yet, but I'm sure there's someone out there who made enough money that they are willing to share some with the US govt!

https://bitcointalk.org/index.php?topic=73632.40

They came back to me just now as well, so I guess I have you to thank. Probably we're the only two people that bought it with Bitcoin :-).

After not receiving a response from HowToVanish, I contacted RunToGold. They gave me a direct link to the download and said they corrected the mistake.

Yes, some EU businesses, particularly those that have low turnover are typically VAT exempt. Also, currency (as in that declared so by states) is VAT exempt. There are some further exceptions, e.g. some gold sales (not all though).

There is the EU VAT for e-services directive, which applies to digital services such as Skype. If you are selling digital services/goods to EU citizens, you have to register for VAT in one of the EU states and charge VAT (unless, obviously, you already are registered for VAT). As far as I know, there is no minimal threshold for this.

My point was more directed towards a situation where there already is a merchant selling some goods and he wants to get into Bitcoin by selling them to his customers. The second issue is imports: normally the customs charges you VAT upon import of goods. Maybe this also applies to Bitcoins, I don't know. The other cases where the VAT comes into play are probably not a big issue.

I was just looking at Swiss and UK VAT:
In Switzerland your revenue has to be at least 100'000 CHF (~100'000 dollars, 70'000GBP), meaning most people would be exempt. In the UK there is a limit of £73'000 for VAT registration. Thus most individuals in those two countries would be exempt. If you go above these limits you have to register for VAT, but I'm not yet sure whether you would be required to charge VAT on bitcoin sales (Gold for example is exempt in both UK and CH if for investment). [On a related note Skype charge VAT when you buy skype credit, i.e. if I buy 5 CHF skype credit I get charged 5.08 CHF since VAT is 8%. But skype credit is quite different to bitcoin.]

With respect to exchange's fees: I'm not fully certain as to what the status is there. Ebay has to charge VAT on their fees, I'm assuming something similar is the case with exchanges based in the EU for EU customers. On the other hand since I'm not an EU resident but use a EU exchange I should then not have VAT charged, which makes things complicated for the exchange -- I would also have to look into whether I need to pay Swiss VAT on online services abroad... When goods are sent by post, if I would have to pay less than 5CHF VAT then the VAT is waived -- with the amounts I buy and since fees are even smaller by comparison, I would be exempt.

// Update: turns out that by offering services in Switzerland you make yourself liable to swiss taxation laws. I.e. by delivering services online to Switzerland you are acting as if you were active in Switzerland as well. This would only affect any business being offered in Switzerland, and I assume that the volume of sale there would be minimal, meaning VAT could be ignored by exchanges offering services in Switzerland.

Under French law, the administration may take up to 3 months to respond. If they dont, that means I can apply the treatment I presented until the law changes and it wont be retroactive.
Given the subject matter, I doubt that they will take much LESS than 3 months

Meni,

I had the same problem (wrong book, no replies). Ended up buying the book on amazon (kindle edition).

I bought this ebook but got a different ebook instead. I tried contacting the author but got no reply. Anyone able to upload it somewhere?

A lot of the arguments he made are applicable to EU and Canada, I agree, but some are not. Here are some that I found out:
- EU has a directive for e-money, however it most likely does not apply to Bitcoin, because it makes the assumption that e-money is a debt instrument
- he claims that forex losses are not deductible in the US, whereas a google search shows that in many other countries, they are (also my own experience supports this)
- in countries with a general sales tax (e.g. VAT in the EU, GST in Canada), if Bitcoin trades are barter goods, it looks like this sales tax is to be levied when sold. US does not have this

A CA lawyer has written a guide A Lawyer's Take On Bitcoins And Taxes. From a US perspective but some of the principles or arguments may be applicable to those in other jurisdictions like Europe or Canada.

Did you get the answer?

Interesting thread.
I am writing to the tax authorities of France to ask them if bitcoins can be treated as "digital gold", i.e just like gold for tax purposes.
The argument I am making is that bitcoins cannot be treated as a security nor as a currency since there is no issuer.
I cite the 1998 European Directive that states that gold as a store of value is exempt of VAT so I have the benefits of two options to chose from:

1/ 8% on the amount of the sale (for instance when selling bitcoins that I mined)

2/ 31.3% on capital gains when I sell if I can document my prior purchase. In this case I get a 10% discount for each year of the holding period starting with the third year (i.e. no more taxes after a 12 year hoolding period). If I cannot document the purchase then I am going with the 8% rate on the total amount of the sale.

