Austrian Ministry of Finance: Guide to the tax treatment of Crypto Assets

Compile | Author | Ministry of Finance of the Republic of Austria

Date: October 5, 2023

Sources:

1 Income Tax

As part of the Ökosoziale Steuerreform, specific provisions on the taxation of Crypto Assets will come into effect on March 1, 2022. Under the new regime, income from holding Crypto Assets will be treated as capital asset income and will be taxed at a specific rate of 27.5%.

What Crypto Assets are covered?

According to Section 27b, paragraph 4 of the Austrian Income Tax Act (Einkommensteuergesetz - EStG), Crypto Assets are defined as “digital representations of value that have not been confirmed or guaranteed by a central bank or other state body, are not necessarily pegged to legal tender and have no legal status of money, but are accepted by a natural person or legal entity as a medium of exchange and can be transferred, stored or traded electronically.” ”

This definition covers publicly offered Crypto Assets that are accepted as a means of exchange. It also applies to “Stable Coins”, the value of which is pegged to the value of a legally recognized currency or other asset.

This definition excludes Non-fungible Tokens and “Asset Tokens” based on physical assets such as securities or property. These products are taxed according to general tax regulations, depending on the nature of the Token in question.

Affected Revenue and Calculation Method

Income from holding Crypto Assets is defined to include current income from holding Crypto Assets and growth in value due to holding Crypto Assets, regardless of whether the minimum holding period has been observed.

According to Article 27b, paragraph 2, the current income from holding Crypto Assets is defined to include remuneration received from the transfer of Crypto Assets. Revenue recognition occurs when Crypto Assets are transferred to other market participants in exchange for fees. For tax purposes, the definition of these fees specifically includes Interest earned on Crypto Assets loans and taxable considerations for providing Crypto Assets for Liquidity and/or credit pools as part of a “DeFi process” (also known as “Liquidity Mining”).

Crypto Assets holdings obtained through technical processes that provide transaction processing services also fall under the definition of current income. This clause is intended to cover the acquisition of Crypto Assets assets in the course of “mining” activities, regardless of whether the process results in the creation of new Crypto Assets and whether or not the income is provided by other members of the network in the form of transaction fees. Node operations can also generate current revenue for tax purposes.

Precautions

Income from capital assets is considered to have been generated only if the nature and scope of the activity do not go beyond simple asset management work. If these activities fall outside the scope of such asset management, then any income generated therefrom should be classified as income from business activities.

All current income is taxable at the time of inflow. Such income is assessed at the time of inflow based on the value of the Crypto Assets holdings acquired and/or any other remuneration received at that time. This value will also be used to represent the tax cost of the Crypto Assets purchased.

In contrast, current revenue is not considered to have been generated if:

• Services related to the processing of transactions mainly include investing (staking) existing Crypto Assets;
• Crypto Assets are transferred free of charge (“Airdrops”) or used only for other insignificant benefits (“Bounties”);
• Crypto Assets are created as a result of a change in the original Blockchain (“Hard Fork”).

In these cases, income from holding Crypto Assets is not taxed on inflow. However, the underlying Crypto Assets asset is considered to be acquired at zero cost. This means that if they are disposed of later, the full value of the Crypto Assets held will be taxed.

WARNING

Exceptions to Crypto Assets holdings earned as part of traditional staking procedures only apply to services related to transaction processing (i.e., creating and/or validating blocks). If a process that actually amounts to providing consideration in exchange for a transfer of Crypto Assets holdings is described as “staking,” such a process is exempt, meaning that any resulting gains are taxed at the time of inflow.

According to Article 27b(3), “income derived from the increase in the value of Crypto Assets holdings” specifically includes:

• Income generated by exchanging Crypto Assets held into Euros
• Income from converting Crypto Assets holdings into legally recognized foreign currencies (e.g. USD).
• Income earned by trading Crypto Assets held with other economic goods and services (such as buying economic goods and paying with Crypto Assets).

The exchange of one Crypto Assets for another Crypto Assets does not constitute a disposition and such transactions are not subject to taxation. In addition, any expenses associated with such transactions, such as transaction costs, are not considered a significant expense for tax purposes and are therefore not taxable at the time of the transaction. In this case, the cost of acquiring the transferred Crypto Assets will be transferred to the Crypto Assets acquired in the transaction.

Any action that results in the loss of the Austrian government’s right to tax the profits derived from the disposal is also considered a disposal.

