The Tax Authority’s first taxation decision on cryptocurrency was published this week, concerning record keeping of receipts from service provision received with decentralized coins. This decision was led by our office.
Our office provides advice and services in the cryptographic currency industry to many of our clients. Because of the nature of the activity and people involved in it, some of our clients have offered to pay for our services with decentralized coins such as Bitcoin and Ethereum.

There are quite a number of platforms today for trade and exchange of these coins into other coins and into ordinary currency, with exchange rates varying greatly on the different platforms at any given moment. Furthermore, daily fluctuations of coin exchange rates could reach tens of percentage points between the daily maximum and minimum. Considering the fluctuation level and the difficulty in precise quantification of receipt in coins and their conversion at a particular moment to “fiat” money (legal tender such as NIS, dollar, euro), our office requested a resolution for a method of recording such intake.
The (agreed upon) taxation decision established that at the time of receipt of the coins, the company must record the number of coins actually received (for example, receipt in the amount of 1 Bitcoin) in a designated “journal for exchange transactions” as indicated in the Provisions on Bookkeeping.
In order to provide a practical solution to coin value fluctuations, it has been established that if the company cashes out the received coins to “fiat” money within the designated period until the time of producing a tax invoice (two weeks from day of receipt), it may produce a tax invoice for the client in the gross amount actually received at the time of cashing out, in accordance with the exchange rate of the cashing out as calculated in practice, before incurring the cost of cashing out, if such does in fact exist.
If the company does not cash out the coins received within the said period, the tax invoice shall be listed based on the “average exchange rate of the period” of the received coins. The calculation of the average exchange rate for the period shall be based on the publicized exchange rate by average number of deals in one of the central trading platforms for coins (the average of the highest and lowest exchange rates in the period).
The amount listed in the tax invoice shall be considered the “original price” of the coins for purposes of calculating profits/losses derived in the future, if such will exist. In exchange for cashing out the coins, the firm has agreed to apply to itself (but not to its clients) the Tax Authority’s approach regarding classification of coins as an asset and not as currency. This means that the firm may continue to maintain that cryptocurrency is not an “asset” but rather foreign currency, until a conclusive ruling is made on the matter.

Another important ruling in the taxation decision: since decentralized coin activity is characterized by high risk for theft due to break-ins into digital wallets, it has been agreed that losses resulting from theft of coins in a particular period shall be considered an integral expense to company activity, as obtained as part of ongoing business activity.

Coins stolen at a later time shall be expressed as a capital loss to the company.

Our office advises many different players in the crypto industry, and is well aware of the dearth of regulatory disclosures on these matters. We would therefore like to acknowledge the Tax Authority for this taxation decision.