Speculative Danish Bitcoin Loss Eligible for Tax Subsidy

LAGOS (Capital Markets in Africa) – Bitcoin isn’t treated as currency by the Danish tax authority. Danish tax subsidies can be applied to losses from speculation on bitcoin, Denmark’s tax authority told a taxpayer who lost nearly 24,000 kroner ($3,722) trading the cryptocurrency.

That means bitcoin investments are covered by laws on speculation and assumed to be a commodity purchased for the purposes of speculation only, and therefore aren’t treated as currency, the tax authority (SKAT) said in a Sept. 5 statement on a ruling it issued Aug. 28.

The explanation follows a SKAT precedent set in cases in which gains were made from bitcoin speculation; in this case, however, the taxpayer’s speculation resulted in a loss.

The statement is good news for bitcoin purchasers who have suffered losses speculating on the cryptocurrency.

“This is about capital gains, and the tax authorities just assumed that this is speculation, and when it’s speculation you’ll be taxed on capital gains and you can deduct a loss,” Michael Tell, an associate professor at Copenhagen Business School’s Law Department, told Bloomberg Tax Sept. 7. “This is the first case where it’s a loss, and it’s basically a follow-through on their argumentation, saying that these bitcoins and similar—they assume it’s speculation and hence you get a deduction.”

In prior guidance, SKAT said “‘this is not currency.’ So we don’t treat it like currency, we treat it more like gold. That is the equivalent,” Tell added. 

Precedent
Eduardo Vistisen, a Copenhagen tax litigator, agreed the precedent had been set by previous cases.

“This is just a consequence of the previous decision, I would say. And it’s very easy to deduce from the previous decision that if you’re taxable on bitcoin gains, then you’re also allowed to deduct a loss,” he told Bloomberg Tax Sept. 10.

Currency is covered by different regulations and is therefore also not treated in the same way as cryptocurrencies, including bitcoin, Tell clarified. Different interpretations were theoretically possible depending on cryptocurrency types, Tell said.

“It depends a lot on what kind of cryptocurrency is being used, because they’re so different and they can be used for very different things. But they seem to treat it quite similarly, saying that if we’re into all this cryptocurrency, it’s just speculation, because you can’t use it for anything else,” he said. 

Court Challenge
Tell said future changes are possible should a taxpayer take the issue to court, since the legal basis for the SKAT interpretation concerns regulations that pre-date digital cryptocurrencies.

“It’s not perfectly clear that they have to pay tax, it’s not perfectly clear that this actually should be treated like speculation according to the rules, because this rule which is applied is over 100 years old, so it wasn’t a given that this should be the outcome of the case,” he said. “This is how the tax authorities apply the rules.”

Vistisen said that he doubts current practice on bitcoin speculation by the Danish tax authority will be challenged in court in the foreseeable future.

“I don’t think anybody has an interest in challenging this when we’re talking about the loss. Of course, you could argue that maybe somebody has an interest in challenging the previous decision, when this is actually taxable, but I don’t believe that anybody will challenge this,” he added.

Source: Bloomberg Business News