Toward a New Italian Tax Regime for the Taxation of Cryptocurrencies

Introduction of a new autonomous category of miscellaneous income

From 1 January 2023, if new rules in the draft Finance Law for 2023 are enacted, gains on the disposal of crypto currencies will be taxed as miscelaneous income (so reprted in section RL of the Italian tax retrun) as opposed to the current trewamtn where they are reproted, similar to gains on foreign currencies, in section RT of the return.

Article 31 of the draft Budget Law 2023 inserts a new category of miscellaneous income, in Article 67 c-sexies of the Italian Tax Code providing for the taxation of capital gains deriving from the sale for consideration, exchange, redemption or holding of crypto-assets, where the total gain exceeds EUR 2,000 in each tax period.

An exchange of crypto-assets for other crypto-assets having the same characteristics “and functions” is not considered to give rise to a capital gain.

The capital gains in question are made up by the the difference between the consideration received or the “normal” (market)  value of the crypto-assets disposed of and the purchase cost or the value of the assets acquired at the time of purchase.  As a result of the proposed changes, it will in future, not be possible to carry forward a net loss of crypto transactions in one tax year against gains on other investments in future years.  the section RL of the tax retrun leaves no possibilty of reprting a net loss.

Capital gains can be offset by losses on crypto-assets in the same tax period.  A sepcioal rules allows crypto losses exceeding the euro [2,000] threshold at the date the elgisaltion comes into effect to be carried forward agaisnt capital gains on crypto and other assets in the four subsequent tax periods, provided the net loss is reported  in the annual tax return for the tax period in which it arises.

If assets were acquired by way of inheritance, the cost to be used is the inheritance tax value. If assets are acquired by way of gift the base cost is the original base cost of the donor. The cost or purchase value must be supported by adequate and precise documentation, and in the absence of documented proof of the purchase cost,  the base cost shall be assumed to be zero.

No expenses (e.g commissions on sale or purchase) may be used to offset any gain/increase the loss.

The  law also provides for the possibility of rebasing crypto assets to the 31 December 2022 market value paying a substitute tax of 14% on that market value. The taxes will be due by end June 2023, absent any extension and represents an opportunity for investors to advance tax at a lower rate (14% rather than the standard 26%) who will need to evaluate the time factor benefit in paying lower tax now, rather than waitng to pay the higher tax on actual disposal of the asset.  This rules is analagous to the rebasing rule for investments in companies and other investment avialble, through annual renewals since the early 2000’s.

The legislation also introduces a provision for Italian tax residents  to make payment of a 0.5% tax on 31 December 2021 values of crypto assets held at the date and for at previous year end, where the assets have not been properly reported in annual tax return.  The legislation also provides for a 3.5% tax on any income or gains not reported in the same years.

These new rules do not apply to individuals who are carry on a business activity of investing in trading in cryptocurrencies.

The new rules do not appear to have any impact on the requirement to disclose the holding of this type of asset, and which are held otherwise than via an regulated italian financial intermediary, in the Section RW of the annual income tax return and payment of wealth tax.  An exemption from disclosing crypto assets  totalling less than the Euro 2,000 would be welcome, but the Tax Agency may consider there is a need to continue track such holdings.

If the rules are enacted as per the draft law, the Tax Agency will no doubt issue further guidance next year, possibly in conjunction with the issue of the standard tax return models for reporting income and gains received in FY 2022.


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