Four questions about taxation of cryptocurrencies and NFTs

What tax regimes apply to crypto assets? How to declare them? We put these questions to Me Olivier Martin, partner at Halt Avocats, a specialist firm in charge of tax law.

What does the French law say about cryptocurrencies and NFTs in terms of taxation?

First of all, it should be understood that digital asset transactions are likely to be subject to several tax regimes:

  • special treatment known as occasional investors (article 150 VH bis of the General Tax Code)
  • BIC regime for ordinary investors until December 31, 2022 and for companies engaged in buying/selling digital assets
  • BNC mode for mining and for regular investors from January 1, 2023

The regime applicable to occasional investors establishes a number of rules that allow some conclusions to be drawn about the treatment of NFCs.

From a legal point of view, cryptocurrencies and NFTs are two different categories of tokens, the first of which are “protocol tokens” used to operate the blockchain, and the second are tokens designed to digitally represent an individual asset.

For tax purposes, we refer to the provisions of the Monetary and Financial Code, which recalls that there are two types of tokens that can be considered as “digital assets” (Art. L 552-2 and L 54-10-1):

  • tokens representing “one or more rights” in digital form
  • tokens representing value “which is not issued or guaranteed by a central bank or public authority, which is not necessarily pegged to a currency that has legal tender, and which does not have the legal status of a currency, but which is accepted by natural or legal persons as a medium of exchange and which may be transmitted, stored or exchanged electronically.”

Thus, cryptocurrencies are part of the second. NFTs can be part of the former depending on the encapsulated non-fungible asset (customer card, entitlement to benefits, etc.). Thus, cryptocurrencies are subject to a special taxation regime for capital gains from the sale of digital assets provided for in Articles 150 VH bis et seq. of the General Tax Code. On the other hand, NFTs are subject to tax treatment related to their content: either NFTs are a digital asset and are treated as such, or they fall into another category.

On January 25, 2022, MP Véronique Luvagi (LR) proposed that the NFT be subordinated to “the notion of works of art within the meaning of Article L. 111-1 et seq. of the Code of Intellectual Property. From a tax standpoint, the transfer and export of works of art are taxed for individuals at a flat rate proportional to the transfer price (or customs value), instead of capital gains being taxed at a worldwide rate of 6.5% if the seller is domiciled in France (Articles 150VI-150VM of the General Tax Code and article 1600-0 I of the same Code)”.

This, of course, assumes that the NFT content qualifies as a work of art within the meaning of Article 98 A of the CGI. In the most recent projects that we have been able to study internally, this is less and less common. In addition, the aforementioned potentially applicable tax regimes may result in different accounting treatment depending on the nature of the transactions carried out by the taxpayer.

For the simplest transactions (one-off purchase and resale by a private individual), you can file a return by filling out Form 2086 provided by the tax authorities. Capital gains are calculated taking into account the transfer price, the purchase price and the total value of the portfolio. Therefore, it is very important to keep all supporting documents for your purchases, as well as the value on the day of sale.

As soon as you fall under a regime other than casual investor regime, the calculation of income will be carried out in accordance with the rules of BIC or BNC, applying the specific rules provided for these income categories. In this case, it is highly recommended to contact a specialist specializing in the taxation of digital assets.

What do industry players think of current laws?

Some participants and practitioners believe that it is necessary to specify the tax regime for all tokens (fungible, non-fungible). Others, including ourselves, feel it is premature to change the rules that have just been implemented.

The 2022 Finance Law contains several measures that have changed the regime that has been in effect since January 1, 2019. Changes will certainly come through the 2023 finance bill, but it’s still too early to tell which ones.

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