Ireland Issues Guidelines on Cryptocurrency Taxation

Ireland's tax agency says crypto transactions are subject to "normal" tax rules in newly issued guidelines.

by Marin Marinov
23 May • 5 min
In Regulation

The Irish Revenue Commissioners (IRC) has clarified in a newly published manual that virtual currency transactions in Ireland are subject to the existing revenue taxation principles and mining should not be charged with value-added tax (VAT). The IRC issued the paper seeking to bring more clarity for the Irish crypto community on how annual tax forms should be filled for economic activities concerning digital coins.

The manual comes on the heels of a public consultation process, that was initiated by the Finance Ministry in March that should determine any possible crypto regulations.

“Therefore no special tax rules for cryptocurrency transactions are required,” the IRC explained.

The guidelines

Irish Revenue Commissioners outlined that existing corporation, income and capital gains taxes are applicable for cryptocurrency related activities and each case must be considered on the basis of its own individual facts and circumstances

Virtual currency trading, regardless if it generates profit is subject to capital gain tax (CGT) for individual citizens while companies are exempt from corporate tax (CT) in this case, the revenue agency explained. Charging of losses was one of the problems in the recently withdrawn controversial crypto taxation plan in Poland.

Corporate tax payments on cryptocurrency will require a bank account in EUR or other traditional currency, not in digital coins like Bitcoin (BTC), Ethereum (ETH) or Ripple (XRP).

“Income received from cryptocurrency mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes,” the IRC wrote.

Exchange of Bitcoin for fiat money and vice-versa is exempt from VAT pursuant to a 2014 European Union Court of Justice ruling on BTC-VAT taxation. However, IRC falls short of explaining if this decision is applicable to other cryptocurrencies. One of the main issues in the EU and USA is whether digital coins are commodities or securities, and also if all cryptocurrencies should fall in one category.

one coin next to a word

According to Ireland’s tax authority manual, VAT is applicable when citizens buy goods or services with cryptocurrencies. In this case, VAT should be calculated in EUR, based on the digital coin value at the time of the purchase.

IRC does not give guidelines about one of the major problems regarding taxation of cryptocurrency activity - the different value of digital coins on various crypto exchanges.

 “Many cryptocurrencies, such as Bitcoin, are traded on a number of exchanges. Unlike shares or commodities the value of the cryptocurrencies may vary between exchanges. Therefore, there is not always a single “exchange rate” for cryptocurrencies. A reasonable effort should be made to use an appropriate valuation for the transaction in question,” IRC concluded in its manual.

The guideline on cryptocurrency taxation is very similar to the British tax authority (HMRC) advice from 2013:

“In seeking to predict how the Revenue Commissioners will opt to treat cryptocurrencies when they do issue official advice on the issue, it is suggested that guidance may be drawn from the UK position,” one of the Ireland law firms, Arthur Cox, has written in an analysis.

What's next?

In March Ireland’s Finance Ministry published a consultation paper about cryptocurrencies and blockchain with the aim to set up a working group and to get recommendations on several issues, including taxation. The paper did not reveal information about the government's attitude towards digital coin taxation.

In the paper, the ministry defined 2013 HMCR tax advice as a sign that “the UK was one of the earlier advocates of virtual currencies.”

The Irish cryptocurrency market has significantly grown in the recent years. The country has three native digital coins, GaelCoin, IrishCoin and MingoCoin.

On a global level, there is no common approach to cryptocurrency taxation. In Germany, virtual currencies are financial instruments, a form of “private money”, that can be taxed as capital, while France has recently halved the tax rate for retail crypto investors from as high as 45% to a flat rate of 19%. Further east in South Korea, cryptocurrency transactions, including trader profits, are tax free and only exchanges pay income tax.