In recent years, the number of people who have invested in cryptocurrencies has increased enormously, as an internet niche has grown from an obsessively talked about digital currency to a well-known and discussed investment tool. There are no certain data, but it is estimated that over 100 million people around the world own cryptocurrencies, a number that has grown at a very high rate in the last period. Those who invest in cryptocurrencies have probably made excellent deals in recent months, since the whole sector is growing strongly: those who, for example, invested 1,000 euros in bitcoin at the end of 2020 today have already almost quadrupled the initial amount.
But those who want to start enjoying their assets have a problem: compared to other types of investments, understanding how to pay taxes can be complicated. For this reason, many people have not yet managed to collect the earnings, for the moment stored in digital format on some specialized site.
In Italy, the tax legislation on cryptocurrencies is not based on a single source, as could be a law approved by Parliament, but on various opinions of the Revenue Agency and on judgments of courts. This has created a variety of interpretations, especially online, which can become a problem for small investors: those who have bought cryptocurrencies often do not know what the requirements they must comply with and not even that in most cases they risk finding themselves in a situation of irregularities.
Compared to more institutional financial investments – such as government bonds – cryptocurrencies have rather peculiar characteristics. Traditionally, especially until a few years ago, most of the financial investments were made through an intermediary, such as a bank, which also acted as withholding agent: that is, he dealt with most of the taxes. Things have partly changed with the introduction of trading apps such as Robinhood or eToro, which do not offer this service, but most banks, even online ones, provide various guarantees and advice on investment taxation.
Cryptocurrencies are different: they are bought and exchanged without intermediaries on almost all foreign platforms that allow, among other things, a good degree of anonymity, and the investor must worry about compliance with the tax authorities. This is not a problem for large and structured investors, who can pay specialized tax consultants: but it could become so for individuals, also because in many circumstances cryptocurrencies were not necessarily bought as an investment. Especially a few years ago, many people bought cryptocurrencies as a game, to try something new, in the hope of being able to use them as a currency or to support the somewhat anarchic cause that united fans at the time. Buying cryptocurrencies was a bit like buying credit on an e-commerce site, and therefore it was not obvious to have to pay taxes.
Things have changed over the years, and a lot. Those who had invested years ago now often find themselves with assets of considerable value, and understanding how to do to be okay with the taxman can become complicated: online you can find opinions of all kinds, and even accountants, if they are not experts in the subject, they risk giving sometimes misleading advice. “The public administration has a certain responsibility in not clarifying unequivocally what needs to be done” says Ferdinando Ametrano, professor at the Milan-Bicocca University, expert in cryptocurrencies, as well as an entrepreneur active in the sector.
The problem is quite widespread: «One of the first issues that interest our customers is that of taxation. Small investors in particular are afraid of finding themselves in trouble in front of the regulator “explains Andrea Ferrero, CEO and co-founder of Young Platform, an Italian platform for the trading of cryptocurrencies that came out of the startup incubator of the Polytechnic of Turin (I3P).
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What the law says
For those who have experience and know where to look, understanding how cryptocurrency taxation works is complicated but all in all feasible. “The law is as complex as all the legislation concerning financial investments, and moreover it is rather fragmented, but its consequences are quite clear” says Serena Pietrosanti, head of the tax law department of the Hogan Lovells law firm in Italy.
The main problem is fragmentation: since there is no univocal rule, the main indications on what to do derive from a series of clarifications of the Revenue Agency's practices, that is, from clarifications provided to citizens – some of which have been provided to an individual but not officially published, and are known only because they have been disseminated in the community of experts and enthusiasts.
Furthermore, some of these clarifications do not come from the headquarters of the Revenue Agency, which is in Rome, but from regional offices such as those of Lombardy and Liguria. “This usually happens because in the central management of Rome there is no unanimity of views on an issue, and the Agency itself prefers not to officially take a stand in waiting for a legislative intervention,” says Francesco Avella, an accountant expert in cryptocurrencies.
All these interpretations, however, indicate quite clearly that from the point of view of the Revenue Agency, cryptocurrencies must be equated with investments in foreign currencies with legal tender. This creates some problems, because although the legislation on the taxation of foreign currency investments has been clear and established for some time, many aspects of cryptocurrencies escape equation. «The operations of foreign currencies have certain characteristics and are mainly managed by banks. Furthermore, while there are relatively few foreign currencies, there are many cryptocurrencies, and they have very different characteristics “, explains Giorgio D'Amico, accountant expert in cryptocurrencies.
In any case, browsing among many interpretations and various judgments (there are among others an important sentence of the European Court of Justice of 2015 and one of the Lazio TAR of 2020 to be taken into consideration) among Italian accountants and legal experts some consensus on how to operate in this field. Simplifying as much as possible, and taking into consideration only the very basic case of a person who bought a cryptocurrency and kept it in a digital wallet, the Italian taxman asks the investor two things: that he indicate the value of the cryptocurrencies in his possession. in the tax return, for information purposes, and that he pays an income tax of 26 percent when thanks to cryptocurrencies he obtains capital gains, that is, a gain. For example by selling bitcoins in exchange for euros. However, taxes on capital gains must be paid only if the value of the average stock in the last year exceeded 51,645.69 euros, i.e. the equivalent of 100 million lire.
