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Practical guide to 2022 Income Tax.

Purchase and sale of virtual currencies: Taxation of the investor's personal income tax

Individuals, Personal Income Tax taxpayers, can buy and sell virtual currencies and when these transactions are not carried out in the field of economic activity, they can result in a capital gain or loss due to the difference between the transfer value and the acquisition value.

Depending on the type of transaction carried out, the following situations can be distinguished:

A) Exchange of virtual currencies by legal currency (fiduciary currency)

Regulations: Articles 35, 14 And 46.b) Personal Income Tax Act

Subject

In accordance with Article 1,6. Of Act 10/2010, of 28 April, on the prevention of money laundering and terrorist financing, shall be understood as "virtual currency exchange by fiduciary currency" the purchase and sale of virtual currencies by delivering or receiving euros or any another foreign currency of legal course or electronic money accepted as a means of payment in the country in which it has been issued.

Capital gain or loss

The sale of virtual currencies in exchange for euros or other legal tender coins, carried out outside an economic activity, will result in a capital gain or loss whose amount will be determined by the difference between the respective transfer and acquisition values.

The capital gain or loss must be determined, for each transaction of sale of each type of cryptocurrency, by the difference between the amount of euros obtained in the sale (unless it is lower than its normal market value on the date of sale, in which case the latter shall prevail) and its acquisition amount in euros, determined, if applicable, by applying the exchange rate to euros of the currency in force on the date of acquisition of the cryptocurrency that is the object of the sale, taking into account the expenses and taxes that arise from the execution of these transactions, and those referred to in article 35 of the Personal Income Tax Act, provided that they are directly related to them and are paid by the taxpayer.

Identification of the transferred coins

Cryptocurrencies of a type, which are eligible for units or fractions of units, originate from the same computer protocol and all those of the same type has the same characteristics, being the same as each other, which confers on the different units or fractions of the cryptocurrency units in question the nature of homogeneous goods.

For the purposes of determining the corresponding capital gain or loss and to the extent that the Personal Income Tax Act does not establish a specific rule different to identify, in the case of homogeneous virtual currencies (e.g. bitcoin), those that are understood to be transmitted, must be considered that if partial sales of virtual coins have been made at different times and at different values, the ones that are transmitted are the ones acquired in the first place (FIFO criterion).

Temporary allocation of capital gains or losses

In accordance with article 14 of the Personal Income Tax Act, it will take place at the time of delivery of virtual currencies by the taxpayer under the purchase agreement, regardless of the moment when the sale price is received, and therefore, the capital gain or loss produced in the tax period in which this delivery has been made is attributed.

Income class

The amount of capital gains or losses that are evident in the transfers of virtual currencies in exchange for money, constitute savings income in accordance with the provisions of Article 46. B) of the Personal Income Tax Act and are integrated and offset in the taxable base of savings in the form and with the limits established in article 49 of the same Act.

Transactions for the sale of virtual currencies in exchange for euros made outside an economic activity must be included in the corresponding Personal Income Tax return the tax period in which these transactions have been carried out in the section "Capital gains and losses derived from the transfer or swap of virtual currencies by individuals" of the tax return.

Summary

Capital gain or loss.

Amount: Difference between transfer and acquisition value

Attributable to the financial year in which the currency is delivered under the purchase and sale agreement.

Income from savings because it comes from the transfer of an equity element

B) Exchange of a virtual currency for another different currency

Regulations: Articles 37.1.H), 14 and 46.b) Personal Income Tax Act

Delimitation

The exchange of a virtual currency for another different virtual currency constitutes, insofar as they are different assets, a swap, in accordance with the definition set out in article 1,538 of the Civil Code, which has: "The swap is a contract whereby each of the contracting parties undertakes to give one thing to receive another."

Capital gain or loss

This exchange, when carried out outside an economic activity, results in an alteration in the composition of the assets, since replaces a quantity of a virtual currency with a different amount of virtual currency, and this alteration shows a variation in the value of the assets materialized in the value of the virtual currency acquired in relation to the value to which the virtual currency delivered in exchange was obtained.

Consequently, the exchange between different virtual currencies made by a taxpayer outside an economic activity results in the acquisition of income that is classified as capital gains or losses.

To quantify the capital gain or loss, the specific valuation rule of the swap provided for in Article 37.1.h is applied the Personal Income Tax Act in which the capital gain or loss will be determined by the difference between the acquisition value of the virtual currency being delivered and the largest of the following two:

  • The market value of the virtual currency delivered.