I'll keep you posted on the answer I get from the administration.

I prefer to read the actual legislation which is why I posted the link to Canadian Excise Tax Act that applies to the GST. There is a critical difference between "money" and "currency" here as Bitcoin clearly qualifies as "money" but is not "currency".

Interesting topic.

I'm quite confident that it will not qualify as an official financial instrument. At least in Finland it doesn't. I verified this from the financial regulators of Finland. It then applies to VAT because everything applies to VAT except the exceptions and at least in Finland it doesn't qualify for any of the exceptions.

So if you're not sure about it, simply ask the financial regulators in your country and find out.

First the disclaimer: I am not a lawyer

The question here is whether Bitcoin is subject to the Good and Services Tax (GST) in Canada. The GST is the Canadian version of a value added tax.  The relevant legislation is the Excise Tax Act http://laws-lois.justice.gc.ca/eng/acts/E-15/page-94.html#h-71. It may come down to whether Bitocin is considered "money" which is defined in the act as follows:


There is probably a good case here under "and other similar instrument" for the position that Bitcoin is "money" and therefore not subject to the GST, given that its purpose is its use a medium of exchange in trade.

Yeah, you should?
But we would really need someone more competent to comment on this.

wait a minute what about capital loss?
can i claim that on my taxes!?

Exchanges don't sell bitcoins, they offer you a service. They earn commissions and pay taxes on those commissions.

Bitcoins are bought and sold by two individuals.

Depends on the country.
For example in Poland I have to pay 2% tax upon registering a second hand car (2% of the price paid for that second hand car, but if the price is considered too low by the Revenue Service they will ask for 2% of the car's market value, same goes for real estate, etc. but that's off topic). Most companies, however, are exempt from this tax.

I think that only the BTC exchanges should be paying taxes from profits they make from exchange fees.
As for BTC buyers - tax paid from capital gains?


In all probability the VAT tax is already included in those .99 cents.

This is a question that does not have a simple answer. I found a 16-page small print PDF from the tax administration of Finland that was explicitly about the use of VAT when selling used items. It apparently depends on a lot of things, but the general answer is that if it's a clear case of "double taxation" then you do not have to pay VAT. But again, this depends on who the seller is, in what use the item was and if it was originally bought with VAT included. That is important because companies can buy stuff without VAT.

This is incorrect. Exchanges are affected by VAT, at least in most countries that have VAT. The fact that the commodity is virtual is not a reason to not pay VAT, that's ridiculous. Everything is in the domain of VAT except the exceptions and there are not many of them. Financial instruments are an exception but bitcoins are not a financial instrument as I've already mentioned. This is how it is in Finland, the VAT laws might be different in other places though.

In case of an exchange, it's not the same as if you were directly selling bitcoins. It's totally different. If you were directly selling them, you'd have to add the VAT to the price of the bitcoins being sold, which would be ridiculous. No one does it that way.

Exchanges don't actually sell bitcoins, they offer a service. But now it's important to remember that not only are all commodities in the domain of VAT, so are all services (with some rare exceptions of course). The exchanges provide a service and the fee they take from each transaction is something that must include VAT unless the exchange is based in a country that doesn't have it. Or if the VAT laws are crappy (well, not crappy from the exchange's perspective but full of holes from any other perspective).

If I'm wrong about this I'd certainly like to know because I'm just about to start a company that will broker bitcoins from an exchange to my clients and vice versa. This is from a taxation perspective the same thing that exchanges do, so I need to include the VAT into the fee that I take from the brokering. I really can't find any loopholes that I could use to avoid VAT, the Finnish VAT law seems fairly strict and has no exceptions that apply, now that I confirmed that bitcoins are not a financial instrument.

This might be the case in Israel, but in EU there is a directive "VAT on electronic services". Merchants outside of EU selling certain electronic goods/services to EU citizens must register for VAT and collect it. Whether this applies to Bitcoin is unclear. Exchanges are probably not affected, since they are not the seller.

I agree.

This is the best way to help legitimate Bitcoin and put some light on the good things we can and should do with Bitcoin instead of having SilkRoad thow in our face every time Bitcoin is mention in the media.

The taxation issue for Bitcoin is interesting. One thing I can say for sure is that it is NOT a currency. The definition from a taxation law standpoint is "virtual commodity". This is the case at least in Finland, I had to verify all of this from the Finnish financial supervisory authority because I'm starting a business that will sell bitcoins.

