Buying and selling virtual currencies: taxation in the investor's personal income tax

Individuals, taxpayers of IRPF , can buy and sell virtual currencies and when these operations are not carried out within the scope of an economic activity, they may give rise to a capital gain or loss for the difference between the transfer value and the acquisition value.

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

a) Exchange of virtual currencies for legal tender (fiat currency)

Regulations: Articles 35, 14 and 46.b) Law IRPF

Subject

In accordance with article 1.6. of Law 10/2010, of April 28, on the prevention of money laundering and the financing of terrorism, “exchange of virtual currency for fiduciary currency” shall be understood as the purchase and sale of virtual currencies through the delivery or receipt of euros or any other foreign currency of legal tender or electronic money accepted as a means of payment in the country in which it was issued.

Capital gain or loss

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

The capital gain or loss must be determined, for each sale transaction of each type of cryptocurrency, by the difference between the amount of euros obtained from 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, where appropriate, 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 carrying out said operations, and those referred to in article 35 of the Tax Law, provided that they are directly related to them and are paid by the taxpayer.

Identification of transmitted coins

Cryptocurrencies of a type, computable by units or fractions of units, have their origin in the same computer protocol and all of the same type have the same characteristics, being equal to each other, which gives the different units or fractions of units of the cryptocurrency in question the nature of homogeneous goods.

For the purposes of determining the corresponding capital gain or loss and to the extent that the Income Tax Law not establish a different specific rule to identify, in the case of homogeneous virtual currencies (for example, bitcoin), those that are understood to be transferred, it must be considered that in the event of partial sales of virtual currencies that have been acquired at different times and at different values, those that are transferred are those acquired first criterion).

Temporary imputation of capital gain or loss

According to article 14 of the Personal Income Tax Law , it will occur at the time when the virtual currencies are delivered by the taxpayer under the sales contract, regardless of the time when the sale price is received, and therefore the capital gain or loss produced must be attributed to the tax period in which said delivery was made.

Income class

The amount of capital gains or losses that arise from the transfer of virtual currencies in exchange for money constitute savings income in accordance with the provisions of article 46. b) of the Personal Income Tax Law and are integrated and offset in the taxable savings base in the manner and with the limits established in article 49 of the same Law.

Operations involving the sale of virtual currencies in exchange for euros carried out outside of an economic activity must be included in the personal income tax return corresponding to the tax period in which said operations were carried out in the specific section "Capital gains and losses derived from the transfer or exchange of virtual currencies by individuals" of the return.

b) Exchange of one virtual currency for another different one

Regulations: Articles 37.1.h), 14 and 46.b) Law IRPF

Delimitation

The exchange of a virtual currency for another different virtual currency constitutes, to the extent that they are different goods, an exchange, in accordance with the definition contained in article 1,538 of the Civil Code, which provides: “The exchange is a contract by which each of the contracting parties is obliged to give one thing to receive another” .

Capital gain or loss

Such exchange, when carried out outside of an economic activity, gives rise to an alteration in the composition of the assets, since an amount of one virtual currency is replaced by an amount of another different virtual currency, and on the occasion of this alteration a variation in the value of the assets is revealed, materialized in the value of the virtual currency that is acquired in relation to the value at which the virtual currency that is delivered in exchange was obtained.

Consequently, the exchange between different virtual currencies carried out by a taxpayer outside of an economic activity gives rise to the obtaining of income that is classified as capital gain or loss.

To quantify the capital gain or loss the specific valuation rule for the exchange provided for in article 37.1.h) of the Personal Income Tax Law is applied, according to which the capital gain or loss will be determined by the difference between the acquisition value of the virtual currency that is delivered and the highest of the following two:

• The market value of the virtual currency delivered.

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

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

As regards the market value corresponding to the virtual currencies being exchanged, it is the value that would correspond to the price agreed for their sale between independent subjects at the time of the exchange.

Identification of transmitted coins

Cryptocurrencies of a type, computable by units or fractions of units, have their origin in the same computer protocol and all of the same type have the same characteristics, being equal to each other, which gives the different units or fractions of units of the cryptocurrency in question the nature of homogeneous goods.

For the purposes of determining the corresponding capital gain or loss and to the extent that the Income Tax Law not establish a different specific rule to identify, in the case of homogeneous virtual currencies (for example, bitcoin), those that are understood to be transferred, it must be considered that in the event of partial sales of virtual currencies that have been acquired at different times and at different values, those that are transferred are those acquired first criterion).

Temporary imputation of profit

This imputation will occur, in accordance with article 14 of the Tax Law, at the time when the virtual currencies are exchanged.

Any loss of assets that may arise from an exchange between different virtual currencies must be accredited (at the request, where appropriate, of the tax management and inspection bodies) through the means of proof generally accepted by law.

Income class

The amount of capital gains or losses arising from exchange transactions between different virtual currencies constitute savings income in accordance with the provisions of article 46. b) of the Personal Income Tax Law and are integrated and offset in the taxable savings base in the manner and with the limits established in article 49 of the same Law:

Virtual currency exchange transactions carried out outside of an economic activity must be included in the personal income tax return corresponding to the tax period in which said transactions were carried out, which, where applicable, must be submitted by the taxpayer in the section "Capital gains and losses derived from the transfer or exchange of virtual currencies by individuals" of the return.

c) Capital losses. For non-return of deposited coins or bankruptcy of the virtual currency buying and selling platform

Regulations: Articles 14.2.k) and 45 Law IRPF

In these cases, the amount of a credit not returned on its due date does not automatically constitute a capital loss, as the creditor maintains his right to credit, and must resort to the special rule of temporary imputation provided for in article 14.2.k of the Income Tax Law for these cases of uncollected credits.

Temporary imputation of loss

According to article 14.2.k) of the Personal Income Tax Law capital losses arising from overdue and uncollected credits may be imputed to the tax period in which any of the following circumstances occur:

1. That a reduction established in a judicially comparable refinancing agreement referred to in article 71 bis and the fourth Additional Provision of Law 22/2003, of July 9, Bankruptcy, or in an extrajudicial payment agreement referred to in Title X of the same Law, becomes effective.

2. That, if the debtor is in a situation of bankruptcy, the agreement in which a reduction in the amount of the credit is agreed upon becomes effective in accordance with the provisions of article 133 of Law 22/2003, of July 9, Bankruptcy, in which case the loss will be computed by the amount of the reduction.

   Otherwise, the bankruptcy proceedings may be concluded without the debt having been satisfied, except when the conclusion of the bankruptcy is agreed for the reasons referred to in sections 1, 4 and 5 of article 176 of Law 22/2003, of July 9, Bankruptcy.

3. That a period of one year has elapsed since the start of the judicial procedure other than bankruptcy proceedings that have as their object the enforcement of the credit without the credit having been satisfied.

When the credit is collected after the calculation of the capital loss referred to in this letter k), a capital gain will be imputed for the amount collected in the tax period in which said collection occurs.

Income class

Since this is a capital loss that has not been made manifest on the occasion of transfers of assets, it will form part of the general income , and must be integrated into the general taxable base of the IRPF (articles 45 and 48 of the IRPF Law ).