Denmark based tax agency Skattestyrelsen is demanding that all crypto traders provide a full background of all their transactions.
The agency began to issue tax compliance letters to crypto users demanding information on profits and losses for fiscal years 2016 to 2018 following FIFO (First in First Out) Principles. In addition to that, the tax agency demanded to know the transaction rates at the time of the trade, the reason for acquiring the digital currencies and all documentation on crypto wallets. They will also need to give a proof of wallets created through a screenshot, all necessary bank statements and a statement to give evidence of all the current crypto holdings.
According to Koinly which is a crypto tax startup, crypto users will be forced to amend their previous tax returns that are related to crypto activities. Failure to comply will attract serious penalties.
The agency got permission to obtain data and so far, it has gotten the data of three crypto exchanges in Denmark gathering data of over 20,000 users.
Skattestyrelsen started to focus on crypto users when it identified up to 2700 individuals who had evaded tax from Bitcoin gains late last year. That made them track down on all individuals and send them letters. In January 2019, it got permission from the country’s tax council to keep track of all trades across the three main domestic crypto exchanges.
Generally, cryptocurrency tax compliance is not the easiest thing to enforce. This is because many crypto traders have more than one wallet and work with several exchanges hence it is hard to know the exact capital gains for a trade.
Tax evasion is, therefore, a serious fight and it may take some time to do away with it. The step taken by Skattestyrelsen is the same as that done by the US Internal Revenue Services (IRS) in August when it sent letters to crypto users whom it believed were evading tax. IRS gave a 30-day notice for users to respond. As of October, IRS updated its income tax form to also include cryptocurrencies.
The UK, on the other hand, has also been dealing with cryptocurrency tax compliance through HM Revenue & Customs. The agency was demanding cryptocurrency exchanges to give all the relevant information about their customers including transaction history in a bid to fight tax evasion.
It is clear that it will probably take some time for tax compliance on cryptocurrency to be fully implemented in most countries.
Image by Steve Buissinne from Pixabay
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