Disposal profit is calculated by subtracting the acquisition cost from the revenue generated from the relevant sale. Such profits are taxable. For transactions, the disposal price of the relevant Crypto Assets holdings is assumed to be the fair market value of the relevant Crypto Assets holdings at the time of the transaction (Article 6, paragraph 14). Note that any ancillary costs associated with buying Crypto Assets, such as advice or transaction fees, can be offset against taxes, reducing taxes. However, expenses related to financial assets, such as the cost of electricity or the cost of purchasing hardware, are not exempt unless the taxpayer chooses to use the standard tax option (Regelbesteuerungsoption).

Tax Rate

Under Article 27a(1), income generated from holding Crypto Assets (including current income and sale proceeds) is subject to a special tax rate of 27.5% and is not included in the calculation of the progressive tax threshold for other income. This provision applies regardless of whether the amount of tax payable is withheld at source (i.e. as Capital Gains Tax) or determined on the basis of a tax return and/or assessment procedure.

However, the exemption does apply to income from private loans issued in Crypto Assets, provided that the transfer contract supporting the loan is open to the public. Income from such private loans is included in the progressive income tax threshold.

Loss Deduction

According to Austria’s general tax regulations, profits and losses related to Crypto Assets income can be calculated together with profits and losses related to other capital income, such as dividends or gains on the disposal of shares, for tax purposes.

Business Income

In principle, a special tax rate for Crypto Assets applies to business assets as well as traditional capital assets. However, the special tax rate does not apply if the generation of income through Crypto Assets is part of the core activity of the relevant business. In particular, this means that it does not apply to businesses that conduct commercial transactions in Crypto Assets, or that mine money on a commercial basis. Income from such activities is taxed according to the progressive income tax threshold.

Losses from Crypto Assets holdings that form part of a business’s assets are treated in the same way as losses from commercially held capital assets.

**2 Capital Gains Tax **

Austrian debtors and service providers will be required to deduct Austrian Capital Gains Tax from capital gains accrued after 31 December 2023. This deduction can be voluntarily deducted from gains accrued before that date, in which case Capital Gains Tax is withheld and transferred directly to the Inland Revenue Department. Investors are not required to report voluntarily withheld capital gains on their tax returns because the applicable income tax is deemed to have been collected when Capital Gains Tax is withheld (this principle is referred to as “final tax”).

WARNING

If income was earned from Crypto Assets before the obligation to deduct Capital Gains Tax came into effect, and the tax is not voluntarily deducted, the income must be declared on the income tax return and taxed accordingly.

Limited Tax Liability

Current income from Crypto Assets under Article 27b, paragraph 2, and Crypto Assets capital gains under Article 27b, paragraph 3, are not subject to limited tax liability. If the party liable to withhold Capital Gains Tax knows that it is not an investor with unlimited tax liability, it may be exempt from withholding Capital Gains Tax in these circumstances. If the withholding agent still withholds Capital Gains Tax, it can be refunded under section 240, paragraph 3. See below for the classification of Crypto Assets income under international tax laws.

3 New regulations come into force

The tax requirement on income from Crypto Assets holdings came into effect on March 1, 2022, and will apply to Crypto Assets purchased and held after February 28, 2021 (referred to as “New Assets”).

Typically, Crypto Assets holdings acquired before this date are considered “stock” and are therefore not affected by the new tax rules. They will continue to be treated as economic goods and taxed as they were before the environmental liability tax reform.

However, if Crypto Assets holdings acquired prior to March 1, 2021 (“Old Assets”) are utilized to generate current income pursuant to Article 27b(2) or to receive Crypto Assets as part of a staking, Airdrop, bounty, or Hard Fork arrangement (Article 27b(2)(2)), then the new tax law provisions will apply to such gains. Any Crypto Assets acquired in the course of such activities will be considered new assets.

If Crypto Assets holdings are liquidated after 31 December 2021 but before 1 March 2022 (in particular as a result of disposal or trading), positive or negative income resulting from such liquidation may be voluntarily taxed under the new rules. In this case, a special tax rate for Crypto Assets will apply, and this income can be combined with other income generated from capital assets in 2022 to compensate for losses.

4 Value Added Tax (VAT)

According to the case law of the Court of Justice of the European Union (CJEU) on Bitcoin cryptoassets, the following VAT treatment applies to Bitcoin:

• Convert from fiat currency to Bitcoin and vice versa
• According to CJEU case law, the exchange of fiat currencies (e.g. euros) with Bitcoin is exempt from VAT.

