Virtual Currencies and the Tax Agency | Cryptocurrency Control

Important: This article was published in 2018 and analyzes the Preliminary Draft Law on Measures to Prevent and Combat Tax Fraud in relation to virtual currencies. The subject matter analyzed was subsequently incorporated into the legal system through Law 11/2021, of July 9, and implemented through new reporting requirements regarding virtual currencies.

Virtual Currencies and the Tax Agency. Taxation

On October 23, 2018, the DRAFT BILL ON MEASURES TO PREVENT AND COMBAT TAX FRAUD was published for the purposes of the public information procedure, directly affecting Virtual Currencies and the Tax Agency.

In fact, among the measures contained in the aforementioned PRELIMINARY DRAFT BILL are those relating to the regulation of cryptocurrencies—whether held in Spain or abroad—for taxpayers subject to the Spanish tax authorities. This regulation aims to obtain information on the balances and holders of virtual currencies held in custody and establishes an obligation to provide information on cryptocurrency transactions.

In particular, this draft bill would entail—especially—the following amendments:

1. Introduction of new sections 6 and 7 in the Thirteenth Additional Provision of Law 35/2006, of November 28, on Individual Income Tax and partially amending the laws on corporate income tax, on Nonresident Income Tax , and Wealth Tax

2. The amendment to paragraphs 1 and 2 of the EIGHTEENTH ADDITIONAL PROVISION of Law 58/2003, of December 17, on General Taxation.

Objectives: Oversight of Transactions Involving Virtual Currencies and Cryptocurrencies. Taxation and Anti-Money Laundering

As stated in the Explanatory Memorandum of the Draft Bill, among other measures it includes, it seeks to strengthen “tax control” over the potential taxation related to virtual currencies. To this end, two measures are essentially reinforced:

1.- Information measures relating to: the balances held by holders of virtual currencies; as well as information about transactions (acquisition, transfer, exchange, transfer, receipts and payments).

2.- Penalty measures

Subjects: Exchanges, Technology Service Providers, and Taxpayers

The objectives of such regulation affect:

1.- Companies providing services related to Cryptocurrencies. This regulation covers

a.- Individuals/entities resident in Spain

b.- Permanent Establishments in Spain

c.- Entities resident abroad

That primarily provide the following services:

a.- Safekeeping of private cryptographic keys on behalf of third parties, to hold, store and transfer virtual currencies;

b.- Exchange between virtual currencies and legal tender or between different virtual currencies, or acting as an intermediary in any way in carrying out such transactions.

2.- Taxpayers (tax obligors)

In summary, we should bear in mind:

Consequently, a more intense and focused interrelationship between Virtual Currencies and the Tax Agency begins, which will result not only in the corresponding amendment of the regulations but also in forthcoming implementing regulations to make it effective.

Virtual Currencies and the Tax Agency. Proposed Legislation: Draft Bill

1.- Law 35/2006, of November 28, on Individual Income Tax and partially amending the laws on Corporate Income Tax, Nonresident Income Tax, and Wealth Tax. THIRTEENTH ADDITIONAL PROVISION: New Sections 6 and 7

“6. Individuals and entities resident in Spain, as well as permanent establishments in Spanish territory of individuals or entities resident abroad, that provide services to safeguard private cryptographic keys on behalf of third parties, to hold, store, and transfer virtual currencies—whether such service is provided as a primary activity or in connection with another activity— shall be required to provide the tax authorities, under the terms established by regulation, with information regarding all virtual currencies held in custody. This information shall include details on balances in each different virtual currency and, where applicable, in legal tender, as well as the identification of the account holders, authorized representatives, or beneficiaries of such balances.

7.- Individuals and entities resident in Spain and permanent establishments in Spanish territory of individuals or entities resident abroad, who provide exchange services between virtual currencies and legal tender or between different virtual currencies, or act as intermediaries in any way in carrying out such transactions, or provide services to safeguard cryptographic keys on behalf of third parties, to hold, store and transfer virtual currencies, shall be obliged, under the terms to be established by regulation, to report to the tax administration the transactions of acquisition, transfer, exchange and transfer relating to virtual currencies, as well as receipts and payments made in such currencies, in which they intervene or act as intermediaries, submitting a nominal list of the parties involved indicating their address and tax identification number, type and number of virtual currencies, as well as the price and date of the transaction.”

