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 CRYPTOCURRENCY REGULATION
AND TAXATION IN EUROPE

alexandra neagu[1]

“Cryptocurrencies are
the new kid on the global financial block”[2]

Abstract
Digital currencies are becoming more and more important, so the need to establish clear, common, easy-
to-understand and enforceable tax rules is also becoming significant.
Recently, the cryptocurrency market has crossed the threshold of one trillion dollars, and their role and the
evolution of technology represent challenges in establishing fiscal obligations. Thus, the European Union
and the Organization for Economic Cooperation and Development want to regulate these currencies in
order to reduce losses and unify the legal framework. At the same time, there are issues regarding the
consumers and investors protection, the integrity of the market, tax evasion, money laundering and terrorist
financing, all of which are hampered by the level of fiscal transparency offered by this new technology.
Keywords: digital currencies; cryptocurrency market; the consumers and investors protection; tax evasion, money
laundering.

Rezumat
Monedele digitale încep să capete o importanță din ce în ce mai mare, astfel devine semnificativă și nevoia
de a stabili reguli fiscale clare, comune, ușor de înțeles și de aplicat.
Recent piața criptomonedelor a trecut peste pragul de un trilion de dolari, iar rolul acestora și evoluția
tehnologiei reprezintă provocări în stabilirea unor obligații fiscale. Astfel, Uniunea Europeană și Organizația
pentru Cooperare și Dezvoltare Economică doresc reglementarea acestor monede pentru a diminua pierderile
și a unifica cadrul legal. Totodată se ridică probleme și cu privire la protecția consumatorilor și investitorilor,
la integralitatea pieței, evaziune fiscală, spălare de bani și finanțarea terorismului, toate acestea fiind
îngreunate de nivelul transparenței fiscale oferit de această nouă tehnologie.
Cuvinte­cheie: monede digitale; piața criptomonedelor; protecția consumatorilor și investitorilor; evaziune fiscală;
spălare de bani.

1. Introduction – About cryptocurrencies

Cryptocurrency is a type of medium of exchange used as a means of payment. The name comes from the
fact that this kind of transfer is based on cryptography and decentralization, which are algorithms of
protection for information and communication techniques. Thus, cryptography represents the science
through which messages are transmitted secretly between the source and the destination without the

[1]
ALEXANDRA NEAGU este studentă la Facultatea de Drept, Universitatea Babeș-Bolyai din Cluj. Poate fi contactată la
adresa de e-mail alexandra.neagu@law.ubbcluj.ro.
[2]
S. Volkering, Crypto Revolution, Southbank Investment Research, 2017.

