Peter Varga gave an interview to Refresher on the taxation of cryptocurrencies in Slovakia

Peter Varga gave an interview to Refresher on taxation of cryptocurrencies in Slovakia. In addition to the standard themes that have long surrounded this issue, he also commented on the state’s ability to search for and identify tax fraud as well as potential criminal liability. You can read the full interview by clicking on this link or below:

Clear record-keeping is essential

Anyone who actively trades in digital assets should keep detailed records of every single transaction as well as of all income, which makes it much easier to correctly fulfil the tax liability associated with them. ,, My advice is that everyone who trades cryptocurrencies keep really detailed records of all transactions. You really need to keep records of everything, even if the amount of profit is around 10 euros, ” adds Peter Varga, tax attorney at Highgate Group and founder of the Crypto Tax & Law platform. Many people do not keep any records of their transactions, and they do very little of it.

Slovak legislation does not yet use the term cryptocurrencies but virtual currencies and defines their tax liability according to the law č. 595/2003 Coll.. o dani z príjmov. ,, Tax liability arises not only on withdrawal but also on any disposal of the cryptoasset. For example, if I bought Bitcoin for €100 and sold it for the equivalent of €400, I should be taxed on the €300 even if the money is still in virtual space. If I don’t tax it, it is a criminal offence ,” Varga explains. In addition to the aforementioned situation, tax liability also arises when virtual currency is exchanged for property, when virtual currency is exchanged for another virtual currency, when virtual currency is exchanged for the provision of a service, or when virtual currency is transferred for a consideration.

The tax liability is distinguished in cases where a natural or legal person is involved. The effective tax rate for individuals is somewhere around 30 to 35%. This figure is made up of tax and levy liability. ,, So it’s not the oft-mentioned 39%. For corporations, the tax rate is 15% or 21%. On top of that, once you pay the dividend tax or its equivalent ” Varga further explains and adds that for frequent transactions it is a good idea to list cryptocurrency trading as a business as well.

Past sales also need to be taxed

Of course, the profit generated by trading digital assets in the past is no exception. ,, If I bought cryptocurrencies, for example, five years ago and they are just lying around in the dust, I don’t have to report anything to anyone or tax anything. The first taxable moment is the first conversion or disposition, and we should report that on the tax return in the following year, ” adds Varga.

Thus, for profitable sales that took place, for example, in 2018, it was obligatory to include them in the tax return filed in 2019. ,,If I did not do so, I should have filed a supplementary tax return and reported it and then paid the tax and any penalty,” he adds. In the case of cryptocurrencies, one should not rely on the statute of limitations, which in cases of international transactions is well over ten years, and it should not be forgotten that the penalty increases with each day of delay.

Cryptocurrency payments may be subject to double taxation

It is not uncommon that more and more establishments or e-shops inform their customers about the possibility to pay with cryptocurrencies. ,,In today’s tax and legal uncertainty, if someone is able to accept cryptocurrencies for goods or services, it seems unreasonable to me and I think it stems from a lack of knowledge about taxability,” Varga explains.

In his opinion, there is a problem not only on the receiver’s side but also on the payer’s side using digital assets. ,, If the price of a digital asset is higher at the time we pay for it than its purchase price, we should tax the difference. There should be double taxation on the part of the recipient under the interpretation of the current law. First, the recipient should be taxed on the value of the service or good, and when he later disposes of the cryptocurrency he will also pay tax on the full sale price of the asset ,” he explains. The Income Tax Act states that the sale of cryptocurrencies, which is subject to taxation, is also considered to be an exchange of cryptocurrencies for goods or services.

There is no need to rely on a lax legislation

A very misleading and often repeated idea is that the decentralised world of cryptocurrencies is a place where, in fact, national authorities of individual countries do not have access. ,, Even today, when new information mechanisms are not yet in place, the financial administration can, if it wishes, access information held by centralised platforms thanks to international information exchange agreements. Today, this is still the default situation, which would have to be initiated by the financial administration ,” Varga explains.

Much more common is the situation where money from cryptoassets is converted into cash and the owners send it, for example, to a bank account or pay with it. For example, banks themselves may flag such transactions, even if the money is sent to an account in another country. ,, There is a so-called. automatic reporting. For example, if you have an account in Belize, the tax authorities will know. It will know what your balance is and it may want to know what the balance is based on. ,” Varga explains, adding that every transaction is also traceable within the blockchain.

Although current legislation is in its infancy with cryptocurrencies and their regulation, and is often said not to be keeping pace, we need to look at our behaviour in the world of digital assets through the lens of the years to come. ,,The Treasury may not have a lukewarm approach to cryptocurrencies in perpetuity and I am also aware of situations where it has, for example, commissioned the services of private cryptocurrency tracking companies,” he adds.

Regulations protect consumers and will gradually increase

The internet is a place where creativity really has no limits and is full of advice on how to avoid taxation of income from digital assets. ,, I know that a lot of people follow similar advice and basically rely on the inaction of the state. I don’t think this is the way we should proceed if we want to create a transparent and sustainable environment ,” adds Varga, adding that cryptocurrencies are a new economic space that needs to be inserted into already functioning tax and legal frameworks. After all, they are not a parallel life where existing rules do not apply.

According to Peter Varga, the current situation on the cryptocurrency market in some ways resembles the demand for tax havens thirty years ago. ,, Gradually, pressure has built up towards what I mentioned, that the bank from Belize is also reporting to Slovakia. As a result, today an ordinary entrepreneur cannot simply set up an offshore company in a tax haven unless he or she wants to break out of legitimate and possibly legal frameworks. ,” he explains. In the world of cryptocurrencies, too, there will be a gradual increase in regulations that are not only about control but also about consumer protection. In the words of NBS spokesman Peter Majer, the cryptoasset business may soon become a regulated and supervised activity.

However, a section of the public believes that the world of cryptocurrencies should not be regulated. ,, In my opinion, cryptocurrency trading must also be regulated to some extent, just like any social relationship. If someone steals your cryptocurrencies, you want them to go to jail. You can’t want cryptocurrencies to be outside at least some framework of existing social rules ” emphasises Peter Varga. From 2024, the European Union’s MiCA regulation, which regulates cryptocurrency businesses, is expected to come into force. ,, It is regulation in the interests of all of us. If someone will do business with cryptocurrencies in accordance with this regulation, he will be able to sell tokens not only in Slovakia but also in Austria or the Czech Republic, for example, without having to study the regulations in a particular country how it works there ,” Varga explains his attitude.

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