Key Facts.

  • There may be different interpretations of how the same cryptocurrency investments are taxed.
  • Choosing cryptocurrency investments wisely can help reduce tax pressure.

Spanish tax authorities still do not provide cryptocurrency investors with clear enough criteria to properly declare their taxes. According to Spanish economist Juan Ramón Rallo, "there is uncertainty about certain returns associated with the cryptocurrency industry."

That's how Rallo expresses himself in a video posted on his YouTube channel on Wednesday, in which he discusses tax issues with Paula Urcera, in charge of tax affairs at TaxDown, and Alberto Toribio, head of institutional relations at CryptoPlaza. At some point in the interview, it becomes clear that the two experts have different views on how to report certain products in the cryptocurrency industry to the Treasury Department.

Spain has been taking measures to make residents who invest in cryptocurrencies pay taxes for the performance of the different products. However, the rapid growth, as well as the diversity and usefulness of the products used to invest in the cryptocurrency sector, seems to complicate the situation.

"Just three years ago, 2 million Spaniards invested in cryptocurrencies, while today there are 7.5 million," said Alberto Toribio, citing Statista data from December 2021. As he said, in Spain, cryptocurrencies and the DeFi space (decentralized finance). The latter has various products that generate passive income, such as leveraged loans, swaps or derivatives, which complicate tax returns.

interna.jpg.webp The video focuses on defining the tax implications of investing in cryptocurrency assets (e.g. Bitcoin) in Spain. Juan Ramon Lalo on Youtube.

As Paula Urcera explains, basic obligations, such as the tax known as IRPF (personal income tax), mean reporting capital gains or losses on each individual cryptocurrency sale transaction. This can make tax reporting very complicated for traders who make a large number of transactions each year.

Obligations, on the other hand, may vary depending on where you live. "Depending on the community you live in, you have to file some tax or other tax returns," Urcera says.

Utility tokens pay VAT in Spain

Experts agree that products like NFTs (non-fungible tokens) are treated differently than cryptocurrencies. These are subject to other taxes, such as VAT (value added tax). However, the same tax on utility tokens seemed to cause a stir in Spain a few weeks ago, according to Toribio.

Utility tokens have a consumer-oriented purpose and are often used as a way to provide discounts or other rewards for user loyalty to the program. The Sports Club Fan Token is a utility token.

Paula Urcera points out that in her vision, an investment in utility tokens does not mean that buyers have to declare subsequent taxes as if they were investments. However, Toribio believes there is still a lot of confusion.

The use of utility tokens raises serious problems for us because in many cases, despite this concept of utility, the main economic activity around them does not develop around their utility but around the phenomenon of investment.

Alberto Toribio, CryptoPlaza

Where are the air drops?

Another tool in the cryptocurrency space where experts disagree on how to declare is the airdrop. This mechanism involves sending free governance tokens or NFTs to users who interact with the project early on.

In Alberto Toribio's view, the unexpected receipt of tokens in airdrops can be interpreted as "income from work", as they are usually sent to users of early testing protocols. However, many people tend to interpret airdrops as "capital income".

Paula Urcera, for his part, says it is not clear whether airdrops fall into the "earned income" category. In his opinion, since it is a marketing exercise, it should be calculated in the general tax base and not in the savings base, as Toribio suggests. This means that the tax calculation of the product could reach 50% in Spain.

For Juan Ramon Lalo, it is clear that the taxpayer must be in a state of ignorance if experts may have different interpretations of the correct tax treatment of the same product. "If the Ministry of Finance then reviews the statement you made and, without giving criteria on how you must do it, considers that it was wrongly declared, they can sanction you," Lalo stressed.

It is important to note that the fine for each piece of data not declared in Spain can be up to 5,000 euros. The fine can even be more than 5 times the amount of the undeclared amount.

Some options

As we reported on CriptoNoticias Spain, both natural and legal persons must pay taxes on the profits of their capital invested in cryptocurrencies. The Spanish government collects a minimum percentage of 19% of the proceeds and up to 50%. Experts have pointed out some of the ways that taxpayers can use to ease the financial pressure.

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Regarding the utility tokens that will now be subject to VAT, Alberto Toribio explained that the measure has prompted the companies that issue them to seek mechanisms to avoid being harmed. As he said, this means that ICOs (initial token offerings) of projects such as Bit2Me, which have raised 20 million euros through the sale of their tokens, must pay 21% of VAT to the Spanish treasury.

Other projects aimed at the Spanish public could find themselves in the same situation. In this sense, Toribio points out that companies can choose to change the definition of their tokens. "For example, define that they create cryptocurrencies rather than utility tokens, indicating that they can be traded freely on markets such as Uniswap," said the CryptoPlaza executive.

Paula Urcera, TaxDown tax expert, believes that choosing the right investments can help you reduce your taxes. In this sense, he emphasizes that, for example, mining Bitcoin is an economic activity, which makes miners self-employed, with its implications in terms of personal income tax, social security, etc. When involved in pledging, it operates as a block verifier in some networks, typically as a term deposit that generates interest.

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When you perform an economic activity, you pay tax at a marginal rate of 50%. When you deposit an amount and it gives you interest, you pay a marginal rate of 26%. At the personal income tax level, it is better to make a pledge.

Paula Ursella, TaxDown.

Rallo commented that the "headache" implied by Spain's tax on cryptocurrency investments could lead taxpayers to act in ways such as not filing tax returns, exposing themselves to "cruel" sanctions, or simply not investing in the industry.