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The problems
In theory, the rule is quite convenient for small investors, who, if they do not hold cryptocurrencies whose value exceeds 51 thousand euros, in practice they do not have to pay taxes. Whoever buys cryptocurrencies today simply has to indicate them in a section of the tax return called “Quadro RW”: this indication is for information only and does not provide for any taxation. Then, when the investor decides to sell his cryptocurrencies, he will be required to pay a tax only if these exceed 51 thousand euros.
There are actually numerous difficulties. Since there are no minimum thresholds regarding the compilation of Part RW (even those who own cryptocurrencies worth a few euros should indicate them in their tax returns), “we find ourselves in a situation in which even very small investors still have tax obligations »Says Giorgio D'Amico. The problem is that most of the smaller investors may not know they have them: perhaps they buy cryptocurrencies because they are interested in the news and do not know that they will then have to indicate them in their tax returns. According to Serena Pietrosanti, “it is often believed that acting on a virtual platform does not generate obligations for tax purposes, and this could have created pockets of irregularities in small investors”.
Furthermore, the rule, which was published only a few years ago, is retroactive, so even those who bought cryptocurrencies in previous years and did not declare them are theoretically in a state of irregularity.
In essence, most of the cryptocurrency investors in Italy are most likely in a position of irregularity in the eyes of the taxman. “The phenomenon we see is that many users keep their cryptocurrencies in foreign exchanges such as Binance or Coinbase and do not even know what Quadro RW is because they have never had the need to do so and in any case they would not know how to behave”, says Andrea Ferrero. It is impossible to estimate how many investors are in a position of irregularity, also because cryptocurrencies are largely untraceable, but some experts heard by the Post have estimated that in Italy they are certainly more than 50 percent.
It is not a serious irregularity: to remedy it, it is necessary to carry out an operation called “industrious repentance”, which requires you to pay a rather small fine for each year of non-declaration. But even here the lack of clarity of the rule intervenes, because the accountants disagree on what is the reference value on which to calculate the payment of the fine. Also for this reason, some investors prefer to avoid regularizing their position, confident that in any case it is almost impossible to be traced by the taxman.
Here comes another case history, that of those who perhaps entered the world of cryptocurrencies in the early years, when they were a somewhat anarchic project that had the intent to revolutionize the banking and financial system. In these cases, the decision not to regularize one's position may depend not on the lack of information or the fear of the complexities of the taxman, but on ideology: “Many start from the assumption that cryptocurrencies are par excellence outside the institutional rules, including those tax “, says Francesco Avella.
Another investor fear is that the norm will change. Davide Zanichelli is a deputy of the 5 Star Movement who at the end of last year, together with some colleagues, had presented an amendment to the budget law to definitively regulate the taxation of cryptocurrencies. The amendment has been deleted, and he himself defines it more as a provocation and a starting proposal, the purpose of which was to spread the idea that it is necessary to give investors more certainty. “You don't necessarily need a law intended as a primary rule, a decree from the Ministry of Economy would also suffice, but you need a firm point,” he says. “The current problem is that today's interpretation could easily change tomorrow. In recent years I have spoken to many worried investors who have told me: today I know I have to pay a certain sum in taxes, but I have no guarantee that in the future the taxman will not come back to look for me ». According to Zanichelli, “this uncertainty is potentially a great loss of opportunity”.
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What is lost
According to experts, for now the losses suffered by the Italian tax authorities due to the unclear legislation are very limited, because the taxes are triggered only at the moment where a capital gain is realized, and the general trend of investors right now is to hold onto their cryptocurrencies with the expectation that they will increase in value. Even if a large part of the investors were in an irregular position, therefore, until they decide to sell, they owe nothing to the taxman, which does not lose potential income.
That could change in the next few years, especially if the price of the best-known cryptocurrencies begins to stabilize and investors start wanting to enjoy their earnings. At that point it will be quite important to have a clear and defined norm, because then it will be c he investors will have to decide whether to pay the amount due to the Italian tax authorities or to use one of the methods to avoid taxes (there are many, already widely used and quite creative).
In any case, all the experts are noticing that in the last period more and more people have tried to regularize their position or at least have begun to ask themselves the problem, largely because, with the increase in value of cryptocurrencies, they have begun to have large assets in hand.
An immediate loss, however, concerns the entire economic system. According to experts, Italy has good development potential in the field of cryptocurrencies, which however risks being lost because the country is unattractive both for investors and for companies active in the sector. “The fact of not having clear legislation not only in terms of taxation but also in terms of regulation is a crazy loss of competitiveness”, says Ferrero.
How to fix it
The main problem with the taxation of cryptocurrencies will therefore begin to arise in a few years, when bitcoin and others will begin to come out of wallets and be used in real economy. To prepare properly, the taxman could create clearer and more detailed rules. According to Giorgio D'Amico, for example, it might be desirable to create a clearer distinction between small investors, who could enjoy a simplified path, and larger investors. Other forms of use of cryptocurrencies that still generate income should also be regulated precisely, such as mining (i.e. the computer process of creating bitcoin and other cryptocurrencies) and staking (another practice similar to mining).
Among experts, not without a certain degree of private interest, there is also much talk of an amnesty: due to the exceptional circumstances in which cryptocurrencies were born and spread, it might be reasonable to imagine that the state decides not to impose sanctions on those who decide to regularize their position with an industrious repentance, as is the case now, by adopting precautions to avoid money laundering.
An incentive system could be useful above all because, according to experts, some competition could arise in the coming years between countries, which will try to bring the wealth generated by cryptocurrencies into their financial systems.