286 cluj tax forum journal nr. 4/2021

possibility of being read or modified. This encrypted blockchain network as it is called, does not employ a
bank or government authority to control these cryptocurrencies. Furthermore, the creators of blockchain
want the replacement of the banks.
Because blockchain is a peer-to-peer mechanism[3], it needs a network and the consensus of all the
participants from the system. For instance, Bitcoin is transferred from the payer to the payee without
the intermediation of any banks.
Each transaction is anonymized and recorded in a public ledger. Because of their nature, they are known
for low transaction costs and the fact that tax avoidance is not a factor in their development. Since they
do not rely on financial intermediaries, as banks, the risks of failure of the tax base in the detriment of
the cryptocurrency are even higher.
We talk about cryptocurrencies as coins stored in a digital wallet[4]. As well as normal currencies, we could
use cryptocurrencies to pay for something like a car, maybe for gambling or invest them, but could be
also changed in traditional currencies.
The first cryptocurrency was Bitcoin, which has set the standards and is the ground for other alternative
coins that appeared such as Ether, Litecoin or Ripple. Despite that, Bitcoin is still the most popular and
has the largest volume and the largest market share. It is said that Bitcoin is the gold standard in the
world of cryptocurrencies, while Litecoin is the silver.
Some key features of this currency are: the matter does not fall within the competence of the bank,
whereas the size of the issue depends solely on the features of the environment in which it exists. The
direction of such a currency does not relate to the economy of any country, but is dictated solely by the
market, which depends on the demand for it.
It is generally considered that there are two possibilities for acquiring virtual currencies (starting with
Bitcoin): either by buying or by solving complex mathematical equations. Deciphering the computer code
allows the validation of the operation of creating a virtual currency, and the more powerful the computer,
the greater the chances of finding the solution. The activity in question is called “mining”, representing
a metaphor for the designation of gold mining. “Miners” are those Internet users, members of such a
network, whose role is to verify the reliability of transactions (to validate transactions) between users,
ensuring that all exchanges take place regularly within the “blockchain”. Instead, they are rewarded by
winning “virtual coins”.
Mining is the process by which computing power is consumed to process transactions, secure the network,
but also to keep everyone on the network synchronized. More exactly, miners calculate the maximum
number of graphics card that can be placed on a single system, how much electricity it consumes and
which is a suitable cooling solution to support the entire equipment, and after that they will think about
the profit.
It can be seen as a kind of Bitcoin data center unless it is built to be completely decentralized, with miners
operating in all countries and no individual having control over the network. This process is called “mining”
as an analogy to gold mining because it is also a temporary mechanism used to issue new bitcoins. Unlike
gold mining, Bitcoin mining offers a reward in exchange for useful services needed to operate a secure
payment network. Mining will be necessary even after the last bitcoin is issued.

2. Advantages and disadvantages[5]

Because there is freedom of payment, you can receive and send money at any time anywhere in the world
since you are in full control of your money and transactions. These actions cannot be forced. The payments
have very low fees processed on transactions, taxes for priority or no fee at all. In such transactions there

[3]
P. Pistone, D. Weber, Taxing the Digital Economy, Ed. IBFD, Amsterdam, 2019.
[4]
https://www.pcmag.com/news/cryptocurrency-and-taxes-what-you-need-to-know.
[5]
https://bitcoin.org/ro/intrebari-frecvente#cat-va-costa-taxa-de-tranzactie.

cluj tax forum journal nr. 4/2021 287

 are fewer risks for merchants, they are safe, irreversible and do not contain the personal information of
the clients, so the data is protected against identity theft.
Unfortunately, the degree of acceptance is not very high because people do not have much knowledge
about this technology or they have not even heard of Bitcoin. Another drawback would be the volatility,
due to the few number of bitcoins in circulation and the fact that this field is in an ongoing development.
And the biggest downside is that cryptocurrencies could be used for illegal transactions since the privacy
and security are on such a high level.

