Taxation of cryptocurrencies

Cryptocurrencies are at the heart of economic news. An instrument of trade for some, the currency of the future for others, cryptocurrencies have gained legal and tax reality.

The French tax system did not anticipate the rise of these cryptocurrencies, and the rules regulating them are too few. We will go over the key features of the taxation of these digital assets.

Establishment of the tax system related to cryptocurrencies

Since the finance law for 2019, there is an article 150 VH bis in the General Tax Code (hereinafter CGI) that deals with capital gains from the sale of digital assets.

Previously, one had to turn to administrative doctrine and the jurisprudence of the Conseil d’État (Council of State).

The first traces of cryptocurrencies in French tax regulations date back to July 11, 2014. At that time, administrative doctrine considered that the taxation of capital gains from the sale of digital assets fell under:

• Non-Commercial Profits (hereinafter BNC) for occasional sellers,
• Industrial and Commercial Profits (hereinafter BIC) for regular sellers.

This administrative doctrine was partially censored by a Conseil d’État judgment dated April 26, 2018. According to this jurisprudence:

• Capital gains from the sale of cryptocurrencies by non-professional sellers fell under the rules for taxing capital gains on movable property,
• Capital gains from the sale of cryptocurrencies by professional sellers fell under the category of Industrial and Commercial Profits (BIC),
• Income from mining activities fell under Article 92 of the CGI, hence taxation in the category of Non-Commercial Profits (BNC).

As mentioned earlier, it was necessary to wait for the finance law of December 28, 2018, for the legislature to address the issue of cryptocurrencies through Article 150 VH bis of the CGI.

Tax regime

Article 150 VH bis of the CGI concerns non-professional sellers of digital assets. It provides for the taxation of their capital gains from sales at a flat rate of 30% (12.8% income tax and 17.2% social security contributions).

This text, although it has the merit of existing, poses several difficulties.

On the one hand, the formula for determining the taxable capital gain is very complex.

On the other hand, this article does not provide the criteria to consider in order to differentiate a non-professional seller from a professional seller falling under the BIC category.

We can find some answers in the aforementioned jurisprudence of April 26, 2018:

“It follows from the combination of these provisions that if the habitual performance of operations characterized as acts of commerce, such as the purchase for resale of movable property, characterizes the exercise of a commercial profession whose profits are, unless otherwise provided by law, subject to income tax in the Industrial and Commercial Profits category under Article 34 of the General Tax Code, the mere fact of selling movable property, even repeatedly, is not sufficient to reflect the exercise of such a profession when these goods have not been acquired for resale.”.

It appears from this judgment that one of the criteria to consider would be the intention to buy digital assets for resale.

Furthermore, to settle the question of the distinction between professional and non-professional sellers, it might also be appropriate to refer to criteria specific to stock trading:

• Means used,
• Frequency of operations,
• Amount of gains.

In any case, many questions surrounding the taxation of digital assets are still unanswered, which does not favor the tax security of transactions involving these assets.

In light of the above, as you may have understood, the taxation of digital assets is quite complex, and there are still many uncertainties. Therefore, it is advisable to seek the assistance of a tax lawyer to secure your future transactions or to regularize your past situation.

The lawyers at LEXPERTAX are experts in taxation, especially in the taxation of digital assets. We will be able to assist you in analyzing your situation and determining the tax choices to be made.