Austrian Ministry of Finance: Guidelines for Tax Treatment of Cryptocurrencies

Under the new system, income from holding cryptocurrencies will be treated as capital asset income and taxed at a specific rate of 27.5%.

**Source: **Federal Ministry Republic of Austria Finance

Compiled by: TaxDAO

1 Income Tax

As part of the Environmentally Responsible Tax Reform (Ökosoziale Steuerreform), specific regulations on cryptocurrency taxation will come into effect on March 1, 2022. Under the new system, income from holding cryptocurrencies will be treated as income from capital assets and taxed at a specific rate of 27.5%.

What cryptocurrencies are covered?

According to Section 27b, paragraph 4, of the Austrian Income Tax Act (Einkommensteuergesetz - EStG), cryptocurrencies are defined as “cryptocurrencies that are not necessarily linked to legal tender and have no legal status as currency, without confirmation or guarantee by a central bank or other state agency.” A digital representation of value that a natural person or legal entity accepts as a medium of exchange and can electronically transfer, store or trade.”

This definition covers publicly available cryptocurrencies that are accepted as a means of exchange. It also applies to “stablecoins” whose value is tied to the value of a legally recognized currency or other asset.

This definition excludes NFTs and “asset tokens” based on physical assets such as securities or property. These products are taxed under general tax regulations, depending on the nature of the tokens concerned.

Affected income and calculation method

The definition of income from holding cryptocurrency includes current income from holding the cryptocurrency and the increase in value resulting from holding the cryptocurrency, regardless of whether the minimum holding period is observed.

According to Article 27b(2), the definition of current income from holding cryptocurrency includes remuneration received from the transfer of cryptocurrency. Revenue is recognized when cryptocurrency is transferred to other market participants in exchange for fees. For tax purposes, these fees are specifically defined to include interest earned on cryptocurrency loans and the provision of cryptocurrency for liquidity and /or taxable considerations for credit pools.

Cryptocurrency holdings obtained through technical processes that provide transaction processing services also fall within the definition of current income. The clause is intended to cover the acquisition of cryptocurrency assets during the course of “mining” activities, regardless of whether the process results in the creation of new cryptocurrencies and regardless of whether the income is provided in the form of transaction fees by other members of the network. Operating a masternode can also generate current income for tax purposes.

Precautions

Income from a capital asset is deemed to have arisen only if the nature and scope of the activity does not go beyond simple asset management work. If these activities are beyond the scope of management of such assets, then any income derived therefrom should be classified as income from business activities.

All current income is taxable as it comes in. Such income is assessed at the time of inflow based on the value of the cryptocurrency holdings acquired and/or any other compensation received at that time. This value will also be used to represent the tax cost of the purchased cryptocurrency.

In contrast, current revenue is not considered to have been generated if:

• Services related to processing transactions mainly include investing (staking) existing cryptocurrencies;
• Cryptocurrencies are transferred for free (“Airdrops”) or for other trivial benefits only (“Bounty”);
• Cryptocurrencies are created as a result of changes to the original blockchain (“hard forks”).

In these cases, income from holding cryptocurrencies is not taxed as it flows in. However, the underlying cryptocurrency assets are deemed to be acquired at zero cost. This means that the entire value of the cryptocurrencies held will be taxed if they are later disposed of.

warn

The exception for cryptocurrency holdings obtained as part of the traditional staking process only applies to services related to transaction processing (i.e. creating and/or validating blocks). If a process that effectively amounts to providing consideration in exchange for the transfer of cryptocurrency holdings is described as “staking,” such processes are not covered by the exemption, meaning that any resulting gains will be taxed on inflow.

According to Article 27b, paragraph 3, “income derived from an increase in the value of cryptocurrency holdings” specifically includes:

• Income generated from converting cryptocurrency holdings into euros
• Income derived from converting cryptocurrency holdings into legally recognized foreign currencies (such as U.S. dollars)
• Income derived from trading cryptocurrency holdings with other economic goods and services (e.g. purchasing economic goods and paying in cryptocurrency).

The exchange of one cryptocurrency for another does not constitute a disposal and such transactions are not taxable. In addition, any expenses associated with such transactions (such as transaction costs) are not considered significant expenses for tax purposes and therefore are not taxable at the time of the transaction. In this case, the acquisition cost of the transferred cryptocurrency will be transferred to the cryptocurrency acquired in the transaction.

