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Cryptocurrency taxation: new features introduced by the Budget Law 2023

General introduction with details on how Budget Law 2023 determines new taxation features for Crypto in Italy.

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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, which exploits the characteristics of a digital network of nodes, transferring value to each other through a system of algorithms and cryptographic rules. This allows a ledger containing data and information to be managed and updated in a unique and secure manner without the 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, only if they exceed EUR 2,000, from the amount of capital gains in subsequent periods, up to the fourth tax period following the one in which the capital losses were realised, provided they are indicated in the tax return.

There is also the possibility to obtain the recognition of capital losses realised until the entry into force of the new regulatory provision, determined according to the criteria set forth in subparagraphs c-ter) and c-quater) of Article 67, paragraph 1, Tuir in force until 31 December 2022.

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 a good or service or another type of cryptocurrency (e.g., the use of a cryptocurrency to purchase a non-fungible token) or the conversion of a cryptocurrency into euro or foreign currency becomes relevant for tax purposes.

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, Presidential Decree No. 642/1972 to crypto-assets, introducing the application of stamp duty, at the rate of 2 per thousand per annum to be paid in the manner and terms of income tax, 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.

Whereas previously the word ‘cryptocurrency’ was limited to coins and tokens, “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 EUR 2.000,00 per tax year, below which income from cryptocurrencies will not be taxed.

The legislator therefore wished to include capital gains and other income realised through the redemption or sale for consideration, exchange or holding of crypto-assets under the macro-category of miscellaneous income; a principle that can be inferred to some extent from Interpello No. 788/2021 in which it is specified that forward sales of virtual currencies are always taxable (see also 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 the possibility to revalue the purchase value as of January 1st, 2023 by an amount equal to the value that the crypto had on that date, by paying a substitute tax of 14% for 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 introduced by the Budget Law 2023 was the recognition of the possibility for taxpayers who did not indicate in their previous income tax return – Income Form PF 2022, year 2021 – the holding of crypto-assets (RW panel) or the income deriving from the same (RT panel), to bring such assets to light.

Regularisation will be made possible through the submission, by the taxpayer, of a special declaration with which to bring such assets and related income to the surface. This document will be approved by a provision of the Director of the Inland Revenue. At the moment we are still waiting for the publication.

The legislator thus defines the taxes and amounts applicable for the regularisation of crypto-assets depending on whether or not income has been generated:

  1. those who, during the relevant period, have earned income from the crypto-assets subject to regularisation, will be able to regularise their position by submitting the aforementioned declaration and paying a Substitute Tax amounting to 3.5% of the value of the crypto-assets held at the end of each year or at the time of realisation and an additional amount equal to 0.5% for each year, on the value of the undeclared assets by way of penalties and interest.
  2. 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.

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.

Additionally, the Italian Revenue Agency also clarified that cryptocurrency stacking activities are to be considered as capital income, to be reported within the RL panel of the “Modello Redditi”.

Regulatory Framework

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