The short answer is no. However, there are some important factors to consider when assessing your company's tax liability in connection with cryptocurrency investments. In a recent decision, the Danish Tax Council has made a statement on these topics, which we summarize in this news item.
In a binding answer dated May 31, 2022, the Danish Tax Council has answered a number of questions regarding taxation of cryptocurrency in corporate form.
This is the first binding answer where the Danish Tax Council states how a company investing in cryptocurrency should be taxed.
The specific case concerns a limited liability company established for the purpose of making investments in cryptocurrency and generating a return on them.
According to section 23(5) of the Capital Gains Tax Act, companies must generally be taxed on gains and losses on shares and securities. This means that the gain or loss for the income year is calculated as the difference between the value of the shares at the end of the income year and the beginning of the income year. In practice, this means that gains are taxed (or losses are deducted) even if the cryptocurrencies have not been realized.
The Tax Council has now confirmed that cryptocurrency in a company is taxed according to the realization principle. This means that gains (or losses) are only taxed at the time of a company's disposal of cryptocurrency. This means that unrealized gains are not taxed. This is because cryptocurrency is considered a capital asset, which is not covered by the Capital Gains Act, the Capital Gains Tax Act or other special tax laws. Thus, cryptocurrency is taxed in corporate form according to sections 4-6 of the State Tax Act.
When cryptocurrency transactions are made, a fee, also called 'gas fees', is typically paid to the blockchain network. The question is whether a company investing in cryptocurrency can obtain a deduction for this expense as an operating expense under section 6(1)(a) of the Danish State Tax Act. The condition for this is that it must be an expense incurred to acquire, secure and maintain the company's income. In addition, there must be a direct and immediate connection between the incurrence of the expense and the acquisition of the income.
In the case, the Tax Council found that gas fees - in accordance with other practice - cannot be deducted as an operating expense but must instead be added to the acquisition price and deducted from the disposal price.
Finally, the Tax Council confirmed that the FIFO principle is also applied to a company's trades in cryptocurrency, unless the cryptocurrencies disposed of can be identified. In that case, the asset-for-asset principle must be applied.
The Tax Council's decision can be read here.
As Denmark's only specialist office within cryptocurrency, Samar Law has extensive experience in advising on cryptocurrency taxation matters. Have you received a letter from the Danish Tax Agency and are unsure what to do? Then we encourage you to contact lawyer Payam Samarghandi at payam@samarlaw.dk or mobile 60793777 for a non-binding conversation.
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