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Taxing Virtual Currencies

In October, the OECD released a report regarding different jurisdictions’ rules for taxing virtual currencies. The report, entitled Taxing Virtual Currencies: An Overview Of Tax Treatments And Emerging Tax Policy Issues, provides a comprehensive cross-border comparison of tax laws and guidance regarding virtual currencies and highlights emerging issues and tax policy gaps for governments and policymakers.

Unlike the OECD’s Base Erosion and Profit Shifting Reports, Taxing Virtual Currencies is not so much a road map for the journey ahead as a document that attempts to frame future policymaking discussions. The report highlights a number of areas as being particularly relevant, using information drawn from over 50 jurisdictions. These areas include:

  • How virtual currencies should be characterized for direct and indirect tax purposes.
  • The identification of taxable events during the lifecycle of a virtual currency, including creation/mining, disposal and exchange.
  • The treatment of virtual currencies as property subject to taxation, and the taxation of the consumption and inheritance of virtual currencies.
  • The tax policy implications of different countries’ tax treatment of virtual currencies.
  • Taxation issues concerning transparency and tax information gathering in the context of virtual currencies.

Perhaps unsurprisingly given the continuing evolution of virtual currencies, there is no internationally consistent legal definition of crypto-assets and virtual currencies. The report largely focuses on virtual currencies, rather than other crypto-assets, and comments on the differing legal acceptance and statuses of virtual currencies across the world. 

Income taxation

For income tax purposes, the OECD report concludes that most jurisdictions consider virtual currencies to be a form of property. Most commonly, virtual currency assets are classified as intangible assets (other than goodwill), financial assets, or commodities. The lifecycle of a virtual currency is subject to a number of taxable events for income taxation purposes. Many jurisdictions treat the creation (or mining) of a virtual currency token as a taxable event. However, a substantial minority of countries ignore creation as a taxable event, merely looking at the first taxable event as occurring on the disposal of a virtual currency asset, with a post-mining cost basis of zero. 

Most countries consider exchanges made between virtual currencies to generate a taxable event. Among these countries, a small number specifically exempt exchanges between different token types from taxation, but the majority consider such exchanges to be taxable. Exchanges in payment for goods, services or wages are treated as a taxable event in almost all countries, with the income tax treatment of those underlying transactions remaining unchanged.  At the end of the virtual currency lifecycle, most jurisdictions treat the disposal of a virtual currency asset as a taxable event.

Taxpayer status and virtual currencies

The OECD report notes that the tax treatment of transactions in virtual currencies also varies depending on the status of the taxpayer. Transactions made in a personal investment capacity most commonly give rise to capital gains tax liabilities throughout the world, with capital losses being ring-fenced and applied against other capital gains. Trading in respect of virtual currencies gives rise to business income, taxed at normal corporation or income tax rates. Some jurisdictions have detailed guidance on these typical taxation events, often distinguishing corporate and business holding of virtual currencies from individual investment.

Indirect taxation

The indirect tax treatment of virtual currencies is more consistent across countries than the income tax treatment. Generally, the exchange of virtual currencies is not subject to VAT. The report notes that the pure activity of using virtual currencies to acquire goods or services is outside the scope of VAT, with no VAT being charged on the value of the virtual currencies themselves. Virtual currencies represent only a means of payment, like any other currency. The report indicates that transacting with virtual currencies is therefore not a barter transaction, but that the supply of taxable goods and services paid with virtual currencies remains subject to VAT as normal.

This approach is perhaps unsurprising. The leading decision of the European Court of Justice in Skatteverket v Hedqvist (C-264/14) is acknowledged in the report as authority for treating virtual currencies as analogous to other currencies for the purpose of the EU’s VAT Directive. As such, for EU VAT purposes, virtual currencies have been construed as merely providing a means of exchange of services and goods, with virtual currencies giving rise to similar difficulties to those experienced regarding all other, fiat, currencies in respect of determining the taxable amount and the amount of VAT deductible in transactions.

With a few exceptions (including France and Italy), the receipt of new virtual currency units through creation and mining is also not chargeable under VAT.

Wealth and property taxation

As virtual currencies are typically considered to be property for tax purposes, the OECD report indicates that virtual currencies are likely to be subject to property taxation in countries that impose inheritance, gift, wealth or transfer taxes, although the report notes that tax authorities’ guidance rarely provides information on whether and how these taxes apply to virtual currencies.


The report concludes with a series of recommendations to policymakers and governments. These focus on strengthening the legal and regulatory frameworks for taxing virtual currencies, and thereby providing certainty for tax administrations and taxpayers. Improvements in tax compliance applicable to virtual currencies is recommended, including through the consideration of simplified rules on valuation and on exemption thresholds for small and occasional trades. Generation of clear guidance for the taxation of virtual currencies is identified in the OECD report as a key priority for the future. Such guidance would allow the taxation of virtual currencies to be aligned with other policy objectives or trends, including the declining use of cash – which is being accelerated by the COVID-19 pandemic – and environmental policy objectives, given that virtual currency mining is highly energy-intensive.

Key Contacts

Adam Blakemore
T. +44 (0) 20 7170 8697

Linda Z. Swartz
T. +1 212 504 6062

Jon Brose
T. +1 212 504 6376

Andrew Carlon
T. +1 212 504 6378

Mark P. Howe
T. +1 202 862 2236

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