Taxation of individuals holding cryptocurrencies in Europe : Comparative analysis of Germany, France and Italy

Abstract: Modern technologies change economic relations in society and gradually transform the legislative framework. Blockchain-based cryptocurrencies are probably one of the most striking examples. Although they increase in value and are widely accepted as means of payment by major corporations, many EU member states are just starting to implement solutions to regulate their use, including in terms of taxation. At the same time, the EU fails to introduce a unified approach to the taxation of cryptocurrency transactions in its common economic area. Accordingly, the question arises as to whether the unified approach is justified, given the example of individual member states. The analysis of German, French, and Italian legislation showed that each state has a different approach to understanding the essence of cryptocurrencies. For example, Germany and France rely on the definition of “virtual currency” set forth in EU Directive 2015/849. However, while Germany uses the “cryptoassets” term, France uses the more general “digital assets” concept. In turn, Italy hasn’t enshrined yet any clear definition of cryptocurrencies in its legislation. This may lead to contradictions when considering international cases in the EU. Differences in understanding the essence of cryptocurrencies inevitably lead to differences in taxation approaches. On the one hand, Germany, France, and Italy recognise the validity of ECJ judgment in case C-264/14, exempting cryptocurrency transactions from VAT. On the other hand, while in Germany the profit from cryptocurrency trading is included in total personal income, thus, changing the progressive tax rate, this option is not possible for occasional transactions in France and is wholly excluded in Italy. Moreover, French law provides tax exemption for crypto-to-crypto exchange transactions. In Italy, this approach is accepted in practice, although not covered by the law. In turn, in Germany, taxes are levied on any transactions, which complicates the process of calculating the tax and creates uncertainty in specific issues, such as staking. Differences in the taxation of cryptocurrency transactions pose a question of the possibility of legal harmonisation, which is justified due to the underdevelopment of the principles of taxation of cryptocurrency transactions at the level of individual EU members. However, as a more correct solution, it is proposed to take measures to harmonise legislation based on directives, as this will allow avoiding an adverse impact on the fiscal sovereignty of the EU members.