  • The market value of the good or right received in exchange.

For subsequent transfers, the value of the acquisition of virtual currencies obtained by swaps will be the value that the taxpayer has taken into account by applying the rule provided for in article 37.1.h) as the transfer value in this swap.

As for the market value of the virtual currency that is exchanged, it would correspond to the agreed price for sale between independent parties at the time of the swap.

Identification of the transferred coins

Cryptocurrencies of a type, which are eligible for units or fractions of units, originate from the same computer protocol and all those of the same type has the same characteristics, being the same as each other, which confers on the different units or fractions of the cryptocurrency units in question the nature of homogeneous goods.

For the purposes of determining the corresponding capital gain or loss and to the extent that the Personal Income Tax Act does not establish a specific rule different to identify, in the case of homogeneous virtual currencies (e.g. bitcoin), those that are understood to be transmitted, must be considered that if partial sales of virtual coins have been made at different times and at different values, the ones that are transmitted are the ones acquired in the first place (FIFO criterion).

Temporary allocation of the gain

This allocation will take place in accordance with article 14 of the Personal Income Tax Act, at the time of the exchange of virtual currencies.

The capital loss that may arise from an exchange between different virtual currencies must be the subject of accreditation (at the request of the tax management and inspection bodies, if applicable, through the generally accepted means of proof in law.

Income class

The amount of capital gains or losses from swaps between different virtual currencies constitutes savings income in accordance with the provisions of Article 46. B) of the Personal Income Tax Act and are integrated and offset in the taxable base of savings in the form and with the limits established in article 49 of the same Act:

Transactions between virtual currencies carried out outside an economic activity must be included in the Personal Income Tax return corresponding to the tax period in that these transactions have been carried out, which, if applicable, the taxpayer must submit in the section "Gains and capital losses derived from the transfer or exchange of virtual coins by individuals" of the tax return.

Summary

The exchange between different virtual currencies results in capital gains or losses.

The change in equity is valued with the specific rules of the swaps.

The market value of the virtual currencies that are exchanged is that which would correspond to the agreed price for sale between independent parties.

Gains/(losses) are income from savings.

C) Capital losses. For not returning the deposited coins or for bankruptcy of the virtual currency trading platform

Regulations: Articles 14.2.K) and 45 Personal Income Tax Act

In these cases, the amount of a loan not returned at maturity does not automatically constitute a capital loss, as the creditor maintains your credit right, which must be subject to the special rule of temporary imputation provided for in article 14.2.k) of the Personal Income Tax Act for these cases of uncollected credits.

Temporary allocation of loss

According to article 14.2.k) of the Personal Income Tax Act, capital losses derived from past-due and uncollected credits may be attributed to the tax period in which any of the following circumstances occur:

  1. That it becomes effective a withdrawal established in a legally binding refinancing agreement referred to in Article and the Additional Provision 71 fourth of Act 22/2003, of 9 July, Bankruptcy, or in an out-of-court settlement of payments to which Title X of the same Act refers.

  2. That, when the debtor is in a situation of bankruptcy, it becomes effective to acquire the agreement in which a withdrawal in the amount of the credit agreed in accordance with Article 133 of Act 22/2003, of 9 July, Bankruptcy, in which case the loss will be calculated for the amount of the withdrawal.

    In another case, the bankruptcy proceedings should be concluded without the credit being paid, except when the conclusion of the bankruptcy proceedings is agreed for the reasons to which the provisions of article 1, paragraphs 4, 5 and 176 of Act 22/2003 of 9 July, Bankruptcy.

  3. The term of one year from the start of the judicial procedure other than those for insolvency aimed at the execution of the credit without it being satisfied.

When the credit is collected after the calculation of the capital loss referred to in point (k), a capital gain will be charged for the amount in the tax period in which this charge occurs

Income class

As this is a capital loss that has not been revealed as a result of transfers of equity elements, it will form part of the income General , and must be included in the general tax base of Personal Income Tax (articles 45 and 48 of the Personal Income Tax Act).

Summary

As soon as the amount of a loan not repaid at maturity does not constitute a capital loss.

The special rule for temporary imputation provided for in Article 14.2.k) of the Personal Income Tax Act applies for these cases of uncollected credits.

It will form part of the general income, and must be included in the general tax base of Personal Income Tax.