What are virtual currencies?

We wrote about the legal aspects of virtual currencies in our report on 2014. Since that time, no legal definition of virtual currencies, which are now increasingly referred to as "digital currencies,” has appeared. However, this will soon probably change, as we wrote in our article Draft bill on a Central Database of Accounts. Work on creating a definition of "virtual currencies” has also been underway at the EU level, about which we wrote in an article in July 2016.

The fact that virtual currencies are legal has key significance in relation to Polish tax regulations, which means that transactions conducted with their use are subject to taxation. This position is confirmed in a letter to the Speaker of Parliament from the Minister of Finance dated 28 June 2013 (no. BPS/043-30- 1238/13).

Presently, the most popular virtual currency is Bitcoin, which appeared in 2009, and which most tax practice has addressed. It should be assumed that other virtual currencies will also be similarly treated.

How to tax the sale of virtual currencies?

The fundamental problem arising in the sale of virtual currencies by individuals is proper specification of the source of income to which income from such a transaction should be attributed.

In response to parliamentary query, no. 6655 (nr FN7.701.53.2016), the Minister of Finance stated that income from trade in virtual currencies should fall under "income from property rights”. Such classification means that income earned from the sale of virtual currencies is taxed according to general principles, namely, the tax scale.

In our view, this does not mean that persons conducting non-agricultural business activity or partners in transparent entities (e.g. general partnerships), who trade in virtual currency, cannot tax the sale of virtual currencies at a flat rate of 19%. In such case, however, trade in virtual currencies should have specific features applicable to business activity (organization, continuity, intensity, etc.). It appears more safe to trade in virtual currencies within the framework of a separate dedicated entity that is not a taxpayer (partnership). In order to ensure extensive security in this regard, the receipt of an individual interpretation should be considered.

No more lump sum tax on recorded revenue

Until the end of last year, it was assumed that revenue from trade in virtual currency could be taxed in the form of a lump sum tax on recorded revenue at the rate of 3% (no tax deductible costs). This was based on an appropriate statistical classification of trade in virtual currencies under PKWiU 47.00.89, as repeatedly confirmed by the Main Statistical Office (GUS).

However, GUS issued an interpretation opinion on 12 December 2016 regarding a new manner of classifying the purchase and sale of Bitcoin in the PKWiU with specification of classification: "64.19.30.0 – other monetary brokerage not classified elsewhere”.

Although GUS interpretation opinions are not a source of law, such classification in practice excludes the ability to tax revenue from the sale of Bitcoins and, moreover, most likely other virtual currencies with a lump sum tax on recorded revenue.

This change of statistical classification means that tax authorities will most likely question the protective power of individual tax rulings in which the right to a lump sum tax on recorded income was confirmed on the basis of statistical classification PKWiU 47.00.89 indicated by taxpayers.