The same obligation shall apply to individuals and entities resident in Spain and permanent establishments in Spanish territory of individuals or entities resident abroad, who carry out initial offerings of new virtual currencies, in respect of which they deliver them in exchange for contributions of other virtual currencies or legal tender.”

2. Law 58/2003, of December 17, General Tax Law. ADDITIONAL PROVISION EIGHTEEN: Amendment to Subsections 1 and 2.

“1.- Taxpayers shall provide the tax administration, in accordance with Articles 29 and 93 of this Law and under the terms to be established by regulation, with the following information:”

a) Information on accounts located abroad opened with entities engaged in banking or credit business of which they are holders or beneficiaries or in which they appear as authorised persons or in any other way hold powers of disposal.

b) Information on any securities, assets, financial instruments or rights representing share capital, equity or assets of any type of entity, or the assignment to third parties of own capital, of which they are holders and which are deposited or located abroad, as well as life or disability insurance policies of which they are policyholders and life annuities or temporary annuities of which they are beneficiaries as a result of the delivery of capital in money, movable or immovable property, contracted with entities established abroad.

c) Information on real estate and rights in real estate owned by them located abroad.

d) Information on virtual currencies located abroad of which one is the holder, or in respect of which one has the status of beneficiary or authorised person or in any other way holds powers of disposal, held in custody by individuals or entities that provide services to safeguard private cryptographic keys on behalf of third parties, to hold, store and transfer virtual currencies

The obligations provided for in the preceding paragraphs shall extend to those who are considered beneficial owners in accordance with the provisions of section 2 of Article 4 of Law 10/2010, of 28 April, on the prevention of money laundering and terrorist financing.

2.- System of infringements and penalties.

Tax infringements include failure to file on time and filing incomplete, inaccurate or false data in the informative returns referred to in this additional provision.

It shall also constitute a tax infringement to file them by means other than electronic, computerised and telematic means in those cases where there is an obligation to do so by such means. The above infringements shall be very serious and shall be penalised in accordance with the following rules:

a) In the event of failure to comply with the obligation to report on accounts with credit institutions located abroad, the penalty shall consist of a fixed monetary fine of €5,000 for each item of data or set of data relating to the same account that should have been included in the return or that was provided incompletely, inaccurately or falsely, with a minimum of €10,000. The penalty shall be €100 for each item of data or set of data relating to the same account, with a minimum of €1,500, when the return has been filed late without prior request from the tax administration. Likewise, filing the return by means other than electronic, computerised and telematic means shall be penalised when there is an obligation to do so by such means.

b) In the event of failure to comply with the obligation to report on securities, assets, financial instruments, rights, insurance policies and annuities deposited, managed or obtained abroad, the penalty shall consist of a fixed monetary fine of €5,000 for each item of data or set of data relating to each asset element individually considered according to its class, that should have been included in the return or that was provided incompletely, inaccurately or falsely, with a minimum of €10,000.

The penalty shall be €100 for each item of data or set of data relating to each asset element individually considered according to its class, with a minimum of €1,500, when the return has been filed late without prior request from the tax administration. Likewise, filing the return by means other than electronic, computerised and telematic means shall be penalised when there is an obligation to do so by such means.

c) In the event of failure to comply with the obligation to report on real estate and rights in real estate located abroad, the penalty shall consist of a fixed monetary fine of €5,000 for each item of data or set of data relating to the same real estate asset or the same right in a real estate asset that should have been included in the return or that was provided incompletely, inaccurately or falsely, with a minimum of €10,000.

The penalty shall be €100 for each item of data or set of data relating to the same real estate asset or the same right in a real estate asset, with a minimum of €1,500, when the return has been filed late without prior request from the tax administration. Likewise, filing the return by means other than electronic, computerised and telematic means shall be penalised when there is an obligation to do so by such means.

d) In the event of failure to comply with the obligation to report on virtual currencies located abroad, the penalty shall consist of a fixed monetary fine of €5,000 for each item of data or set of data relating to each virtual currency individually considered according to its class that should have been included in the return or that was provided incompletely, inaccurately or falsely, with a minimum of €10,000.

The penalty shall be €100 for each item of data or set of data relating to each virtual currency individually considered according to its class, with a minimum of €1,500, when the return has been filed late without prior request from the tax administration. Likewise, filing the return by means other than electronic, computerised and telematic means shall be penalised when there is an obligation to do so by such means.

The infringements and penalties regulated in this additional provision shall be incompatible with those established in Articles 198 and 199 of this Law.”

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