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How does Belgium tax bitcoins?
 
The surge of the price of the bitcoin has attracted many to invest in this crypto-currency. Will they have to pay tax? Not surprisingly, that is a question that keeps many investors all over the world awake. 

In the US and Canada, the tax authorities have made their position clear (gains are taxable capital gains) and they have thought about how they could catch out tax dodgers. Australia followed suit. HMRC in the UK made its position clear four years ago (taxable capital gains). France distinguishes occasional gains from habitual gains, but they are all taxed as income.

Many observers note that the issue remains a grey area or that there are loopholes (the UK does not tax gambling or betting).

What about Belgium?

The European Court of Justice has decided that the trade in bitcoins is exempt from VAT (case C-264/14, Hedqvist), but that does not suit people who are mining bitcoins. Mining bitcoins is solving complex and that takes a lot of energy. If the trade in bitcoins is VAT exempt, the VAT on the electricity used cannot be recovered. 

But what about capital gains?

As a matter of principle, Belgium does not tax capital gains on personal property. Capital gains on personal capital assets and investments (that are not used for a business) are tax exempt if they are realised within ''normal management of a private estate consisting of securities, tangible assets or real property.''

If capital gains are made outside the normal management of a private estate, they are taxed at a fixed rate of 33 percent. The question is then what is normal management and what is it not.  The courts have described ''normal management'' as a conservative, risk-averse, and unsophisticated management of one's private estate. Generally speaking, one concluded that capital gains on private assets were taxable only if they were of a speculative nature. And speculation was buying and selling quickly and repeatedly, borrowing to buy to have leverage, investing large sums for one's wealth and using pseudo-professional means.

Of course, if one invests cash from one's business, or if one makes profits from day trading, that is not a capital gain anymore, but income from a business and fully taxed at the standard income tax rates.

The Ruling Committee recently had to decide on the case of an IT student who had developed an app to buy and sell bitcoins automatically. The app was a project for school, and therefore, the Ruling Committee decided that the development of his app was a hobby rather than a business. His trade in bitcoins was not a business and the income he made was not business income.

However, the Ruling Committee could not decide that the gains were exempt, it decided that the trade was speculative and the gains were speculative capital gains in the sense of article 90, 1° ITC 1992 (Decision 2017.852 of 5 December 2017). That is a remarkable statement; the student's only speculative intention was to build the app that allowed him to buy and sell automatically. And that is not given to anyone.

It is not certain that the decision would be the same for someone who buys and sells bitcoins, even with an app on a mobile phone. Or for someone who has bought some bitcoins years ago and decides to sell them. It is unlikely that this would qualify as speculation.

One issue that the tax authorities in other countries have addressed is how bitcoin miners. Bitcoin mining is solving complex cryptographic algorithms to add a new block to the 'block-chain' that records all bitcoin transactions. Adding such blocks is adding bitcoins. These algorithms are more and more difficult to solve and are said to require more electricity than all the electric cars in the world.  If mining bitcoins requires large investments in electricity and computer power, it can hardly be seen as a hobby.

Finally, Belgian bitcoin owners should keep in mind that they have to report on their tax return that they have overseas bank and brokerage accounts and that they have reported those to the Belgian National Bank. This does not mean that the tax authorities know which brokerage accounts you have, but if you do not cooperate when they ask, they can get the list from the National Bank. And in any event with the automatic exchange of information, they will get the information at some state anyway.

2 February 2018
Marc Quaghebeur
De Broeck Van Laere & Partners



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