(Finance) – “The world of law is often, and inevitably, lags behind new technologies, in the presence of which existing rules are applied – discovering them with an applicative scope that the legislator himself, at the time of their entry into force, he had not envisaged, nor could he have foreseen – or new ones are being introduced. If we look at the history and evolution of the blockchain, from the debut of Bitcoin in 2009 to the affirmation of Ethereum, and to the whole world of the DEFI that has developed up to now, there is a peculiarity compared to the past: applying existing rules or elaborating new ones is much more complex, as at the basis of these new technologies there are concepts that, for those who do not work in the sector, appear obscure and often counterintuitive, but above all they have nothing in common with the cases regulated by the current provisions “. To analyze the ways in which Italian law, and in particular tax law, sees cryptocurrencies and phenomena related to the blockchain, from the claims of the Revenue Agency to the point of view of the civil judge, is Carlo Cicala, partner lawyer of the Cicala-Riccioni & Partners law firmwho recently spoke on the subject al Crypto Expo Milan (CEM).
What is, from a legal point of view, the main problem that the blockchain world currently poses?
“Among the legal sectors that first had to deal with the challenges posed and the uncertainties raised by new technologies there is undoubtedly the tax sector, where – by definition – there is always a tendency to look for a rule ‘at any cost’. The tax part, in the face of every new phenomenon, is the one that imposes itself first. The tax authorities, including our Revenue Agency, cannot escape the confrontation with the new cases and the related problems. very quick, given that the tax return is presented every year, and taxpayers ask for instructions “.
On the front of income taxes and VAT, what are the indications of the Revenue Agency?
“As far as exchanges are concerned, the crypto / FIAT exchange activity is not subject to VAT, extending to it the exemption regime provided for traditional ‘money changers’. This position of the Inland Revenue derives from a well-known ruling of the Court of Justice of the European Union, which in 2015 qualified cryptocurrencies as an ‘alternative means of payment to traditional means of payment’. an operating income, and is considered, and taxed, as a positive component of income. As far as investors are concerned, the Inland Revenue believes that the possession of cryptocurrencies is comparable – under certain conditions – to the possession of foreign currencies. It is therefore necessary , first of all, indicate the amount that you have in part RW of the return (monitoring obligation). This does not mean that you must necessarily pay taxes, but in case of failure to report in Part RW the penalties are quite high. As for the income implications, and always following the indications of the Revenue Agency, the obligation to pay taxes can arise – as in the case of the possession of foreign currencies – only if the average balance in the wallets exceeds an equivalent value of 51,645.69 euros. for at least seven continuous working days in the tax period. Which still does not mean that you have to pay taxes. The tax is actually due, in fact, only if a capital gain is realized from the exchange (‘spot’ transfer) of virtual currencies, to be subjected to a substitute tax of 26%. ‘Holdare’ currencies does not determine the application of the tax, while also the crypto / crypto exchange (if a capital gain occurs), according to the Tax Agency’s approach, would determine the application of the tax “.
Is the assimilation between traditional FIAT currencies (foreign) and cryptocurrencies by the Revenue Agency correct?
“The two ‘currencies’ are something completely different. Just remember that, unlike FIAT currency, the ‘possession’ of a crypto – except in the case in which it is held by the exchange – involves the ownership of a private address which, in blockchain, corresponds to a certain amount of ‘virtual currencies’. Nothing to do with’ foreign currencies’, nor with the ownership of current accounts with banks, much less with the holding of cash. Furthermore, the assimilation of crypto to ‘foreign currencies ‘, which the Revenue Agency has supported since 2016, was denied by the definition of’ virtual currencies’ offered, in 2019, and on the impulse of EU legislation, by the Italian legislator, on the prevention of money laundering criminal (so-called ‘anti-money laundering’ discipline). The ‘virtual currency’ has in fact been defined as a ‘digital representation of value’ to be used as a ‘medium of exchange’ or for ‘investment purposes’. on the basis of Italian law itself, and following the indications issued by the European institutions, we are very far from ‘foreign currencies’, which, by their nature, are a ‘means of payment’ and not a ‘means of exchange’. The Revenue Agency, however, reiterated its position also in 2021, regardless of the different regulatory solution applied, as seen, and albeit in another legal sector, two years earlier, irreconcilable with the alleged assimilation of the ‘virtual currency’ to the ‘foreign currency’. But there is more. All the regulations that the Revenue Agency deems to apply (both as regards monitoring and, above all, as regards taxation) refers to ‘foreign currencies’ held on (and then withdrawn from) deposits or current accounts. We therefore refer to cases in which, as in the deposit or current account, the taxpayer has entrusted the custody of their currencies to a third party. However, in the world of crypto this may very well not happen, since private keys can also be kept via a personal hardware wallet. In these cases, therefore, it goes even further out of the field of application of the standard “.
