In the absence of a legal framework and a regulatory body controlling crypto assets in Belgium, we need to rely on the existing general tax and accounting principles. Considering the lack of specific tax rules, a case-by-case approach is always necessary.
We have a general rule that gains realized by a private individual are not considered taxable if this takes place within the scope of a ‘normal’ management of their private assets. What is ‘normal’ and what is ‘speculative’ (abnormal), is not always clear and has resulted in many disputes with the taxman. If a transaction is considered ‘speculative’, the realized gains are taxed as ‘miscellaneous’ income at a flat rate of 33%, plus communal taxes.
Some guidance is provided in this context by the Belgian Ruling Commission. Since many years, taxpayers and prospective investors can request an advance decision from the Belgian tax authorities regarding the application of our domestic tax laws to a particular situation or transaction. Almost all matters relating to direct, indirect and international taxation can be the subject of a ruling application.
While the scope of these advance decisions is limited to the specific case of the applicant, they provide fiscal certainty as a sound basis for investment decisions and as a tax planning instrument.
Back in 2017, the Ruling Commission had to decide on the case where an IT-student had developed his own application that allowed him to automatically buy and sell cryptocurrency. The Commission decided that the software had been developed “as a hobby and out of interest in his field of study” and could not be considered business income for that reason. However, without any further clarification, the tax authorities also decided that any profit realized through the student’s online bitcoin platform, would be taxed as ‘miscellaneous’ income (Advance Decision nr. 2017.852, 05.12.2017).
While generalizations are not appropriate here, the decision obviously caused some panic with tax professionals. It was almost as if the Ruling Commission automatically considered any type of investment involving crypto assets as speculative and therefore taxable.
Afterwards, the Commission published an online questionnaire that can be used as a guideline in order to assess the tax treatment of crypto assets in a specific case. Several elements are considered relevant such as the level of professionalism and educational background of the investor, the number of transactions, the investment strategy (buy and hold vs. day trading), the percentage of assets invested in crypto assets vs. other investments and so on.
While the list with 17 questions has its purpose, it still does not allow every type of crypto investor to determine themself when an investment is ‘normal’ as opposed to ‘speculative’. At present, the tax treatment of crypto assets is analyzed on a case-by-case basis for which taxpayers would be required to consult the Ruling Commission in case they would like to get advance certainty.
However, in more recent decisions, the Commission has decided that gains realized on crypto assets could be considered proceeds of a ‘normal’ management of private assets (Advance Decisions nr. 2020.2175 and nr. 2020.2176, dd. 12.01.2021).
In both cases the situation was fairly similar; an investor wanted to know whether the gains he would realize on the planned sale of his cryptocurrencies – acquired several years before – could qualify as a ‘normal’ management and therefore remain tax-free.
The Commission repeated that investments in crypto assets are not subject to our (domestic) tax on stock exchange transactions and are indeed riskier than more traditional investments. Although the number of crypto transactions by both applicants was relatively high several years before, the planned sale of the crypto coins now would not qualify as business income, neither as ‘miscellaneous’ income.
According to the tax office, the envisaged transaction would fall within the scope of the ‘Prudent Man’-principle based on the following considerations:
- the applicant had never been active before in the financial sector;
- his educational/professional background had nothing to do with crypto assets;
- the investments were made with his own earnings and he did not conclude any loan for it;
- the applicant did not engage into mining or use of automated software;
- he applied a ‘buy and hold’-strategy as he kept the assets for several years;
- no crypto assets had ever been sold; and
- there were not enough transactions over the years that could qualify as a business activity.
The Commission also made clear that the decision only remained valid insofar the planned sale of the cryptocurrencies would take place within one year from the date of the decision and as long as the facts and circumstances would remain unchanged.
We should welcome the fact that the Belgian tax authorities consider transactions involving crypto assets to fall in the scope of a ‘normal’ management of privately held assets, if certain conditions are met, and can therefore remain completely tax-free.