Crypto-assets: a new framework with uncertain edges

The draft of 2023 budget law finally fills the regulatory gap on cryptocurrencies or “crypto-assets”; the new and more organic regulations concern the treatment of digital assets in different aspects, irpef, the application of the relevant substitute tax also by non-financial operators, stamp duty, ivafe and tax monitoring.

We talked about it with Edoardo Belli Contarini, Partner – Fantozzi & Associati, and Raffaello Fossati, Associate Partner – Fantozzi & Associati.

Why is the role of tax rules critical in the crypto world?

As for all financial instruments, taxation affects the net income of investors thus playing a crucial role in the choice of the asset allocation. In recent years, cryptocurrency price fluctuations attracted the attention of investors but the uncertainty over the tax treatment of capital gains and losses in various countries, among which is also Italy, together with the lack of proper regulation of the industry may have discouraged the more prudent investors.  For instance, in 2016 the Italian tax authorities affirmed that cryptocurrencies should be assimilated to standard foreign currencies with the effect of taxing the related trading only when certain circumstances were met. In addition, cryptocurrencies maintained abroad (also via exchanges) should have been disclosed in the tax return for monitoring purposes. Such an approach was not totally consistent with the legal definition of digital currency (see art. 1 legislative decree no. 231/2007 and art. 1 legislative decree no. 184/2021), according to which blockchain currencies are not at all similar to fiat currencies.

Which are the changes introduced by the 2023 Budget Law?

With the 2023 Budget Law, the Italian legislator finally fills the regulatory gap on cryptocurrencies with a more organic discipline covering personal and corporate income taxes, stamp duty, so called “IVAFE” and tax monitoring. In particular, the Budget Law adds a specific type of income related to the sale for consideration, exchange, refund or holding of crypto-assets, exceeding 2,000 euros in each tax period. In addition, it provides for the franking of crypto assets with reference to market value as of 1st January 2023, subject to the payment of a 14% substitute tax and regularization of the taxpayers’ position for previous years. In such respect, the regularization allows taxpayers to remedy the obligations due up to 31st December 2021 by means of amended tax returns and payment of a substitute tax for past income, corresponding to 3.5% of the value of the assets disclosed, as well as a penalty reduced to 0.5% of the same value for failure to indicate crypto activities in the tax return. On the opposite, the Budget Law introduced the possibility to carry forward (over a 4-year period) and offset any losses incurred.

How do you think this will impact the crypto world this year?

Despite some technical aspects that may undermine the benefits provided by the new discipline (e.g., criminal penalties may apply), the clarifications provided together with the possibility to have certainty on the past should be welcomed by the investors. They shall carefully evaluate the opportunity to disclose their crypto assets and consider the corresponding value as of 1st January 2023 in light of recent reductions in market prices. In case the franking of assets is deemed to be beneficial, the payment of the 14% substitute tax should be performed by 30th June 2023 (wholly or first instalment).

Considering the downward trend in cryptocurrency prices occurred in 2022, the cost of the substitute tax can be considered as appealing to the investors that are not able to provide evidence of their purchase prices or in case their purchase prices were very low, especially if they are considering the possibility of disinvestment in the near future.

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