Key facts:
There may be different interpretations of how to tax the same investment in cryptocurrencies.
An informed selection of cryptocurrency investment can help alleviate tax pressure.
The Spanish tax authorities still do not offer cryptocurrency investors sufficiently clear criteria to correctly declare their taxes. According to the Spanish economist, Juan Ramón Rallo, “there is a context of uncertainty around certain returns linked to the cryptocurrency sector.”
This is how Rallo expressed himself in a video posted on Wednesday on his YouTube channel, where he discussed the tax issue with Paula Urcera, in charge of Tax Affairs at the TaxDown company, and Alberto Toribio, head of Institutional Relations at CryptoPlaza. At some points in the interview, it was evident that both specialists they had different visions of how some of the products of the cryptocurrency sector should be reported to the treasury.
Spain has been making moves to get residents who invest in cryptocurrencies to pay taxes on the performance of the different products. However, the rapid growth, as well as the variety and usefulness of the products used for investment in the cryptocurrency sector, seems to be complicating the picture.
“Just 3 years ago, 2 million Spaniards invested in cryptocurrencies, today there are 7.5 million,” said Alberto Toribio, citing figures from Statista from December 2021. As he said, in Spain there is great activity in the cryptocurrency and DeFi segment ( decentralized finance). The latter with a variety of products that generate passive income, such as loans for leverage, swaps or derivatives, which complicates the tax return.
As Paula Urcera explained, basic obligations, such as the tax known as IRPF (Income Tax on Individuals), implies report capital gains or losses on each individual cryptocurrency trading transaction. This can greatly complicate tax returns for traders, who carry out a high volume of transactions per year.
On the other hand, the obligations can also vary according to the place of residence. “Depending on the community where you live, you must declare some taxes or others,” said Urcera.
Utility tokens pay VAT in Spain
Specialists agreed that a product like NFTs (non-fungible tokens) are treated differently than cryptocurrencies. These are subject to other taxes, such as VAT (Value Added Tax). However, the application of this same tax to utility tokens a few weeks ago, it seems to have caused a stir in Spain, according to Toribio.
Utility tokens have a consumption-oriented purpose and are usually used as a method of user loyalty with a project, giving access to discounts or other incentives. A sports club fan token is a type of utility token.
Paula Urcera pointed out that, in her vision, the investment in utility tokens would not imply for the buyer to declare a subsequent tax, as in the case of investments. However, Toribio believes there is still a lot of confusion.
The use of utility tokens raises serious questions for us, because in many cases, despite having this concept of utility, the main economic activity around them is not developed around their utility but rather around the phenomenon of investment.
Alberto Toribio, CryptoPlaza
what about airdrops
Another instrument of the cryptocurrency sector where specialists disagreed on how to declare, they are the airdrops. This mechanism involves the free sending of governance tokens or NFTs to users who interacted early with a project.
In the opinion of Alberto Toribio, the unexpected receipt of tokens launched in an airdrop could be understood as a “job income”, since they are usually sent to users who test a protocol at an early stage. However, many tend to interpret airdrops as “capital income”.
Paula Urcera, for her part, says that it is not clear that airdrops fall into the category of “job income”. In her opinion, since it is a marketing action, it should be calculated within the general tax base and not the savings base as Toribio suggests. This implies that the tax calculation for this product can reach 50% in Spain.
For Juan Ramón Rallo, it is clear that if specialists may have different interpretations of the correct tax treatment for the same product, the taxpayer must be in a state of ignorance. “If the Treasury subsequently reviews the statement you have made and, without having given you the criteria of how you had to do it, considers that it is wrongly declared, they can sanction you,” Rallo stressed.
It should be noted that the fines for not declaring taxes in Spain can be up to EUR 5,000 for each piece of data not included. The penalties can even exceed the undeclared amount up to 5 times.
Some options
As we have reported in CriptoNoticias, in Spain, both natural and legal persons are required to pay taxes on their profits on the capital invested in cryptocurrencies. The percentages of the yield that the Spanish state takes, starts from a minimum of 19% and can reach up to 50%. The specialists pointed out some ways that taxpayers are using to alleviate fiscal pressure.
In the case of utility tokens, which will now be charged with VAT, Alberto Toribio explained that the measure has pushed the companies that issue them to seek mechanisms so as not to be harmed. According to him, this would imply that the ICO (Initial Coin Offering) of projects such as Bit2Me, which raised 20 million euros through the sale of its tokens, it would have to pay 21% VAT to the Spanish treasury.
Other projects aimed at the Spanish public would find themselves in the same situation. In this sense, Toribio pointed out that companies could choose to change the definition of their tokens. “For example, to define that what they have created is a cryptocurrency and not a utility token, indicating that they can be freely exchanged on markets such as Uniswap,” said the CryptoPlaza executive.
TaxDown’s tax specialist, Paula Urcera, for her part, believes that choosing the right investment can help you pay less in taxes. In this sense, he highlighted that, for example, mining Bitcoin is typified as an economic activity, which makes the miner a self-employed worker with its implications in terms of personal income tax, social security, etc. While engaging in staking, where it operates as a block validator in some networks, is typified as a term deposit that generates interest.
When you carry out an economic activity, you pay taxes with the marginal rate of 50%. When you make a deposit of an amount and it gives you interest, you pay a marginal rate of 26%. At the personal income tax level, it is preferable to do staking.
Paula Urcera, TaxDown.
Rallo commented that the “headaches” that the taxation of investments in cryptocurrencies in Spain implies could generate in taxpayers behaviors such as not declaring taxes, exposing themselves to “brutal” sanctions, or flatly not investing in the sector.