The rules are shifting, or maybe the dust is settling, on what the tax guidance is on crypto in Portugal and Germany.
October 17, 2022
By: Bobby Casey, Managing Director GWP
Perhaps some of you have heard the buzz around PayPal dabbling in some “Social Credit Score” nonsense? Or perhaps the Treasury coming for the crypto platform, “Tornado Cash”?
If not, it’s worth a brief recap.
PayPal
I’ll just lead with what they did:
A new policy in PayPal’s fine print triggered a storm of outrage over apparent plans to impose, starting on Nov. 3, a hefty fine of $2,500 any time one of its 429 million consumers and merchants expressed what the corporate brass deems to be misinformation.
The company immediately back-peddled saying that policy was posted in “error”. Two things about this: you don’t post terms and conditions without having your legal team review it. So more than one person saw it and said, “Yup! Good to go! Post that thing!”
Second, the irony of having a policy on “misinformation” carrying a $2,500 fine being dialed back and being called “misinformation” is too much! They are tripping over themselves over there as if they deliberately tied their left and right shoe laces together.
They ultimately removed the policy, but I have to wonder if no one noticed would it have been activated this November? And how many fines would’ve been exacted before anyone noticed? Was it truly just someone finding the policy and taking to social media that prevented at least THIS attempt?
US Department of Treasury
The Treasury Department announced in August that they are blacklisting Tornado Cash to stop hacking, money-laundering, and “other crypto crimes” (ostensibly tax evasion).
A so-called cryptocurrency mixer, Tornado Cash is designed to make it harder for law enforcement officials and other observers to track crypto transactions… [W]hen people route their cryptocurrency through a mixer, streams of funds are combined to obscure where the money originated.
Unlike some other crypto privacy services, Tornado Cash is not a traditional company run by a team of executives. It is a set of “smart contracts” — pieces of code that operate independently of any entity.
Investors funded by Coinbase are bringing a suit against the DoT claiming they are taking action against what basically amounts to a software program, and that agency does not have the authority to restrict access to software.
Portugal
All this to say, you never know who is going to flip! One minute, things are going great. Next minute, they are coming for your wealth. And it can be that quick and that unforeseen. This is why I tell folks to diversify.
So back in May of 2021, I wrote about Portugal’s crypto-friendly government and Golden Visa:
Basically, citizens don’t pay taxes on buying, selling, trading, or mining crypto. This is a major distinction that even other EU countries don’t necessarily agree upon, but Portugal has thus far been a stalwart.
The hope is that economic downturns don’t change their minds to where they begin to see crypto exchange as a revenue source.
Sadly, it seems the former is on the chopping block. That last part appears to have affected the way they look at crypto starting next year.
…[T]he Portuguese government will impose a 28% capital gains tax on cryptocurrency gains made within one year. However, gains realized after one year of holding the crypto assets will be exempt from such a tax.
They also intend to level a 4% tax on any free crypto transfers (applying stamp duties where applicable.)
This has not been codified yet, but as Europe heads toward a very bleak economic future, it’s expected to pass. The opposition to this is strong, as a similar proposal to tax Bitcoin earlier in the year was shot down. But that was then.
The bill has not been approved by their legislature yet, so there is still a small ray of hope, but be ready for changes to come.
Germany
To be fair, 28% is on par with their regular capital gains taxes, and even Germany is looking to take a very similar approach.
[T]he sale of acquired cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH) is now tax-free for individuals after one year of owning the assets, Parliamentary State Secretary Katja Hessel said in a statement. Moreover, the new guidance also applies to digital assets used in staking or lending protocols.
Section 23 of the German Income Tax Act stipulates that if the period between acquisition and sale of an asset is more than one year, the full amount of the gains is tax-free.
Previously, cryptocurrencies used for staking or to otherwise generate a profit may have had to be held for up to 10 years to receive a tax exemption. That’s no longer the case.
As the world faces varying degrees of recession, inflation, and energy shortages, expect the tax regimes to continue to be revisited, revised, and “optimized” toward those with wealth. Sometimes, it’s just about finding safer or less onerous jurisdictions rather than optimal ones.
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