Ireland Clarifies Taxation of Crypto Transactions
Cryptos to Be Treated Under ‘Normal’ Tax Rules
The “Tax and Duty Manual” issued by the Irish authorities attempts to clarify matters related to crypto taxation and mostly confirms that the existing regulations apply to the crypto sector. The document provides guidelines on the tax treatment of various transactions involving cryptocurrencies.
According to the instructions, direct taxes such as corporation tax, income tax and capital gains tax are applicable but each case should be reviewed separately, according to the individual facts and circumstances. In general, businesses accepting crypto payments for goods or services should keep records of all crypto transactions. No special or new rules have been introduced so far and taxable profits should be calculated according to the current tax legislation.
The profits and losses of a company transacting in cryptocurrency must be reflected in accounts and are taxable under “normal CT rules,” the document states. Ireland’s Taxes Consolidation Act from 1997 recognizes that some businesses operate and prepare their accounts in a “functional currency” other than euro. The authors of the manual point out, however, that cryptocurrencies cannot be considered functional currencies as defined in Section 402(1) of the TCA. Therefore, accounts for tax purposes cannot be maintained in crypto. Instead, euro or other fiat currency should be used.
Irish tax officials have explained crypto income taxation, as well. “Profits and losses of a non-incorporated business on cryptocurrency transactions must be reflected in their accounts and will be taxable on normal income tax rules,” the notice reads.
Bitcoin Is Currency as Far as VAT is Concerned
In the absence of common European guidelines on how to treat cryptocurrencies for tax purposes, many member-states have decided to base their VAT (Value Added Tax) policies on a ruling by the Court of Justice of the EU from 2015. The Republic of Ireland is now joining these countries confirming that bitcoin constitutes a currency for VAT purposes.
In result, cryptocurrencies like bitcoin are regarded as “negotiable instruments” and exempt from VAT in accordance with the Irish VAT Consolidation Act of 2010. The manual notes this applies to companies buying and selling cryptocurrencies and acting as owners of crypto holdings. On the other hand, value added tax is due from suppliers of goods or services sold for cryptocurrencies. The taxable amount, however, should again be calculated in EURO and at the time of the supply.
Income received from mining operations will generally be outside the scope of the value added tax for now. Crypto mining is not considered an economic activity, despite Spanish legislation, for VAT purposes yet. It’s worth noting that no instructions have been given on the taxation of incomes, profits and other flows related to initial coin offerings. The document issued by the Irish revenue service does not say anything about digital tokens and token sales.