Bitcoin Consideration

A supply or service in consideration of Bitcoin shall be treated in the same manner as other supply or supply or service in consideration of a fiat currency (e.g., the euro). The tax base of such supplies or services shall be determined based on the value of Bitcoin.

Mining

Due to the lack of an identifiable recipient of the service, and according to the case law of the Court of Justice of the European Union, BitcoinMining are not subject to VAT.

4 International Tax Law

For the sake of clarity, this legal assessment is based on the OECD Model Tax Convention. In practice, reference must always be made to the applicable double taxation convention (DTC).

Whether taxable income is accrued, the type of income, the attribution of income to the taxpayer and the time of accrual are governed by the principles of Austrian domestic tax law. This domestic treatment is then considered to qualify for the DTC level.

If income from Crypto Assets qualifies domestically as income from commercial (commercial) activities, it needs to be classified as business profits within the meaning of Article 7 of the OECD Model Tax Convention at the applicable DTC level. In such a case, the place of incorporation of the company has the primary right to tax these business profits, unless its activities are carried out through a permanent establishment within the meaning of Article 5 of the Convention located in another Contracting State and to which the DTC applies. Mining and calibration require specialized, sometimes very expensive equipment that must be installed, put into operation, and connected to a specific site. Thus, in principle, the requirement for the establishment of a permanent establishment under Article 5 of the Convention could be satisfied. The assessment of whether this is the case is on a case-by-case basis and cannot be generalized. If the Crypto Assets generated or income derived from the Crypto Assets are attributable to the permanent establishment, the Contracting State in which the permanent establishment is located acquires the primary taxing right. The company’s place of incorporation is usually exempt from this type of income, but progressive still applies. An exception to this principle is those DTCs that offer a credit method to mitigate double taxation. It should be noted that Article 7 of the OECD Model Tax Treaty applies only in ancillary cases, i.e. when other provisions of the applicable DTC do not apply.

If income is derived from the transfer of Crypto Assets by means of payment (Article 27, paragraph 2, subparagraph Z1), such income can essentially be regarded as Interest within the meaning of Article 11 of the Convention, since the income is paid in exchange for available capital. This means that, in principle, the income can be taxed in a Contracting State in which the payee is a resident. In addition, the country of origin (usually the State party in which the payer resides within the meaning of article 11, paragraph 5, of the Convention) is entitled to a withholding tax of 10 per cent of the gross income. This income is taxed at the time of inflow. This also applies to the transfer of Crypto Assets payments as a commercial activity, as Article 7 is a subsidiary provision of Article 11.

Recommendation: A withholding tax rate of 10% corresponds to the rate set out in the Convention and must always be reconciled with the tax rate in the applicable DTC.

From a domestic point of view, the income from “mining” carried out by the taxpayer himself should be considered as current income (acquisition of Crypto Assets through technology). In this case, article 11 of the Convention does not apply, since the provision of capital does not generate income. Article 7 also does not apply, as there is no commercial activity. Thus, Crypto Assets mining income from sources other than commercial enterprises is in principle classified as “other income” under Article 21, and the Contracting State in which the taxpayer resides usually has the primary taxing power over such income.

Recommendation: Some DTCs to which Austria is a party contain provisions based on Article 21, paragraph 3, of the Convention, and therefore also provide for the right to tax in the country of origin.

Article 13 applies if a business realizes capital gains through Crypto Assets, including capital gains from the sale of Crypto Assets through “staking”, “Airdrops”, “bounties” and so-called “Hard Forks”. If the Crypto Assets belong to a permanent establishment in another Contracting State, the taxing right is transferred to that State in accordance with Article 13, paragraph 2. For other realized capital gains (i.e. capital gains held outside the business) of Crypto Assets, the provisions of Article 13, paragraph 5 apply, and the exclusive right of taxation is assigned to the seller’s country. This legal assessment also applies in cases that result in the loss of Austria’s right to tax capital gains, resulting in domestic export taxes and the sale of Crypto Assets falling into the commercial activities of the enterprise, since Article 7 is an appendage to Article 13.

Recommendation: Asset Tokens and Non-fungible Tokens are not Crypto Assets. Therefore, the previous explanation does not necessarily apply to income from such assets. Other provisions of the DTC, such as Clause 10 or Clause 12, may apply.