Crypto-currencies, which are highly speculative products, are attracting more and more investors who are looking to make a profit.
The market price of some crypto-currencies has just increased by over 500 % over a three-month period. The surge in profits on crypto-currencies has raised the question of their tax treatment and we feel it is useful to clarify the tax treatment of profits on crypto-currencies as well as the reporting obligations you need to respect if you hold digital asset accounts abroad.
1. Notion of crypto-currencies
Crypto-currencies, legally classified as digital assets, were legally defined under the French Business Growth and Transformation law (“PACTE Law”) of 22 May 2019.
Crypto-currencies are understood to be “any digital representation of a security that is not issued or guaranteed by a central bank or public authority, that is not necessarily tied to a currency that is legal tender, and that does not have the legal currency status but that is accepted as a means of exchange” (1).
Crypto-currencies may be the object of a transfer and such an operation may give rise to capital gains.
2. Tax treatment applicable to capital gains on the transfer of crypto-currencies
The taxation of capital gains made on the transfer of crypto-currencies varies according to the nature of the activity behind the acquisition of such crypto-currencies.
Crypto-currencies may be acquired within the framework of investment activity or mining activity.
2.1 Crypto-currencies acquired within the framework of an investment activity
Crypto-currencies may have been acquired within the framework of an investment activity.
If this is the case, a distinction must be made according to whether the transfer of crypto-currencies is carried out routinely or occasionally by an individual.
The routine transfer of crypto-currencies falls within the category of industrial and commercial profits. The capital gains linked to such transfers will therefore be subject to the progressive income tax scale.
The occasional transfer of crypto-currencies falls within the category of individual capital gains or losses on the transfer, against payment, of digital assets.
Capital gains are subject to flat-rate taxation at 30 % (PFU). The progressive income tax scale cannot be applied (2).
Capital loss is solely creditable against the gross capital gains of the same year and cannot be carried forward over the following ten years (3), contrary to capital loss on the transfer of transferable securities.
To date, neither the law nor jurisprudence gives a precise definition of the criteria that allow the classification of the routine or occasional transfer of crypto-currencies.
In their administrative guidelines, the tax authorities have stated that the routine or occasional nature of this trading activity may be ascertained from the case-by-case assessment of the actual circumstances in which purchase and transfer operations are carried out (4).
Vigilance is therefore of the essence, in particular in respect of the frequency of operations, the volume of exchanges, and the amounts invested, as classification as a routine trader may have significant tax consequences.
2.2 Crypto-currencies acquired within the framework of mining activity
Crypto-currencies can also have been obtained as a reward for certain IT services provided, which consist in the computerised validation, securing, and recording of transactions on a general ledger, known as a “blockchain”, by means of the resolution of complex calculations and defined as mining activity.
For the Conseil d’Etat (Council of State), crypto-currencies acquired within the framework of mining activity “are not a capital gain resulting from an investment operation but a consideration that is given in exchange for the taxpayer’s participation in the creation or operation of the unification system of a digital account” (5).
Accordingly, the transfer of such crypto-currencies obtained within the framework of mining activity falls within the category of non-commercial profits.
3. Declaration of foreign digital asset accounts
Foreign digital asset accounts held by individuals, associations, or non-commercial enterprises domiciled or established in France must be reported using form n° 3916 (such is the case for online platforms: eToro, Binance, Kraken, Coinbase, Bittrex…).
A declaration must be made for each digital asset account that is open.
Failure to comply with this reporting obligation is subject to a €750 fine per non-declared account or €125 fine per omission or misstatement up to a limit of €10 000 per declaration (6).
For further information on the taxation of your crypto-currencies, please contact our tax team.
(1) Art. L54-10-1 of the French Monetary and Financial Code.
(2) Art. 150 VH bis and 200 C of the French General Tax Code.
(4) BOI-BIC-CHAMP-60-50 n° 730.
(5) Conseil d’Etat, 8th and 3rd joint chambers, 26 April 2018, n° 417809.
(6) Art. 1736, X of the French General Tax Code.