Any action that results in the Austrian government losing its right to tax profits from disposals is also considered a disposal.

Profit on disposal is calculated by subtracting the cost of acquisition from the proceeds arising from the relevant sale. Such profits are taxable. For transactions, the disposal price of the relevant cryptocurrency holdings is assumed to be the fair market value of the relevant cryptocurrency holdings at the time of the transaction (Article 6 Paragraph 14). Please note that any ancillary costs associated with purchasing cryptocurrency (such as advice or transaction fees) can be offset against tax, thereby reducing tax. However, expenses related to financial assets (such as the cost of electricity or the cost of purchasing hardware) are not tax deductible unless the taxpayer chooses to use the standard tax option (Regelbesteuerungsoption).

Tax rate

Pursuant to Article 27a, paragraph 1, income arising from holding cryptocurrencies (including current income and sale proceeds) is subject to a special tax rate of 27.5% and is not included in the calculation of the progressive tax threshold for other income. This provision applies whether the amount of tax payable is withheld at source (i.e. as capital gains tax) or is determined on the basis of a tax return and/or assessment proceedings.

However, the exemption does apply to income from private loans issued in cryptocurrencies, provided that the transfer contract supporting the loan is available to the public. Income from such private loans counts toward progressive income tax thresholds.

Loss deduction

According to Austria’s general tax regulations, profits and losses related to cryptocurrency income can be calculated for tax purposes together with profits and losses related to other capital income (such as dividends or gains on the disposal of shares).

Business income

In principle, special tax rates on cryptocurrencies apply to business assets as well as traditional capital assets. However, the special tax rate does not apply if generating income through cryptocurrencies is part of the core activity of the relevant business. In particular, this means that it does not apply to businesses that conduct commercial transactions in cryptocurrencies, or that mine currencies on a commercial basis. Income from such activities is taxed according to progressive income tax thresholds.

Losses arising from cryptocurrency holdings that form part of the assets of a business are treated in the same manner as losses arising from capital assets held by a business.

2 Asset Value Added Tax

Austrian debtors and service providers will be required to deduct Austrian capital gains tax from capital gains accrued after December 31, 2023. This deduction can be voluntarily deducted from gains accrued before that date, in which case the capital gains tax is withheld and transferred directly to the tax office. Investors do not need to report voluntary tax withheld capital gains in their tax returns because the applicable income tax is deemed to have been collected when capital gains tax is withheld (this principle is known as “final taxation”).

warn

If income is derived from cryptocurrencies before the obligation to deduct capital gains tax comes into effect and the tax is not deducted voluntarily, this income must be declared in the income tax return and taxed accordingly.

Limited tax liability

Current income from cryptocurrencies is not subject to limited tax liability pursuant to Article 27b Paragraph 2, and cryptocurrency capital gains pursuant to Article 27b Paragraph 27(3) are not subject to limited tax liability. Capital gains tax may be exempted from withholding in these circumstances if the party liable to withhold capital gains tax knows that it is not an investor with unlimited tax liability. If the withholding agent still withholds capital gains tax, it may be refunded in accordance with Article 240, paragraph 3. See below for the classification of cryptocurrency income under international tax law.

3 New regulations take effect

The requirement to pay taxes on income from cryptocurrency holdings takes effect on March 1, 2022, and will apply to cryptocurrencies purchased and held after February 28, 2021 (referred to as “new assets”).

Typically, cryptocurrency holdings acquired before this date are considered “stock” and therefore not affected by the new tax rules. They will continue to be treated as economic goods and taxed as they were before the ERT reform.

However, if cryptocurrency holdings acquired before March 1, 2021 (“Old Assets”) are used to obtain current income under Article 27b(2), or as part of a staking, airdrop, bounty or hard fork arrangement If a person acquires cryptocurrencies as part of his income (Article 27b Paragraph 2 (2)), then the new tax provisions will apply to such gains. Any cryptocurrencies obtained during the course of such activities will be considered new assets.

If cryptocurrency holdings are liquidated after December 31, 2021 but before March 1, 2022 (in particular as a result of disposals or transactions), positive or negative income arising from such liquidation may be voluntary under the new regulations Pay taxes. In this case, special tax rates for cryptocurrencies will apply and this income can be combined with other income generated by capital assets in 2022 to compensate for losses.

