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Cryptocurrencies, or virtual currencies, have been attracting the attention of many people for years. Some may be investors, interested in acquiring virtual currencies as an investment opportunity. Others are attracted by the idea of using virtual currencies as a real alternative payment instrument.
What are cryptocurrencies and how do they work?
The technology behind how cryptocurrencies work is the so-called Blockchain. It exploits the characteristics of a digital network of nodes. This network transfers value through systems of algorithms and cryptographic rules. This allows a ledger containing data and information to be managed and updated in a unique and secure manner. There is no need for a central control and verification entity.
What enabled the development, and enables the transfer of cryptocurrencies, was the technological infrastructure called Distributed Ledger (DLT).
Distributed Ledger (DLT)
Distributed Ledger Technologies (DLT) are systems based on a distributed ledger, in which all nodes in a network have the same copy of a database that can be read and modified independently by individual nodes.
Technologies behind DLT may differ with regards to:
- Type of network, further divided into:
- permissioned: it requires access with an authorisation from a central entity.
- permissionless: anyone can access without authorisation.
- Related consent mechanism, which can be more or less simple depending on the type of network used, the way consent is reached (distributed consent), and
- Structure of the ledger.
Cryptocurrencies in Italy
Because of their economic nature and the technology based on a freely accessible widespread protocol, these virtual currencies have been difficult to regulate, and still are.
In Italy, the existence of virtual currencies was initially recognised by Legislative Decree no. 90 of 19 June 2017 (art. 1, paragraph 2, lett. q), which transposed EU Directive 2015/849 of 20 May 2015 on anti-money laundering. However, as is well known, until now there was no specific tax legislation on the subject of income derived from cryptocurrencies.
Unified tax regulation of the crypto-asset phenomenon was only recently introduced into the national legal system with the Budget Law 2023 (Article 1, paragraphs 126 to 147 L. 197/2022).
How are cryptocurrencies taxed in Italy?
For Irpef purposes, capital gains or other income realised through the sale for consideration, exchange or holding of cryptocurrencies are taxed.
In relation to virtual currencies and mining activities, the Italian Revenue Agency provided clarifications on the treatment of mining for VAT and IRAP purposes.
Sale for consideration of cryptocurrencies
Article 1(126) of Law 197/2022 inserts in Article 68 of the T.U.I.R. paragraph 9-bis and defines the taxable base for the capital gain as:
the difference between the consideration received, or the normal value of the exchanged cryptocurrencies and the cost or purchase value incurred.
Capital gains will therefore have to be added algebraically to the relevant capital losses. As a result of the new legislation, they will only be taxed at 26% if they exceed €2,000 in the tax period.
The possibility is introduced to fully unbundle capital losses. This applies only if they exceed €2,000. They can be offset against capital gains in subsequent periods. This is allowed up to the fourth following tax period. The losses must be indicated in the tax return.
There is also the possibility to obtain recognition of past capital losses. These losses were realised before the new provision entered into force. They are determined under Article 67, paragraph 1, Tuir. Specifically, subparagraphs c-ter) and c-quater) apply. The rules in force until 31 December 2022 are used.
Exchange of cryptocurrencies
With regard to income realised through an exchange, the relevance of exchange transactions between crypto-assets having the same characteristics and functions is explicitly excluded.
As stated in the draft explanatory memorandum, the use of a cryptocurrency to purchase goods or services is relevant. This also applies when purchasing another type of cryptocurrency. An example is buying a non-fungible token. The conversion of cryptocurrency into euro is also relevant. The same applies to conversion into foreign currency.
Holding Cryptocurrencies in Italy
Nothing is clarified regarding the taxability of capital gains arising from the mere holding of crypto assets.
Managed and administered assets
The legislature also addresses the tax treatment of capital gains in the event that crypto assets are held in custody, administration or deposit with certain qualified parties, identified by the legislature for this purpose, who will apply the 26% rate, on individual transactions, as tax substitutes.
In the latter case, the tax itself will have to be calculated only on the basis of the relevant documentation, and not on the basis of a substitute declaration certifying the data.
In addition, the transfer of crypto-assets to third parties for mere detention, unless by inheritance or gift, is considered to be a transfer for consideration and thus becomes taxable.