3. What are stable coins?

The main risk of cryptocurrencies is volatility, the price could rise or fall by 10% or more within a few
minutes. For example, on March 12, the Bitcoin price decreased with 40% in one day from $7.935 to
$4.826 as a reaction of some news about the expansion of Covid-19. Sudden increases or decreases of
Bitcoin happen regularly, maybe a few times a month. On financial markets and in stable economies, an
increase or decrease of 2% is considered a record. Meanwhile Bitcoin can fluctuate 2% in a quarter of an
hour. The stock market indicates smaller fluctuations, the biggest one took place on March 16 when the
value dropped with 12,5%, but in the rest of the year they do not exceed 5%.
It is known that cryptocurrencies volatility is higher than stock market volatility, but they can be brought
together through an intermediate, named stablecoin. Not long time ago this new category of cryptocurrencies
was created, but unlike the basic ones, such as Bitcoin, stablecoins have a set price, characterized by a
minor volatility. They have an active support related to something from traditional financial word. For
example, a dollar in a one-to-one ratio, where a unit of stablecoin is the equivalent of one dollar, this
means that stablecoin follows the evolution of the dollar with low fluctuations. In addition, the value
of the units could be also decided by a sequence of algorithms that generates algorithmic stablecoins.
Everything is based on the economic principle of the demand and offer in order to stabilize the price of
the unit.
These coins aim to be adopted on a larger scale by incorporating features designed to settle their value
and by searching the network effects offered by companies promoting these assets.
The most popular is Tether[6] – USDT, it converts cash into digital currency, to anchor or tether the value
to the price of national currencies like the US dollar, the Euro, and the offshore Chinese yuan. These
currencies are considered “shelters” in periods of high volatility. If you have Bitcoin and you want to sell
it temporary to protect you from a price drop, it is feasible to convert it into stablecoin then change it
back when the market cools off. In this way you stay into crypto zone with the advantage that the crypto
value remains constant in relation with dollar.
These coins may present opportunities in terms of cheap and fast payments, especially cross-border
payments[7]. When a “stable cryptocurrency” initiative has the potential to reach a global scale, these
concerns may be amplified and new potential risks to monetary sovereignty, monetary policy, security
and efficiency of payment systems, financial stability may arise and fair competition.
With regard to “stable cryptocurrencies”[8], the Commission services have considered three options: 1) special
legislative measures on issuers of “stable cryptocurrencies”; 2) the regulation of “stable cryptocurrencies”
under the revised Electronic Money Directive (DME), as some “stable cryptocurrencies” have similar
characteristics to those of the definition of electronic currency and are used as payment instruments;
3) measures to limit emissions and services related to “stable cryptocurrencies” in the EU (unless they
comply with existing frameworks). Applying a strict risk-based approach, the first option would address
vulnerabilities to financial stability, while supporting innovation. However, the second and third options
may not adequately address the significant risks to consumer protection (e.g., those related to digital wallet
providers). In addition, Option 3 could leave some financial stability risks untreated if EU consumers
[6]
https://tether.to/.
[7]
https://data.consilium.europa.eu/doc/document/ST-14374-2019-INIT/ro/pdf.
[8]
https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2020:0381:FIN:RO:PDF.

288 cluj tax forum journal nr. 4/2021

make extensive use of “stable cryptocurrencies” issued in third countries. Therefore, the preferred option
for “stable cryptocurrencies” is to correlate option 1 and option 2.
The preferred options will impose compliance costs for issuers of “stable cryptocurrencies”, as well as for
cryptocurrency service providers that do not currently fall within the scope of EU financial regulations. It
is expected that the application of the new regime for non-regulated crypto-active service providers will
generate single compliance costs of between EUR 2.8 and 16.5 million and recurring compliance costs
of between 2, EUR 2 and 24 million, depending on the number of entities applying for an authorization
The additional costs that are borne by global stable cryptocurrency issuers could not be estimated, given
that there are currently no such tokens on the market. Cryptocurrency issuers that are outside the current
regulatory perimeter will need to publish an information document. Overall costs (including legal fees)
are estimated to be between EUR 35000 and EUR 75000 per issue, including any legal and other costs.

