UNDERSTAND IT ALL – How to declare capital gains in cryptocurrencies

As tax returns have been open since April 7, BFM Crypto explains how to report your crypto capital gains.

• I have cryptocurrencies, what should I declare in taxes?

A taxpayer who has opened an account on a foreign cryptocurrency exchange platform, such as Coinbase or Binance, will need to report this account to the tax authorities on form 3916-BIS, even if their account is closed during the tax year subject to reporting. It doesn’t matter how much money you have on the platform. A user will have to fill out as many forms as there are platforms he is on. Incurs a fine of 750 euros per undeclared account.

On the other hand, if a user is a client of a French platform, such as Coinhouse, they will not need to declare it to the tax authorities. Similarly, there is an exception for decentralized platforms, which can be wallets (physical or virtual wallets to store cryptocurrencies), such as Ledger or MetaMask.

“But that could potentially change with European Mica Regulations. Even decentralized platforms could have a KYC (for “Know your customer” or “know your customer”, a system to verify the identity of a client, editor’s note) and some additional standards, in particular the statement of account ” , confesses Adrian Felden, business manager at Waltio, a fintech specializing in cryptocurrency taxes.

• In case of capital gains in cryptocurrencies, what must be declared?

If an investor makes a taxable sale, they will have to report it for taxes. Among taxable transfers, we distinguish cryptocurrency transfers against fiduciary currency (legal tender currencies such as the euro or the dollar, for example) or the purchase of a good or service with a cryptocurrency.

There is a tax exemption if all taxable disposals throughout the year are less than €305 of capital gains. This also applies to capital losses: if a user has lost money selling bitcoin, this must also be declared.

• How to declare capital gains?

Cryptocurrencies fall within the scope of the 30% flat tax (the single flat rate tax or PFU, with 17.2% social security contributions plus 12.8% income tax) of the law Pacte, with a specific regime for digital assets. In order to know how to report their capital gains, a user must keep track of all cryptocurrency transactions made during the reporting year and be able to calculate the valuation of their portfolio(s) at the time of taxable disposition.

The calculation formula to be applied for each taxable disposal is presented below:
sale price – [prix total d’acquisition × (prix de cession / valeur globale du portefeuille)]

Example proposed by Adrian Felden: On January 1, a taxpayer buys 1,000 euros of bitcoin and 600 euros of ether (that is, 1,600 euros in total). After a price rise in February, his bitcoin wallet is worth 2,100 euros and his ether wallet is worth 900 euros. The global valuation of the taxpayer’s portfolio is therefore equal to 3,000 euros (2,100 + 900 euros).

The taxpayer, after this increase, decides to sell 600 euros of ether (this amount therefore constitutes the sale price).

To calculate the taxable capital gain, it is necessary to subtract from this sum the ratio between the total acquisition price of the client’s digital asset portfolio on the date of transfer, as well as subtract the ratio between the transfer price of these digital assets over the total value of the taxpayer’s portfolio at the date of the transfer.

The amount sold represents 20% of the portfolio (600 / 3000 x 100 = 20%). Then it will be necessary to subtract from the sale price the sum of 20% of the initial value of the taxpayer’s portfolio, therefore 20% of 1,600 euros (the amount invested at the beginning), which represents 320 euros (1,600 x 20% = 320 ). Being the transfer price 600 euros, the taxpayer’s taxable capital gain will be 280 euros (600 – 320). With a PFU of 30%, you will therefore have to pay the Treasury 96 euros (320 euros x 30% = 96 euros).

• What if I have stablecoins?

Stablecoins: these cryptocurrencies backed by classic fiat currencies like the euro or the dollar – allow you to remain in the market for a long time without being subject to capital gains. If a user made capital gains because he sold bitcoin for stablecoins, they will not be taxed. On the other hand, if you sell stablecoins against the euro, you will need to know the valuation of your portfolio at the time of the transaction, which will have increased in value in the previous months.

“This neutralization of the taxation of crypto-to-crypto transfers may explain the fact that you are not allowed to carry over your capital losses from one year to another, unlike other tax regimes in the financial world”, specifies Adrian Felden.

• What if I have NFT?

There is legal uncertainty in relation to capital gains realized in NFT (non-fungible token). To date, NFTs are not considered digital assets. They do not fit this definition, which would mean that NFTs could soon be specifically taxed. A customer can buy an NFT at an initial price that can quickly multiply by ten after his purchase: when he sells his NFT, he can calculate the single tax according to the regulations in force for digital assets in the absence of a specific regime. It is possible that in the coming months there will be a dedicated regime for NFTs.

• Is the implemented system adapted to the cryptocurrency ecosystem?

“The calculation method that consists of following the valuation of the portfolios during each taxable transfer is complex. Especially since the prices can be different from one platform to another and the uses and the different applications of the crypto ecosystem are changing very quickly”, Adrian says. Felden.

We have understood it well: for an individual who wants to keep his accounts in an Excel file, this is still almost impossible. The latter should seek help from experts, whether they are lawyers, tax specialists or even companies specializing in the taxation of cryptocurrencies.

Leave a Comment