Tax legislation for virtual currencies

Décision de justice
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The Conseil d'Etat rules on tax consequences of the sale or exchange of virtual currencies

> read the decision (in french)

> Read the french press release

Summary

On July 11th 2014, the French tax authorities issued a notice regarding tax consequences of the sale or exchange of virtual currencies, according to which the gains a taxpayer realizes upon the sale or exchange of « virtual currencies » were liable for income tax, either as non commercial profits (BNC) when carried out occasionally, or as industrial and commercial profits (BIC) when obtained upon buying and selling virtual currencies on a regular basis.

Several « bitcoin » owners have challenged this notice before the Conseil d’Etat. They argued that these gains should be taxed as intangible personal property gains.

In its judgement the Conseil d’Etat has ruled that units of bitcoin constitute intangible personal properties and revenues obtained by a taxpayer upon selling or exchanging them should in principle be taxed as intangible personal property gains. Gains can however be taxable as BNC or BIC when realized in specific conditions.

 
On July 11th 2014 the French tax authorities had issued a notice regarding tax consequences of the sale or exchange of « virtual currencies ». Bitcoin units are digital representation of value that functions as medium of exchange amongst a community of users. It allows transactions without resorting to a currency with legal tender.

According to this notice the gains a taxpayer realizes upon the sale or exchange of « virtual currencies » are liable for gross income tax, either as non commercial profits (BNC) when carried out occasionally, or as industrial and commercial profits (BIC) when obtained upon buying and selling virtual currencies on a regular basis.

In the complaint they lodged with the Conseil d’Etat, five plaintiffs argued that these gains should be taxed as intangible personal property gains (article 150 UA French tax code) and argued that the notice should be annulled.

In its judgement the Conseil d’Etat has ruled that units of bitcoin constitute an intangible personal property and revenues obtained by a taxpayer upon selling or exchanging them should in principle be taxed as intangible personal property gains of article 150 UA of the French Tax Code, unless these gains were obtained under specific circumstances.

It ruled that gains realized by taxpayers who contributed to the virtual currency system (for example by using their computers resources to validate bitcoin transactions) were to be taxed as non commercial profits (BNC), as they result from the taxpayer’s activity and do not constitute asset gains.

The Conseil d’Etat ruled that the gains realized by a taxpayer who buys and sells virtual currencies on a regular basis were to be taxed as industrial and commercial profits (BIC). It considered that such an activity constitutes a trade or business, whose gains are taxable as BIC when they are carried out by an individual under French tax legislation.

The Conseil d’Etat therefore annulled only the paragraphs of the French Tax authorities’ 2014 notice according to which the gains a taxpayer realizes upon the sale or exchange of virtual currency carried out occasionally are liable for income tax as non commercial profits (BNC).