Warning : This article is brought to you by the Waltio Company. Crypto investments are risky by nature, do your own research and invest only within the limits of your financial capacity. This article does not constitute an investment incentive.
A clarification of the legal framework is needed
The world of digital assets is constant evolution, hence its appeal to many of us. But the authorities are having difficulty keeping up with the frantic pace of our decentralized ecosystems. This results in a significant gap between the legal framework and the reality of crypto-enthusiasts. The French tax framework only takes into account digital asset disposals and the mining. However, there is now a myriad of activities that lead a taxpayer to receive digital assets. And, that the tax administration does not take into account. This state of affairs creates a great uncertainty for the taxpayer, who knowdoor the risks in the event of a declaration error.
The regime applicable to several types of operations should therefore be clarified:
- Type marketing operations airdrops
- Participation in a decentralized network through the mining where the staking
- Decentralized finance operations, such as farming where the lending
Finally, the decentralized finance operations have become a full-fledged activity, separate from trading activity. Which raises the question of occasional or habitual nature of operations.
Are the criteria for decentralized finance operations the same as for digital asset trading? There is legal vagueness on the subject, so even tax lawyers have divergent positions. For the moment, no text defines precisely how to declare this income, so there are several applicable methods.
One of them, used by Waltio, considers that the receipt of these tokens does not constitute a taxable event. So the decentralized finance income is simply added to the digital asset portfolio at an acquisition price of 0.
Simplification of reporting obligations
The declaration of capital gains on the disposal of digital assets is a task time consuming and tedious for the taxpayer. Due to the complexity of the tax system and some method of calculating capital gains, the taxpayer must have math skills and a certain appetite for Excel spreadsheetsotherwise he will not be able to make a proper declaration. The taxpayer therefore takes all the risks, he puts his savings into play and is imposed disproportionate obligations. And, in case of doubt of the tax administration, it is also up to him to prove the accuracy of his declarations.
Moreover, the form 2086 is not not at all adapted to reality of the digital asset market. Indeed, the paper version only includes 5 lines to report transactions, the digital version includes 20. Many crypto enthusiasts make more than 20 sales per year, because that’s less than two assignments per month.
In addition, when a user places an order at the market price, the order may be executed. at several prices, which creates a multitude of transactions, as you can see in the screenshot below. With this single purchase, the taxpayer must declare 3 transfers. When we add to this partial profit-taking, you can quickly end up with a dozen forms to fill out.
The lack of regulatory clarity creates considerable differences of opinion among tax professionals. Tax software Waltio takes into account all these operations, thus making it possible to provide a complete cryptocurrency tax return.
Allow the deductibility of losses from one year to the next
Those of you who survived the 2017 bullrun, and the ensuing market collapse, know that big gains are just as easy as big losses when entering the digital asset market.
In the tax system of capital income, commonly called flat tax, the tax authorities allow taxpayers to use the capital loss carryforward mechanism. This is article 156 of the General Tax Code which allows losses to be deducted from future capital gains, for 6 years! In digital assets, capital gains are taxed at the same rate, but there is no deferral mechanism for capital losses. This difference in treatment seems difficult to justify, because it creates a discriminatory situation for digital assets.
The implementation of a mechanism for deferral of capital losses on digital assets would make it possible to create a more coherent and fairer regime for the taxpayer, which bears the risks of the investment and the workload associated with reporting obligations.
To go further on complex operations, we invite you to consult the white paper of Waltio and the cabinet ORWL.
In addition to the virtues of tax in the context of the redistribution of wealth, taxation is a tool allowing the State to control the savings of the French. An attractive tax regime on an asset class makes it possible to bring more capital towards it. Investment in small and medium-sized enterprises is rewarded by a tax exemption of part of the amount invested. Long-term ownership of listed shares in a PEA allows for a tax reduction upon sale .
But, when it comes to digital assets, the only notable incentive is the lack of taxation of crypto-to-crypto transactions. This measure is absolutely necessary, but should be accompanied by more accommodating measures for investors. While waiting to see more clearly, recourse to a tax solution such as Waltio seems essential!