Bitcoin to Be Included in Code Behind World's Highest Tax Burden
(Bloomberg) -- No one pays more tax, as a percentage of GDP, than the Danes. So in the country with the world’s highest tax burden, officials are eager to ensure they don’t miss out on potential revenue as bitcoin goes mainstream.
As a first step, the Danish tax authority this year asked the tax board to decide whether using bitcoin constitutes speculation. Back in 2014, Denmark decided bitcoin wasn’t a currency, meaning it initially wasn’t possible to tax under capital gains rules. But authorities now feel a review is needed, given the cryptocurrency’s stratospheric growth of late.
“Whether buying and selling bitcoin is to be seen as speculation” is “key in determining whether bitcoin gains need to be taxed,” Karsten Lauritzen, the Danish tax minister, told Bloomberg.
That said, if the tax board “arrives at a conclusion with which politicians, or I as tax minister, don’t agree, then we still have the possibility to create legislation, and to adjust it,” he said. The board is due to meet at the earliest on Jan. 30, after which a ruling is expected.
Is It Speculation?
As the tax board mulls whether bitcoin trading constitutes speculation, it will probably have noticed that the cryptocurrency has soared more than 1,600 percent this year. This month, there were several days on which gains topped $1,000. On Dec. 19, it dropped more than $1,700. In other words, bitcoin has delivered the kind of sudden moves that a white-knuckled speculator’s dreams are built on.
“From a consumer perspective, there can be advantages,” to bitcoin, Lauritzen said. “But as a politician I can also see some pretty huge challenges.”
The governor of Denmark’s central bank, Lars Rohde, has been more outspoken. Most recently he told state broadcaster DR that people “should stay away” from bitcoin. Finance Minister Kristian Jensen says Danes “have to decide for themselves what to make of bitcoin.”
Denmark’s tax revenue made up 45.9 percent of GDP in 2016, according to OECD figures. That’s the highest ratio in the rich world, and compares with an OECD average of 34.3 percent.
The Nordic region, where people are used to paying high taxes, has for the most part been quick to come up with taxation policies for bitcoin. Sweden and Norway apply a capital gains tax. In Sweden, the rate is 30 percent. Norway is set to cut its rate to 23 percent from 24 percent. In February, Norway ruled that bitcoin is exempt from value-added tax.
Finland, the Nordic region’s only euro member, has been treating bitcoin as a commodity since 2014. But bitcoin proceeds have been subject to Finnish tax longer than that. The Finns introduced guidelines on how to tax virtual currencies as early as August 2013. Finnish capital gains taxes can be as high as 34 percent. No deductions are possible if Finns lose money on bitcoin.
“We have analyzed more than 10,000 bitcoin wallets over several years, and in more than 500 cases we have found undeclared incomes which are taxable,” according to Timo Puiro, senior adviser at the Finnish Tax Administration. Finland’s tax authority has identified bitcoin as one of the “high-risk focus areas” and is prepared to redirect resources to ensure nothing falls through the gaps, Puiro said.
©2017 Bloomberg L.P.