The Italian Revenue Agency in its recent reply to ruling has highlighted how States consider transactions related to virtual currencies exempt or excluded from the application of VAT, while with regard to direct taxes and IRAP the Agency has underlined that the Tuir rules governing foreign currency transactions must apply.
Definition of mining activities
The definition of mining has been provided by the “Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues” published by OECD on the 12 ottobre 2020, where this activity is described as:
“the process by which virtual currency transactions are verified and added to the blockchain-based ledger”.
The miner may be entitled to:
- a mining reward, paid through new tokens, and/or
- a percentage of the value of the transaction being processed and paid from that transaction.
Mining is therefore to be defined as an activity aimed at secure transactions within the blockchain technology on which cryptocurrency creation is based, including cryptocurrencies. The miner is an entity that act at the disposal of the so-called mining pool for the ‘mining’ (i.e. extraction) of a cryptocurrency or other and records the transactions in a ‘block’ and then transfers it to the ‘blockchain’, which is a kind of public register, accessible by the users of the network/system/network.
Treatment for VAT purposes
In its answer tu ruling No. 515, the Revenue Agency clarified that, since it is impossible to identify the existence of a ‘customised’ service provided by the miner to a specific beneficiary, the mining activity is not to be considered relevant for VAT purposes as there is no synallagmatic link. The miner does not have to collect tax in respect of the cryptocurrencies received by the network and, as it does not carry out taxable active transactions, it cannot exercise its right to deduct.
Furthermore, with regard to value added tax, the OECD publication just mentioned shows consistent behaviour of states as almost all of them treat transactions related to virtual currencies as exempt or excluded from the scope of VAT.
Treatment for direct taxes and IRAP
On the other hand, the Agency has taken a different position with regard to direct taxes and IRAP. The tax authorities note that the services are remunerated through virtual currencies and, therefore, the Tuir rules governing foreign currency transactions apply. Specifically, the relevant remuneration contributes to the formation of taxable income in the tax period in which the services can be considered completed.
For the purposes of IRAP, the miner’s remuneration contributes to the formation of net production, as it corresponds per se to revenues for services that can be attributed to the miner’s typical activity.
On the other hand, fluctuations in the value of cryptocurrency do not fall within the taxable base of the regional tax, as they do not pass through items recognised for IRAP purposes or in the absence of the conditions for the application of the correlation principle.