Tax Alert No. 32 - 

International taxation  19.12.2018

The end of an anonymous disclosure process and the integration of tax arrangements for crypto investors - 19.12.2018

We would like to remind our readers that a voluntary disclosure process that enables the submission of anonymous applications will end at the end of the year 2018. The significance of this is that it is sufficient that someone has submitted his application by December 31, 2018, even if the handling of the application continues afterwards. Applications that are submitted as from January 2019 for voluntary disclosure will be required to submit an application that includes the taxpayer’s details!
It is clear that the situation of a taxpayer for whom an anonymous application is submitted is better, since he has the possibility of assessing the tax results and the agreement that will be signed with the Tax Authority before his details are exposed, that taxpayer also has the possibility of “retracting” and withdrawing the application and experience shows that within the framework of the anonymous process, the preparedness to reach agreements is greater.
In respect of crypto investors – a lot has been spoken about the tax authority’s position is that Bitcoin, Ethereum and the other crypto currencies constitute “an asset” and accordingly their sale is taxable as-capital gains, this position also applies to exchanges between crypto currencies and tokenswhich constitute tax events. In recent months, we have encountered numerous clients who have received approaches from the Tax Authority and a demand for the submission of annual reports for recent years. Clients that received such demands are generally found on lists that the Tax Authority holds and it is known that they have purchased or sold crypto currencies. This information generally comes from files of central players in the industry who have been checked and it has been found that they sold currencies to those clients and the Tax Authority also has other ways to arrive at that information.
We should mention that a crypto investor who receives a demand from the Tax Authority – is not entitled to refer to a voluntary disclosure process, which is because the Tax Authority “has begun an examination”, prior to the submission of the application, and this is one of the conditions for the submission of the application. Solutions to this problem can be found by way of submitting reports to the Authority as requested by the Authority and reaching an arrangement whilst holding negotiations in respect of the tax implications. We would mention on this subject that we are aware of the existence of pending proceedings on the subject in the Courts, and it is our assessment that it will not be long until a ruling is handed down as to whether or not the crypto currencies are an “asset”.
At this opportunity, we are calling on the Tax Authority to publish a clear position on the issue of the crypto currency alternatives – this is an issue that constitutes the core of the problem in the arrangement of the field and will present as an example a Bitcoin, which was purchased at a price of $200, and which was exchanged in the last quarter of 2017 in consideration for Ethereum coins, where the value of the Bitcoin was $18,000 – in accordance with the Authority’s approach, the very fact of the exchange between the coins constitutes “a sale” of the Bitcoin coin (with a profit of $17,800) , which is chargeable with capital gains tax. A statement was published in the press recently that a senior person in the Tax Authority has given instructions for relief on the subject of a FIFO or a LIFO calculation, however this relief will not solve the fact that already one year after the last quarter of 2017, the Bitcoin (and the other tokens) have not reached the price levels that they had towards the end of the year 2017 – a period in which the crypto investors were “celebrating” and in retrospect , these were “celebrations on paper”, most of which have not been realized into “Fiat” money.

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