I have to add VAT (value added tax) to the price of bitcoins but to go around the problem of needing to add 23% on top of the whole amount (which would create a ridiculously high price for the coins), my business will actually do brokering for our customers so in principle we use the money deposited to us to broker bitcoins from an exchange to our customers and then we only have to include the VAT in the fee we take from the brokering.

Another note, I'm pretty sure that there are a lot of Bitcoin enterpreneurs who are either not paying taxes at all or are somehow doing it wrong. My business will do it by the book from the start, that will save me from the troubles to come when authorities start to get more interested in Bitcoin businesses.

https://www.cavirtex.com/faq#taxes

It's clearly written that GST is included in their transaction fee.

I just found this in the forum:

Bitcoin exchange not the same as LD exchange?
https://bitcointalksearch.org/topic/bitcoin-exchange-not-the-same-as-ld-exchange-53458

I don't think gift card can loses or gains value if you let them sit. I'm pretty sure a 100$ gift card will always be worth 100$ no more no less. We can't say that about Bitcoin.

How does work Facebook credit and SecondLife Linden (they have a exchange - LindeX) ? Isn't Bitcoin kinda like those virtual currency?

I'd try to play it like stored value..  you don't pay tax on gift cards right?

Personnal experience, no. But that doesn't mean I should not have paid taxes.


Also


I'm from Canada, Apple knows I'm from Canada since every time I buy or rent something (music, movies, etc.) they send me a bill by email and my physical address is shown. Also, they are registred in Canada (Apple Canada) so they have taxes numbers. I don't know why they don't charge me taxes but they should have. Since I have not paid taxes I should make a declaration of self-assessment.

Anyway, the OP should contact the revenu agency to make sure it won't come back in it's face if he doesn't charge tax on fee or if he doesn't declare capital gains or loses.

The person you are buying them from is not the exchange, it's the person who's selling them on the exchange - it is their responsibility to deal with this tax, not the exchange. The profits the exchange make on the transaction will be dealt with like any profit, and will be taxed depending on where they are located.

Fom the The Carleton Student Engineering Society's Lounge and Store website :

Wow, I miss read the OP.

I still think that if YOU buy bitcoin, be it a exchange or between two individuals, and YOU paid a fee to on top of what the bitcoin valuation, since you are a Quebec resident, you should fill out a form to declare the tax you did not pay.

For the part where you ARE the exchange, you don't have to charge tax. Just think of Canadian Tire money (CDNT) : You can exchange it for money with someone else and not be paying tax as long as the 5 CDNT is exchange for exactly 5 CAD. Now, here the tricky part : BTC/CAD change often. So you have to declare gains or loses as you would do for any financial product. Also, if you charge fee for providing the service of exchanging bitcoin you have to charge tax on those services.

You should consider writing (not calling) to Revenu Quebec to avoid suprises. Also, do as Meni and get a accountant who may know a little more about tax law that we do 

Cheers

This is definitely possible one way or another, but the details probably depend on the country and even the accountant's interpretation of the activity.

Here is what my accountant told me.

So if you buy a bitcoin at $3 and sell it at $3.05, in fact you have provided a service and charged $0.05 for it, so you pay 15% of $0.05 in taxes.

You can argue that bitcoin is a currency and as such you should not pay tax. I'm not sure, but I think you have to pay tax on the fee they charge you. Since they are not registred in Qc, you have to fill a form to declare the amount of tax you should have paid. Also, any capital gain (and loses) should be declare.

Cheers

In Canada (and probably in a lot of countries) most services provided by financial institutions are exempt from tax. But running a bitcoin exchange does not qualify as a financial service.

I think exchanges can get away with tax because it's a transaction between two individuals and unlike enterprise individuals do not need to collect tax on a transaction (like on craigslist). Only the exchange itself as to charge the tax on the service they provide. But for a B&M shop to sell bitcoins for money? I'm sure the government will want you to collect tax on the total cost of purchase.

The exchange I'm using to buy bitcoins charge fees of 0.59% of transaction value. For example, if I buy $100 worth of bitcoins they will charge me $0.59.

If I buy a pair of boots for $100 I need to pay 13.925% in tax or $13.93 (I live in Quebec).

Why are bitcoins different than boot or any other product? Are they different or we are just playing in a gray area? I'm asking this question because I would like to know if it's possible for a brick and mortar shop to offer bitcoins in exchange of money. Customer walk in with fiat money and a smart phone or a qr-code and get out with bitcoins. That service is only possible if the store need to collect tax only on the service fees and not on the total purchase price.


thanks for your inputs