Settlement of foreign virtual currencies

Trading with virtual currencies has become more and more popular over the years. As a result, Polish tax residents invest their funds not only in domestic, but also in foreign cryptocurrencies. This, in turn, raises questions about the method of accounting for income from foreign virtual currencies. Let's check what it looks like and what determines the settlement of foreign virtual currencies.

Virtual currency based on PIT tax

At the beginning, it is necessary to refer to the issue of the settlement of virtual currencies in the light of Polish regulations. In this regard, please refer to the PIT Act.

Pursuant to Art. 17 sec. 1 point 11 of the PIT Act, revenues from cash capitals are considered revenues from the sale of virtual currency for consideration.

Moreover, pursuant to Art. 17 sec. 1f of the PIT Act, the sale of a virtual currency for consideration is understood as the exchange of a virtual currency for a legal tender, goods, service or property right other than the virtual currency or the settlement of other liabilities with a virtual currency.

It is therefore worth noting that trading with virtual currencies is currently income from money capital.

Therefore, the above means that the tax on this account should be accounted for at the 19% rate in the annual PIT-38 tax return. This type of income cannot be combined with other taxable income under general rules.

Tax is applied to income, which is the difference between the proceeds of selling the virtual currency and the cost of purchasing it.

At this point, it should also be emphasized that the income from the virtual currency is accounted for as cash capital even when the taxpayer conducts business activity (Article 17 (1g) of the PIT Act).

On the basis of the Polish PIT Act, the settlement of virtual currencies is based on the assumption that it is income from capital that is subject to 19% PIT tax.

Virtual currencies under international law

Now that we have already learned how the issue of the settlement of virtual currencies is settled under Polish law, it is worth moving on to explaining how this issue is dealt with under international law.

It will be necessary to refer to the relevant international agreement, as stated in Art. 30b paragraph. 5a of the PIT Act, the provisions of the relevant international agreement on the avoidance of double taxation apply to the taxation of revenues from virtual currencies.

Art. 13 sec. 5 of a typical contract where we can read that the gains from the transfer of ownership of any property not mentioned elsewhere are taxable only in the Contracting State in which the transferor is domiciled or established.

Point 5 of the general comments to Art. 13 of the OECD Model Convention states that this article does not contain a precise definition of the definition of property gains. The words "transfer of property ownership" are used to include especially profits from the property from sale, exchange, as well as partial sale, expropriation, transfer to a company in exchange for shares, sale of rights, donation and even posthumous transfer of property.

As a result, all types of transferable goods and rights that have a measurable and real economic value are subject to the provisions of Art. 13 sec. 5 of a typical double taxation treaty.

This interpretation of the regulations is also confirmed by tax authorities, as exemplified by the interpretation of the Director of the National Clearing House of December 4, 2017 (No. it is a marketable right that is traded. Taxpayers can freely purchase and sell virtual currency, using virtual currency exchange services for this purpose.

In connection with the above, Art. 13 sec. 5 of the Convention, according to which profits from the transfer of ownership of a virtual currency are taxable only in the contracting state in which the transferring ownership is domiciled or established.

In light of the above, income from trading in virtual currency is taxed in the country in which the natural person resides. Within the meaning of tax law, it is a tax residence, which is primarily defined as a place where the taxpayer has a center of vital interests.

Thus, such an understanding of the regulations means that the settlement of foreign virtual currencies takes place only in the country of residence. Therefore, since taxation takes place only in one country, then in this case it is unjustified to use the method of avoiding double taxation, because such taxation will not occur at all.

Example 1.

A Polish tax resident trades in virtual currency in Great Britain. In this case, Art. 13 sec. 5 of the Polish-British agreement, which means that the income generated on this account will be taxable only in the country of residence, i.e. in Poland. The Polish taxpayer will therefore settle the tax only in the Republic of Poland, submitting the annual PIT-38 tax return on this account.

Pursuant to the concluded international agreements, trade in foreign virtual currencies is taxable only in the country of residence of a natural person.

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Settlement of foreign virtual currencies in the absence of an international agreement

We can imagine a situation where a Polish taxpayer deals with virtual currency trading in a country with which Poland has not concluded a double taxation avoidance agreement.

In this case, only the Polish provisions of the PIT Act will apply.

Therefore, it is worth pointing out that in the light of Art. 30b paragraph. 5e of the PIT Act, if a taxpayer who is a Polish tax resident obtains income from the sale of virtual currencies, both within the territory of the Republic of Poland and abroad, these income is combined and an amount equal to the income tax paid abroad is deducted from the tax calculated from the total sum of income . The deduction may not, however, exceed that part of the tax calculated prior to the deduction which is proportionately attributable to the income earned abroad.

However, pursuant to Art. 30b paragraph. 5f of the PIT Act, in the case of a taxpayer who obtains income from the sale of virtual currencies for payment only outside the territory of the Republic of Poland, the rule specified in sec. 5e shall apply accordingly.

As a result, if a natural person residing in Poland purchases and sells virtual currency in a country with which the Republic of Poland does not have an international agreement, this type of income is subject to taxation both in Poland (19% capital tax) and in source country.

In this case, the taxpayer may deduct the tax paid abroad from the Polish tax. This is done in the annual PIT-38 tax return with an attachment PIT / ZG.

Example 2.

A taxpayer who is a Polish tax resident trades cryptocurrency in Brazil. Poland has no signed international agreement with Brazil, which means that the method of proportional deduction specified in the PIT Act will apply. Consequently, from the tax calculated at the rate of 19% on income, the taxpayer may deduct any tax paid in Brazil.

In the case of the settlement of foreign virtual currencies in a country with which Poland does not have a signed double taxation agreement, the method of proportional deduction will apply.

If we want to summarize our considerations, it should be pointed out that the settlement of foreign virtual currencies depends primarily on whether a double taxation avoidance agreement has been concluded with a specific country.