Crypto taxes in Portugal - Autoridade Tributária e Aduaneira DOCUMENT
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DOCTRINAL SHEET
Process: 5717/15
Taxation of crypto-currencies or virtual currencies 5717/2015, Order of 12-27-2016, from the Deputy Director Geral do IR
The Applicant requested the issuance of a binding information in which it questions the tax framework of the income it earns from the purchase and sale of cryptocurrency.
Cryptocurrency or "virtual currencies" are not technically considered "currency" as they do not have legal tender or release power in Portugal, however, they can be exchanged, with profit, for real currency (either euros, dollars , or other), with specialized companies for this purpose, the value, against the real currency, being determined by the online demand for Crypto-currency.
Thus, cryptocurrencies can generate different types of taxable income:
1) For gains obtained from the purchase and sale of virtual currency units / exchange to exchange
from the moment of crypto-currency to real currency (whatever it is)
2) By obtaining commissions for the provision of services related to obtaining or
normal course of cryptocurrency.
3) For gains derived from sales of products or services in crypto-currency.
In the present case, only the first of the income-generating activities is under consideration.
The income generated by this activity can, in theory, be integrated into three different income categories:
Capital gains - category G (capital gains); Capital income - category E;
Business or professional income - category B;
Regarding category G
Article 10 of the IRS Code provides that the following realities are taxable, as capital gains:
a) Onerous disposal of shares and other securities;
b) Transactions relating to derivative financial instruments, with the exception of gains
provided for in Article 5(2)(q);
c) Transactions relating to certificates that grant the holder the right to receive a value of
certain underlying asset, with the exception of the remuneration provided for in point r) of no.
Article 5(2);
d) Onerous assignment of credits, accessory payments and supplementary payments.
Now the legislator, when he constructed this rule of incidence, resorted to a closed classification, i.e. taxation is only levied on gains derived from the facts described therein.
In the case of cryptocurrencies, we are not dealing with shares, nor do they constitute any right that allows receiving any amount. On the other hand, the valuation of cryptocurrencies is not based on any underlying asset, since their value is merely determined by their supply and demand (and by the creation of cryptocurrencies depending on their use), so there is also no can be considered as a derivative financial product, and finally, given the definition of security contained in article 1 of the Securities Code, we are not facing a reality that can, at the present time, be subsumed in the definition of securities. Therefore, it can be concluded that this reality is not taxable under category G.
Regarding category E
With regard to capital income, we found that the incidence rule is constructed in an open way, indicating a general rule and exemplifying several situations subject to taxation (but not the only ones). Thus, it appears that in this category income generated by the mere application of capital is taxed, that is, legal fruits are taxed i.e. the rights
produced damage to the substance of the producer. In the present case, the income generated is obtained through the sale of the right, so it will not be liable to be taxed under category E.
Regarding category B
First of all, it should be noted that category B, if applicable in competition with any of the previous categories, prevails over these. In category B, income earned as a result of the exercise of an activity and not on the basis of the source of income is taxed. Thus, income can be taxed in this category, whether it comes from sales, is fruit, or is of any other nature, under the terms of paragraph 1 of article 3 of the IRS Code. However, the exercise of the activity is determined by its habituality and by the orientation of the activity to obtain profits. If the existence of a business or professional activity is verified, the taxpayer will be obliged to comply with the declarative obligations contained in paragraph 6 of article 3 of the IRS Code, i.e. to issue an invoice or equivalent document (electronic invoice-receipt), whenever making a sale or providing a service.
It is thus concluded that the sale of crypto-currency is not taxable under the Portuguese tax system, unless by its habituality it constitutes a professional or business activity of the taxpayer, in which case it will be taxed in category B.
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