See here the regime applicable since 1 January 2019
Contrary to appearances and to the articles I read here and there, the decision of the French Supreme Administrative Court (Conseil d’Etat) of 26 April 2018 is potentially a genuine legal Big Bang, a negative one in my view, for the taxation of cryptocurrencies. In most of the articles I have read, the authors generally consider either that this position is rather positive since it recognises the applicability of a potentially favourable regime to certain types of trading, or that it is ultimately rather neutral because it does not settle enough questions.
Of course, the recognition that the capital gains on securities regime (plus-values mobilières) applies to occasional gains, under certain conditions, seems, in most cases, to be a good thing; I will come back to this in the second part of the article.
BUT, AND ABOVE ALL
The Conseil d’Etat seems to endorse the fact that THE EXCHANGE OF CRYPTOCURRENCIES IS TAXABLE! (2018 analysis: since 1 January 2019, these exchanges benefit from a tax deferral for individuals, Article 150 VH bis of the French General Tax Code (Code général des impôts, CGI))
This may seem shocking but will seem fairly normal to any tax lawyer.
This position is consistent with the analysis I set out in my various articles, and with that of various serious fellow tax specialists, on the taxation of cryptocurrencies.
When I mention this analysis in consultations with my clients, they are often extremely surprised, even shocked. It seems completely inconsistent to them. I understand them, from a financial point of view. But, from a legal and tax point of view, the entire legal framework has long been in place for the exchange of goods or services for other goods or services to be taxable.
And, unfortunately, this analysis seems to be in the process of being officially confirmed by our highest administrative court, the Conseil d’Etat.
Unfortunately, of course, because it means that even if you have not received any cash in the course of your trading operations, you would be taxable.
Please note, I am not writing that yes, from now on, it is 100% certain that the exchange of cryptocurrencies is indeed taxable.
But simply that the decision of the Conseil d’Etat seems to confirm that the exchange of cryptocurrencies is taxable.
Which seems to confirm the position that the tax authorities had taken in their 2014 administrative guidelines (doctrine).
As of today, therefore, from a legal and tax point of view, it seems to me that we are indeed moving towards taxation of the exchange of cryptocurrencies, even when no fiat has been received.
I do say, from a legal and tax point of view. In our little world of tax specialists, the major sources of tax law are statute and, in practice, administrative guidelines and the case law of the Conseil d’Etat.
Yet, since 26 April, these last two sources seem to have come into alignment on the question of the taxation of the exchange of cryptocurrencies.
HOWEVER
A law could counter this very easily. There is therefore still hope. Not to mention the possibility of requesting advance tax rulings (rescrits) to protect oneself individually.
A law implies genuine political will.
Based on what I have been able to read/hear in the media for several months, I have the impression that there is a political will to simplify and lighten the taxation of cryptocurrencies.
The government had announced its wish for gains from crypto trading to benefit from the flat tax, normally applicable to investment income (dividends, interest) and capital gains on securities.
The government had also, here and there, announced that it wanted to make France one of the world’s leading centres for crypto trading.
SO THINGS MAY PERHAPS DEVELOP MORE POSITIVELY
Personally, I believe so. I think that legislation will evolve favourably towards crypto investors and that the government will take specific measures concerning cryptocurrency trading. But I do not think this will happen quickly, unfortunately. And that there are therefore risks, of course concerning 2017 taxable income, but also probably for 2018 income, because in my opinion, if there is a law, it will not be before 2019.
BUT, FOR THE TIME BEING, THIS IS NOT YET THE CASE
And the consequences could be terrible.
I mentioned them in particular in my last article.
It would mean that crypto investors would have to pay income tax, but also social charges or social levies, on their 2017 net gain, which represents very significant sums.
EVEN THOUGH THE MARKET FELL AT THE BEGINNING OF 2018
We would therefore find ourselves with taxation of a high 2017 net gain, even though, at the beginning of 2018, in most cases, the crypto investor no longer even has the equivalent in fiat terms in their crypto portfolio. And would therefore not even be able to pay all of their taxes and social charges.
NOT ONLY WOULD CRYPTO TRADING HAVE EARNED HIM NOTHING, BUT ON TOP OF THAT HE WOULD END UP IN DEBT
Let us take a simple example.
X bought 1 BTC in September 2016 for €500.
At the end of December 2017, he exchanges it for 15 ETH (fiat equivalent of €20,000).
His 2017 net gain is 20,000-500= €19,500
This €19,500 is subject to income tax plus social charges or social levies (depending on the case).
In concrete terms, the tax and social cost would be around €12,000 (if the taxpayer declared everything correctly from the outset, and therefore excluding surcharges/penalties/late-payment interest if that were not the case).
In April 2018, to prepare for the payment of his taxes and social charges, X sells his 15 ETH. He receives €9,000.
NOT EVEN ENOUGH TO SETTLE HIS TAX AND SOCIAL DEBTS
Not only will crypto trading have earned him nothing, but, on top of that, he finds himself €3,000 in debt (12,000-9,000)!
A tax atomic bomb is therefore indeed looming, unless one counts on the leniency of the tax and social security authorities, which currently seem to have all the texts needed to impose heavy reassessments.
REGARDING THE CAPITAL GAINS ON SECURITIES REGIME
At the outset, I would stress that this regime has been recognised as applicable only to occasional crypto traders, and only under certain very specific conditions.
Here is a very concise summary of the implications of the Conseil d’Etat decision for this category of traders (of course, consult a professional regarding its applicability to your specific situation):
- No taxation if the amount of the disposal (and not of the gain!) is less than €5,000. A good thing for very small crypto investors.
- Application of an allowance for the holding period, but which only starts from the third year of holding, reaching a total exemption after around twenty years. Practically useless, in other words, in the very short-term crypto market
- Taxation at a total of 34.5% (taxes + social levies) on 2017 net gains and 36.2% for 2018 net gains. An overall bearable tax and social burden (a good third), in line with the average of other industrialised countries with liberal economies. A good thing, therefore.
- An unfavourable regime for taxpayers whose marginal tax bracket is below 19%
- Different returns. Capital gains must be declared within the month of the disposal. Several returns to be filed, very often, in practice, therefore, throughout the year.
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