4 Value Added Tax (VAT)

According to the case law of the Court of Justice of the European Union (CJEU) on the Bitcoin crypto-asset, the following VAT treatment applies to Bitcoin:

• Exchange from fiat currency to Bitcoin and vice versa
• According to CJEU case law, the exchange of fiat currencies (such as euros) into Bitcoin is exempt from VAT.

Bitcoin Price

Supplies or services with Bitcoin as consideration should be treated in the same way as other supplies or services with fiat currency (e.g. euros) as consideration. The tax base for such supplies or services shall be determined based on the value of Bitcoin.

Mining

Due to the lack of an identifiable recipient of services and based on EU Court of Justice case law, Bitcoin mining is not subject to VAT.

5 International Tax Law

For clarity, this legal assessment is based on the OECD Model Tax Convention. In practice, reference must always be made to the applicable Double Taxation Convention (DTC).

Whether taxable income is accrued, the type of income, the attribution of the income to the taxpayer and the time of accrual are all governed by the principles of Austrian internal tax law. This domestic treatment is then considered to qualify at the DTC level.

If income from cryptocurrency qualifies domestically as income from commercial (commercial) activities, it will need to be classified as business profits within the meaning of Article 7 of the OECD Model Tax Convention at the level of the applicable DTC. In this case, the company’s place of incorporation has the primary right to tax these business profits, unless its activities are carried out through a permanent establishment located in another Contracting State within the meaning of Article 5 of the Convention to which the DTC applies. Both mining and calibration require specialized, sometimes very expensive, equipment that must be installed and operational and connected to a specific site. Therefore, in principle, the requirement of establishing a permanent establishment under Article 5 of the Convention can be met. The assessment of whether this is the case depends on the specific circumstances and cannot be generalized. If the cryptocurrency generated or the income derived from cryptocurrency is attributable to a permanent establishment, the Contracting State in which the permanent establishment is located acquires primary taxing rights. The company’s place of incorporation usually exempts such income, but progression still applies. An exception to this principle are those DTCs that provide a method of credit to mitigate double taxation. It should be noted that Article 7 of the OECD Model Tax Convention only applies in ancillary situations, that is, when other provisions of the applicable DTC do not apply.

If income is derived from the transfer of cryptocurrencies by means of payment (Article 27 Paragraph 2 Item Z1), such income can essentially be considered interest within the meaning of Article 11 of the Convention, since the income is paid in exchange for available capital . This means that the income can in principle be taxed in the Contracting State of which the payee is a resident. In addition, the country of origin (usually the Contracting State in which the payee is resident within the meaning of Article 11, paragraph 5, of the Convention) is entitled to impose a withholding tax of 10% of the gross income. This income is taxed as it flows in. This also applies to the transfer of cryptocurrency payments as a commercial activity, as Article 7 is ancillary to Article 11.

Recommendation: The 10% withholding tax rate corresponds to the tax rate specified in the Convention and must always be checked with the tax rate in the applicable DTC.

From a domestic perspective, income from “mining” performed by taxpayers themselves should be considered current income (obtaining cryptocurrency through technology). In this case, Article 11 of the Convention does not apply, since the provision of capital does not generate income. Article 7 also does not apply since there is no commercial activity. Therefore, income from cryptocurrency mining outside of commercial enterprises is in principle classified as “other income” under Article 21, and the Contracting State in which the taxpayer is resident generally has the primary taxing authority over such income.

Recommendation: Some DTCs concluded by Austria contain provisions based on Article 21, paragraph 3, of the Convention and therefore also provide for the taxing rights of the source country.

Article 13 applies if a business realizes capital gains from cryptocurrencies, including from the sale of cryptocurrencies through “staking,” “airdrops,” “bounties,” and so-called “hard forks.” If the cryptocurrency is vested in a permanent establishment in another Contracting State, the right to tax is transferred to that State in accordance with Article 13(2). For other realized capital gains on cryptocurrencies (i.e. capital gains held outside the enterprise), the provisions of Article 13, paragraph 5, apply and exclusive taxation rights are assigned to the State of residence of the seller. This legal assessment also applies to situations that result in Austria losing its right to tax capital gains, resulting in domestic export taxes and the sale of cryptocurrencies falling to the commercial activities of the enterprise, since Article 7 is ancillary to Article 13.

Recommendation: Asset tokens and NFTs are not cryptocurrencies. Therefore, the preceding explanation does not necessarily apply to income from such assets. Other provisions of the DTC, such as Section 10 or Section 12 may apply.