Are cryptocurrencies foreclosure?
“On this front too, from a practical point of view, various critical issues arise, most of which are related to the difficulty of assimilating cryptocurrencies to traditional currencies. In general, the holding of currencies entrusted to a third party establishes a relationship of credit between me and the third party. In other words, I am a creditor of my bank of a sum corresponding to the sums I deposited. This allows my creditors, if they have obtained a judicial title, such as an injunction, to seize the my credit towards the bank, that is to make sure that the money that the bank owes me to be paid to my creditor It is a phenomenon, that of the foreclosure of the current account, which we all know and which integrates a particular case of foreclosure with third parties. In the case of crypto held (i.e. whose private keys are kept) in a personal hardware wallet, there is no third party to carry out the foreclosure, and the foreclosure at ter zi is therefore impossible. On the other hand, it is extremely difficult, if not impossible, from a technical point of view, to foreclose cryptocurrencies from the debtor, that is, from its holder, as it could be done for any movable asset such as gold, watches, cash “.
Can the application to cryptocurrencies of the tax envisaged for capital gains on stocks in “foreign currencies” be contested?
“The approach of the Inland Revenue is open to criticism, since, in hindsight, a specific tax rule, which confirms the position taken by the Italian tax authorities, does not exist. And indeed, two proposals have been presented to the Chamber and the Senate very similar, which expressly provide for the obligation of monitoring, and always expressly provide that capital gains contribute to form the taxable income. None of these proposals, however, has, to date, been translated into law. Faced with this regulatory vacuum, the response of the Revenue Agency has been, up to now, to apply, in any case, to cryptocurrencies, even at the cost of ‘forcing it’, the rules envisaged for an (allegedly) ‘similar’ case, and therefore for ‘foreign currencies’ . Currently, therefore, in the abstract, it is possible to challenge the tax approach, arguing that it is not possible to apply to cryptocurrencies the tax envisaged for capital gains on stocks in ‘foreign currencies’. she of the Tax Commissions, that is before a third and impartial Judge both with respect to the Taxpayer and to the Taxpayer, who could request the cancellation of the tax claim on the assumption that, lacking a specific tax rule that subjects crypto to taxation, no tax is due and, in any case, no sanction could be applied, given the objective regulatory uncertainty and the necessary protection of legitimate expectations. Moreover, and as we have seen, the proposed laws are still being discussed: if there is a need to introduce an ad hoc discipline, it can be concluded that those currently in force do not allow crypto tax to be taxed. The question, in essence, is part of two constitutional principles: the one established by art. 23, according to which no personal or patrimonial performance can be imposed except on the basis of the law, and that contained in art. 53, according to which all are required to contribute to public expenses by virtue of their ability to pay “.
What are the practical obstacles?
“First of all, the Tax Authority has the possibility of issuing executive deeds without any prior judicial control. The taxpayer – investor can challenge the assessment before the Tax Commissions and ask the Judge that the enforcement of the assessment be suspended while the proceedings are pending. , at the same time, it must take action by bearing the costs of an appeal and trust in its success. If it is not activated, the claim of the Agency becomes definitive. Furthermore, in our system, where the judicial precedent is in principle not binding. , it is not possible to predict the outcome of a tax judgment and, above all, it is possible that identical cases will be decided differently by different Tax Commissions. It can take years for a uniform decision criterion to be reached. , the risk is to be forced to pay the unpaid tax and the penalties (which are equal to at least 90% of the unpaid tax) . It is theoretically possible that sanctions will be eliminated in the course of the trial due to ‘regulatory uncertainty’, but in judicial cases it is not very frequent. Finally, if it is true that the same regulatory definition given in the ‘anti-money laundering’ discipline provides an excellent argument for denying the assimilation of cryptocurrencies with ‘foreign currencies’, it must be borne in mind that what is valid in a sector of the legal system is not always relevant. also in the field of tax law. It may well be, therefore, that in the field of tax law a qualification of ‘virtual currencies’ different from that valid in other sectors is required “.
Could there be another way?
“In the context of objective uncertainty illustrated so far, for those who, for the utmost prudence, intend to pay or have already paid taxes on the basis of the qualifications and to the extent required by the Revenue Agency, the possibility of submitting an application for reimbursement, the denial of which can be independently challenged before the Tax Commissions “.