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2021 Wealth Tax practical guide.

14. Virtual currencies

Regulations: Art. 24 Wealth Tax Act

The "virtual currency" (also called "cryptocurrency") is defined in article 1,5 of Act 10/2010 , of 28 April, on the prevention of money laundering and terrorist financing, such as "the digital representation of unissued value not guaranteed by a central bank or public authority, not necessarily associated with a legally established currency and that does not have a legal status of currency or money , but which is accepted as a means of change and can be negotiated, stored or transferred electronically . "

Taking this definition into account, virtual currencies are considered, for tax purposes, as immaterial assets, eligible for units or fractions of units, that they are not legal tender currency, but are used as a means of payment as they can be exchanged for other goods, including other currencies virtual, rights or services if accepted by the person or entity that transmits the good or right or provides the service. Since virtual currencies such as the rest of the assets held by the taxpayer for Wealth Tax must be declared.

Under the term "virtual currencies" various categories such as bitcoins (the most well-known and popular) and other alternative currencies other than these (which are generally referred to as "altcoins"), all of them under the common denominator of being created with a "cryptographic" basis (system that protects information and communications using algorithms that makes them secure and immutable tables) and operate independently on their own DLT networks (distributed registration technology or blockchain), allowing a public register of all transactions carried out with the corresponding virtual currency, up to the most recent ones such as statecins (which are virtual currencies) designed to reduce the volatility of bitcoin or other cryptocurrencies, as they are linked to the value of one or more legal currencies - such as the dollar or euro -, material goods such as gold or real estate, or other cryptocurrency or controlled by algorithms that allow a stable price to be maintained) and, in general, the so-called "tokens" of payment that, unlike the previous ones ( bitcoins or altcoins), do not have their own DLT or blockchain, so they require another DLT (non-proprietary) platform to operate. For example, Ethereum is one of the platforms that allows people or entities to create their own virtual currencies to finance projects.

Project financing through these platforms is currently taking place mainly through the so-called "initial offers of cryptography currencies "or ICOs (Initial Coin Offering, an acronym that evokes the term IPO or Initial Public Offering, used in relation to flotation processes),

However, the ICO expression may refer to both the actual issuance of cryptocurrencies and the issuance of rights of a variety of nature generally called "tokens."

The term token ("sheet" could be translated into Spanish) is broader than that of cryptocurrencies, since it can be used not only as a means of payment but for other uses, as it turns any right into a taxable and tradable digital asset. A token can represent a currency, but also a property, an action, a financial asset, etc. Hence, we are currently talking about cryptoassets.

The uses and characteristics of these "tokens" (tokens or cryptoassets) vary, with the most common classification of these "tokens" being that which allows the differentiation between two types or categories:

  • "Payment tokens," cryptocurrencies or virtual currencies, which are used as a payment method and as a value deposit and a measurement unit, operating the legal course money in a similar way. They are traded and can be exchanged for traditional or virtual coins on platforms specializing in currencies, after they are issued.

  • Security tokens, designed as marketable assets held for investment purposes, since they generally grant voting or participation rights in future income or in the increase of the value of the issuing entity or a business.

  • "Useful tokens" ("Utility tokens"), translated into Spanish as "service sheets," which they give the right to access a service or receive a product, without prejudice to what is usually mentioned on the occasion of the offer of revaluation and liquidity or the possibility of trading them in specific markets.

In the case of virtual currencies, the taxpayer must declare the balance of each currency in the Wealth Tax virtual different from that which is the holder at the accrual date, i.e. at 31 December of each year, and valued at price on the market on that date, i.e. for its equivalent value in euros at that date.

Obligation to report balances in virtual currencies

Regulations: Additional Provision 39 Personal Income Tax Act and Article of the Regulations

Since 11 July 2021, Act 11/2021, of 9 July, on prevention and fight against tax fraud, transposing the Council Directive (EU) 2016/1164 of 12 July 2016, by which establishes rules against tax avoidance practices that directly affect the operation of the internal market, the modification of various tax rules and with regard to the regulation of the game (Official State Gazette of 10), the thirteenth Additional Provision of the Personal Income Tax Act has been amended to establish two new reporting obligations relating to holding and trading with virtual currencies.

With regard to the holding of virtual coins, it is established for people and entities resident in Spain and permanent establishments in Spanish territory of persons or entities resident abroad, providing services to safeguard private cryptographic keys on behalf of third parties, to maintain, store and transfer virtual currencies , the service is already provided on a principal basis or in connection with another activity, the obligation to file an annual informative tax return regarding the entire of virtual currencies to which the private cryptographic keys are safeguarded.

The information to be supplied to the Tax Administration will include the name and surname (s) or company name or full name and tax identification number of the persons or entities to whom private cryptographic keys correspond at any time of year, whether as holders, authorized users or beneficiaries, the public keys linked to these private keys and the balances at 31 December.

These new information obligations on virtual currencies are pending regulatory development.