See here the regime applicable since 1 January 2019
Cryptocurrency trading generated, in most cases, significant gains in 2017.
These gains are, under certain conditions, taxable, and will soon have to be declared.
Since the end of 2017 I have been meeting many clients in this situation. Here is a summary of the most frequently asked questions.
How can I get my money back without paying any tax to the French tax authorities?
Tax lawyer: if you have made a net gain (more gains than losses), this is not, to my knowledge, legally possible if you are tax resident in France.
If that is your objective, my expertise will be of no help to you whatsoever.
Ah… And paying as little as possible?
That depends on each specific situation. First, your net gain must be rigorously identified. Losses on certain transactions, as well as the expenses you have incurred (exchange fees, for example), are to be deducted. This is all too often forgotten. In addition, below a certain threshold, which was doubled from 2017 income taxed in 2018, you will be taxed under a micro regime (micro-BNC or micro-BIC), which is generally advantageous.
Is it the value of my wallet that is taxable, or the exchanges I make?
It is not the value of your wallet. It is the net gain you have made that is taxable: the sum of the gains less the sum of the losses on the transactions you carried out in 2017, all further reduced by the expenses incurred for your trading activity (exchange fees, any paid software, depreciation of your computer…).
Am I taxable if I keep my cryptos in a wallet or on an exchange?
According to the scant legal material available on the subject, no. Holding a crypto is not taxable. It is its exchange for something else that seems to trigger taxation. See the next question.
Am I taxable when I exchange cryptos for other cryptos?
It would seem so. Please note, once again, that at the time this article was written (2018) there were very few texts on the subject; since 1 January 2019, the regime for individuals has been laid down by Article 150 VH bis of the French General Tax Code (Code général des impôts, CGI) (exchanges between crypto-assets benefit from a tax deferral (sursis d'imposition) under that article).
However, on the basis of the rules currently applicable to other activities that may present a certain similarity, it would seem that yes, the exchange of cryptos for other cryptos could very likely be regarded as taxable.
More specifically, I can tell you:
- That in my view, based on my experience of the tax authorities, which is fairly extensive, the tax authorities will very probably consider that the exchange of cryptos for other cryptos is taxable and will therefore impose tax adjustments, which may be substantial, on that basis (subsequently, some taxpayers will probably challenge this before the courts, and within 3 or 4 years we will have the first court decisions, and thus the first guidance)
- That a tool exists to obtain certainty on this: the tax ruling (rescrit fiscal). I have initiated several ruling requests for my clients. We are awaiting the answers (which will be confidential, since they relate to a specific situation; each client must file their own ruling request). This will give them a clear answer to the many unresolved questions arising in their specific situation, in particular the question of the exchange of cryptos for other cryptos.
Am I taxable when I exchange crypto for fiat?
In principle, clearly yes.
If I keep fiat on an exchange, am I taxable even if I have not transferred anything to my bank account?
In principle, clearly yes, if that fiat comes from transactions carried out on cryptos.
Are cryptos pegged to fiat comparable to fiat? For example USDT. If I exchange my cryptos for USDT, is the answer the same? Am I taxable?
In my view, these cryptos are cryptos and not fiat. The answer should therefore be the same as for the exchange of "conventional" cryptos for other "conventional" cryptos. The exchange appears to be taxable, but, in the absence of complete certainty, it is advisable to file a ruling request on this question, among others.
Do ICOs have the same value as cryptocurrency tokens? Are they valued in the same way, or are they shares?
ICOs appear to be neither cryptocurrencies nor shares (indeed, you do not acquire part of the company's capital, but simply rights: rights to benefit from a service or a thing in the future).
Must wallet-to-wallet transfers be declared?
Yes, if the transaction appears to be taxable (an exchange of cryptos, for example). The transfer arrangements have no legal effect on taxation.
Can I deduct my losses on crypto?
Of course, losses are deducted from gains. It is the net gain that will be taxable (gains – losses).
I have a problem: calendar year 2017 saw sharp rises in crypto prices in general, and in BTC in particular, especially during the last quarter, whereas early 2018 saw sharp falls in prices.
Yes, there is a major tax problem here, which I think is still little recognised by taxpayers and even by professionals. Taxation is generally (unless an option to the contrary is exercised, in certain cases) on a calendar-year basis (that is, it is the net gain made from 1st January 2017 to 31 December 2017 that is taxable in 2018). Let us take a simple numerical example that will immediately make you understand the major problem:
Year 2017
1st September: purchase of 10 ETH for 4000 USD (ETH price 400 USD).
31 December: you exchange your 10 ETH for 0.5 BTC (BTC price: 14000 USD; ETH price 700 USD).
This exchange appears to trigger taxation (crypto for crypto).
Net gain: value of 0.5 BTC at the time of the exchange (31 December) 7000 USD – purchase price of the 10 ETH 4000 USD = 3000 USD.
In 2017, you are therefore taxed on your net gain: 3000 USD. You pay tax in 2018 on this net gain of 3000 USD made in 2017 (the income is declared and taxed in 2018).
Time passes.
Year 2018
It is 7 February. With your half BTC in hand, you decide to exchange it for 6 DASH (BTC price 7400 USD, DASH price 617 USD).
Value of 6 DASH at the time of the exchange (7 February) 3700 USD – purchase price of 0.5 BTC 7000 USD = - 3300 USD.
You make a loss of 3300 USD.
However, what are you going to do with this loss for tax purposes in 2018?
If you are taxed under industrial and commercial profits (bénéfices industriels et commerciaux, BIC) on a professional basis, it is deductible from your overall income (under non-professional BIC, the deficit can only be offset against profits of the same nature, Article 156, I-1° bis of the CGI). For example, if you have salaries, it is deductible from your salaries. You will therefore achieve a tax saving in 2019 on 2018 income.
When it is a matter of 3300 USD, no problem: this loss will generally be usable, since you will often have enough income against which to absorb it.
BUT, if we are talking about a loss of 500,000 USD, 5,000,000 USD… the loss will probably not be absorbable in 2018. You will have paid tax in 2018 on 2017 income, without being able to recover that tax in 2019 on 2018 income…
And there would still be much more to write on this point. In particular, the perverse effects of the progressive income tax scale (when I am taxable, it is in high brackets; when I deduct my loss, it is in low brackets, because my other income is low…).
There are projects where you can have a bank card loaded with crypto, and then withdraw money without being taxed. Is that true? For example the Monaco ICO.
No, that does not seem to be true. There is no legal mechanism allowing tax impunity.
You can try to slip through the net (which I very strongly advise against) by using this type of tool reputed to be opaque for tax purposes, but you face heavy penalties. Furthermore, note that France has signed administrative assistance agreements with a very large number of States, and that there is an automatic exchange of banking data with more than a hundred States and jurisdictions (OECD Common Reporting Standard).
As a tax lawyer, my aim is to help you, lawfully, to pay as little tax as possible. This alone can already produce substantial savings, entirely lawfully.
If you are seeking total tax impunity, there is no point contacting a tax lawyer. Our expertise, once again, consists of a very detailed knowledge of the tax rules, and therefore of ensuring that you benefit from all the lawful rules to your advantage in your specific situation, which generally leads to paying less tax, but not to paying none at all.
Our tax law firm can assist you.
