The understanding of the Tax and Customs Authority (AT) is expressed in a binding information published on Tuesday on the Finance Portal in response to a question raised by a taxpayer who buys and sells crypto assets.
The question relates to the timing of calculation and taxation in the IRS of the gains achieved by investors with the sale of crypto assets in more complex situations.
The confusion stemmed from operations involving a triangulation process that includes purchasing a specific crypto asset, technically converting this asset into a US dollar-indexed stablecoin USDC, and ultimately selling this asset in euros, resulting in a capital gain.
In the question sent to the AT, the taxpayer explained that the conversion of the crypto asset to the stablecoin was done “only to enable subsequent conversion to euros,” which was deemed necessary due to the lack of a direct pair of the original asset with euros.
According to the AT, “the moment of taxation of the gains obtained through these operations will only occur at the time of conversion of the ‘stablecoin’ into fiat currency [with legal tender status and issued by a central bank].”
This is because, under the IRS Code, taxation is only applied to “income actually realized by individual taxpayers,” and not to potential gains, the fiscal administration elaborates in the published response on the website.
The AT highlights that “the exclusion of taxation of capital gains resulting from the disposal of crypto assets, when the consideration takes the form of other crypto assets, is based on the principle of taxation of income actually realized by individual taxpayers, focusing the tax solely on realized capital gains, as opposed to potential or latent capital gains.”
There are, however, some exceptional situations where this does not apply. The exclusion “does not apply to income earned by taxpayers or owed by any person or entity when they are not resident for tax purposes in another EU Member State or in the European Economic Area, or in another State or jurisdiction with which there is a current convention to avoid double international taxation, a bilateral or multilateral agreement that provides for the exchange of information for tax purposes,” says the AT.
The moment of taxation of gains “will occur upon conversion to fiat currency, provided such income is owed by a person or entity whose tax residence is located in another EU Member State” or in the remaining situations listed by the AT.
This framework is valid for cases where capital gains are obtained in a period less than 365 days from the date of acquisition because, according to the IRS Code, gains “held for a period equal to or greater than 365 days” are excluded from IRS.
In the cases for which the taxpayer sought clarification, the conversion of stablecoin assets to euros occurred when more than a year had passed since the initial purchase of the crypto asset. Therefore, the tax authority understands that “the capital gain resulting from the immediate disposal after the ‘swap’ of USDC to euro, when this occurs after holding the original asset for a period equal to or greater than 365 days, will be excluded from IRS taxation.”
