Take a French Leave from Taxes, or How to Keep Your Cryptocurrency Safe from the Taxman


When cryptocurrencies go through their periodic pumps, cryptocurrency investors are placed in a position of having to stop thinking so much about how to make more profit and start worrying more about how protect their gains from the avaricious reach of the taxman. Depending on the laws in specific localities, and on the amount of trading an investor does, tax can double or more. Experts from the international company Worldcore have given a lot of thought to how investors can protect their earnings from government attacks.

According to a recent survey conducted by Worldcore, the majority of both novice and experienced traders are already familiar with, if not actively investing in, cryptocurrencies. Fully 89% of bankcard holders are aware of what cryptocurrencies are – but they may not be as aware of the legal and taxation grey area their crypto transactions and trades are in. This is as true for experienced investors and tax professionals as for novices.

The one thing we are sure of is that there is going to be a continued tightening of national regulations regarding cryptocurrencies. Unfortunately, this is likely to further confuse rather than clarify the situation as different countries take different approaches. Cryptocurrencies may be borderless, but the laws that apply to them are not – and it’s user beware out there.

For instance, the US tax authority, the IRS, in 2014 issued a ruling that cryptocurrencies should be regarded as property for tax purposes. This means that converting cryptocurrencies to fiat is a taxable event, requiring the individual to calculate loss and gains for each purchase and sale. At first, there did seem to be a loophole, known as a like-kind exchange. This would allow any conversion of one cryptocurrency to another to be considered non-taxable as these things are essentially the same kind of item. As of 2018, though, this loophole has been closed with only real estate being recognized for like-kind exchanges.

For US taxpayers, this has upped the ante. If they don’t comply with tax laws, as vague as they might still be, they may be subject to severe penalties. The IRS last year sent shockwaves through the community when it served Coinbase, the largest US cryptocurrency exchange, to hand over all trade data for its then over 500,000 users. A court battle ensued and the number of accounts that had their information turned over was dropped to a ‘mere’ 14,000,’ but concerning all the same.

Alexey Nasonov, CEO of Worldcore, had this to say on the matter: “I suppose that we will witness similar actions throughout the world. More and more, regulators will want to access to international cryptocurrency exchanges, users’ accounts. It’s all happening because under 1,000 people were reported to have declared their cryptocurrency in the US in 2015, even though Coinbase’s client database at the time was about 2.7 million. It is currently reported to be over 13 million, putting it on par with some of the largest international banks!”

Rules in other countries vary: In Canada, cryptocurrency purchases and sales are taxable as capital gains/losses. . In the UK, crypto-assets fall under the scope of either profit tax, corporate tax, income tax or capital gain tax, depending on whether you’re a company, a professional trader or an amateur investor. In Switzerland amateur investors are not taxed at all, while in Australia cryptocurrency used to be subject to double-taxation due to the fact that, as property, it was subject to both VAT at point of purchase, and subject to capital gains tax. In Norway and Bulgaria, cryptocurrency is recognized as a financial asset, and the revenue from trades or sales on exchanges is subject to a 25% tax and 10% respectively. In Bulgaria, though, you can take the matter up with the regulator and keep small exchange gains tax-free.

Because we are a company with operations in many countries, Worldcore is uniquely positioned to assess best practices when trying to figure how to stay safe from regulators and keep as much of your cryptocurrency gains as possible, no matter where you live or operate. Here are a few simple rules we’ve come up with:

  1. Remember that it is always the responsibility of the taxpayer to know what their obligations are and fulfill them. Get ahold of your country’s regulations and consult with a professional if necessary.
  2. Make it a habit to log and track your cryptocurrency purchases, sales, and trades. Note the date and time you acquired the currency, for what price, when you sold it and how much you got for it. For small amounts and HODLers, a simple excel file might suffice.
  3. For large investors who trade actively, consider investing in specialized software or in hiring professional tax attorney or accountant.
  4. Don’t try to conceal transactions. There are multiple ways for tax officials to get information on trades – whether that be from the exchanges themselves or even by analyzing blockchains – so it’s better to be safe than sorry. Right now the rules may be vague, but once regulators catch up, the fines you could potentially face may be devastating.
  5. In most countries, giving cryptocurrency as a gift (check for allowable limits) is not taxed. This might be one way to protect your cryptocurrency gains while benefiting those around you.
  6. In those countries where cryptocurrency is considered property or as an asset, taxes will depend on how long you’ve owned it. In both Germany and the US, after one year the asset is considered long-term and will be taxed at a considerably lower rate.

Cryptocurrency has often been characterized as ‘the Wild West,’ meaning that no laws apply. Although that once might have been true, laws are slowly creeping into the cryptocurrency space. It’s the wise person who sees the trend and takes steps to keep their assets, and themselves, safe.