Fiscal monitoring and stamp duty
The rule extends the taxes set forth in Article 13 of the Tariff, Part I. It refers to Presidential Decree No. 642/1972. These taxes are extended to crypto-assets. The rule introduces the application of stamp duty. The rate is 2 per thousand per annum. It is paid in the manner and terms of income tax and pplies to the final value of crypto-assets.
Innovations introduced by the Budget Law 2023 on Cryptocurrencies in Italy
The Budget Law 2023 introduced a new system for the taxation of cryptocurrencies, also providing for an amnesty to put in order gains never declared to the tax authorities.
Article 1, paragraph 126 of Law 197/2022 inserts a letter c-sexies into Article 67, paragraph 1 T.U.I.R. defining ‘crypto-assets’ as:
a digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology. The exchange between crypto-assets having the same characteristics and functions does not constitute a tax-relevant case
thus filling the regulatory gap that existed until now on the subject.
Previously the word ‘cryptocurrency’ was limited to coins and tokens. Now, “crypto-assets” extends the scope of taxation to any type of digital asset falling within the definition, such as Non-Fungible Tokens (NFT).
The law also introduces a specific exclusion threshold of €2,000.00 per tax year, below which income from cryptocurrencies will not be taxed.
The legislator therefore chose to include certain crypto-related income. This includes capital gains and other income from crypto-assets.
The income derives from redemption or sale for consideration. It also includes exchange or holding of crypto-assets. These items fall under the macro-category of miscellaneous income. This principle can partly be inferred from Interpello No. 788/2021. That ruling states that forward sales of virtual currencies are always taxable. The same approach appears in Ministerial Resolution No. 72/E of 2016.
Redetermination of Purchase Value
An important novelty was introduced by Article 1 Paragraph 133 of the new Budget Law 2023 concerning the possibility of restating the value of crypto-assets.
Specifically:
for each crypto-asset held as of 1 January 2023, the value as of that date, determined pursuant to Article 9 of the aforementioned Consolidated Act, may be assumed instead of the cost or purchase value, provided that the aforementioned value is subject to a substitute tax on income taxes at the rate of 14 per cent.
More specifically, the new legislative framework grants a revaluation option. It allows revaluing the purchase value as of January 1st, 2023. The revaluation equals the crypto value on that date. A substitute tax of 14% must be paid: this applies to each crypto-asset held.
The tax must be calculated on the normal value of the entire amount of the crypto-assets held on 01/01/2023 and must be paid:
- by 30 June 2023 in one lump sum or
- in 3 equal annual instalments starting on 30 June 2023. After the first instalment – which can be paid from 30 June – interest at the rate of 3% per annum must be paid on the amount of the subsequent instalments.
However, the value thus “franked” may not be used for the emergence of capital losses that can be ‘carried forward’ under the new provisions.
Cryptocurrencies and tax returns in Italy
Another important novelty was introduced by the Budget Law 2023. It recognized a possibility for certain taxpayers. This applies to those who did not report crypto-assets in Income Form PF 2022. The reference year was 2021. The omission concerned the RW panel or related income in the RT panel. These taxpayers were allowed to bring such assets to light.
Regularisation will be made possible through a special declaration. It must be submitted by the taxpayer. This declaration brings the assets and related income to the surface.
The legislator thus defines the taxes and amounts applicable for the regularisation of crypto-assets depending on whether or not income has been generated:
-
Those who earned income from crypto-assets during the relevant period are included. The income must relate to assets subject to regularisation. They may regularise their position by submitting the declaration mentioned above. A Substitute Tax of 3.5% must be paid. It is calculated on the value of crypto-assets held at year-end or at realisation. An additional 0.5% is due for each year. This applies to the value of undeclared assets. It is charged as penalties and interest.
- In the event that only the indication in the RW panel has been omitted, and no income has been earned, the legislator provides for the application of 0.5% for each year.
Regularisation
It will not be possible to regularise crypto-assets that are the result of illegal activities or that were acquired through income derived from illegal activities.
Learn more in our guide on the voluntary disclosure of cryptocurrency.
Additionally, the Italian Revenue Agency provided further clarification. Cryptocurrency stacking activities are considered as capital income. They must be reported within the RL panel of the “Modello Redditi”.