4. How it started?
There are no special rules for the regulation of cryptocurrencies activities at EU level, people try to settle
down a common legislation and this issue is still being discussed.
Transactions with cryptocurrencies are taxed based on the nature of transactions. To be capable of
implementing a tax on cryptocurrency we need to clarify what they really are and what are their aims.
Like I said earlier, they are seen as an investment, payment, maybe inheritance and this will define what
type of tax will attract. Some countries consider them as investments so it is easy to be taxed, but there
is still a lack of understanding because it is still something new, virtual with many grounds. With all
this being said these are the reasons why individual countries adapting their own tax laws to encompass
cryptocurrencies.
What is certain for now is the decision of the European Court of Human Rights after the case with Hedwick
v. Sweden, that the operations with cryptocurrencies should not be subject to VAT.
In 2015[9], European Commission adopted a strategy for the transaction of European single digital market.
On the international level there is an organization called Organization for Economic Cooperation and
Development (OECD) founded to stimulate economic progress and the word trade. They had an action
plan to counteract the base evasion and profit shifting (BEPS) in which they include finding solutions
for international taxation in the digital sector. However, the cryptocurrency was not in the discussion,
later appeared the initiative of individual States to develop some directives.
The EU commission in 2016[10] has planned to oblige identification of the users when they are making a
crypto exchange. At the same time a directive was created for preventing the use of the finance system
for the purpose of money laundering and terrorist financing (2015/849/EC).
Furthermore, in 2018, the European Supervisory Authorities for securities (ESMA), banking (EBA), and
insurance and pensions (EIOPA) jointly issued a warning to consumers regarding virtual currencies,
stating that they are “highly risky and unregulated products and are unsuitable as investment, savings
or retirement planning products”. The warning complements the earlier two statements by ESMA on
initial coin offerings (ICOs) in November 2017 and a warning to consumers and two opinions on virtual
currencies by EBA in December 2013, July 2014, and August 2016, respectively. EBA welcomes the
decision of the European Commission to bring custodian wallet providers and virtual currency exchange
platforms within the scope of the Fourth AMLD and not to extend the EU Payment Services Directive
2015/2366 to virtual currency transactions for the time being. EBA suggests a separate regulatory regime
to mitigate all the risks arising from virtual currencies[11].

[9]
https://eur-lex.europa.eu/resource.html?uri=cellar:f69f89bb-fe54-11ea-b44f 01aa75ed71a1.0018.02/DOC_1&format=PD.
[10]
https://www.ceeol.com/search/viewpdf?id=813033.
[11]
https://www.loc.gov/law/help/cryptocurrency/world-survey.php.

cluj tax forum journal nr. 4/2021 289

 From the 2018 from FinTech plan of action, the Commission analyzed what could be opportune and
challenging from cryptocurrency activities and assess the applicability and adequacy of the existing EU
financial regulatory framework. In this regard, the Commission mandated the ABE and ESMA to find
out that the majority of crypto activities besides that one’s targeted by EU legislation for anti-money
laundering and terrorism, was not fit in the field of financial services legislation.
This proposal is based on art 114 from TFEU that confer the power to lay down appropriate applications
for the harmonization of legislation of the member states whose purpose is to establish and functioning
of the internal market.
After some time and other directives and suggestions, came out the first solid action in this field, a
proposal for a regulation of the European Parliament and of the Council on cryptocurrency markets and
amending Directive EU 2019/1937.
In this package there is a proposal for a pilot scheme for market infrastructure based on distributed ledger
technology (DLT), proposal for digital operational resilience and a proposal to clarify or amend certain
related EU rules on financial services.
In September 2019, the president of the European Commission states that she wants to “ensure a common
approach with Member States on cryptocurrencies to ensure we understand how to make the most of
the opportunities they create and address the new risks they pose”. So, they came to a point and decided
to create a new legislation and to include “stable-coins”.

5. How much will be the transaction fee?

The majority of transactions can be processed without taxes but users are still encouraged to pay a small
tax for early confirmation and to repay the “miners”. When taxes are although needed, they usually don’t
exceed a few cents and your Bitcoin client will try to estimate an approximate tax.
Transaction taxes are used as a safety warranty against users who try to send in transactions in order to
overload the network. The exact way in which taxes work is still in progress and will continue to change
over time. Because the tax is not related to the Bitcoin amount, it could be either very little or unfairly high.
Taxes are defined by attributes such as data from the transaction or recurrency. For example, if you receive
a big number of transactions but for a small value, the taxes will be higher.

290 cluj tax forum journal nr. 4/2021

6. Money Laundering Directive
According to a report by an American company that uses data analysis to track transactions[12] via
cryptocurrencies, criminal organizations transferred in 2019 no less than 2.8 billion dollars in Bitcoin
through exchange offices, a significant increase compared to 2018, when the amount was about $1 billion.
Also, a specialized group in the analysis of cryptocurrency transactions tracked 45 million transactions
carried out through 20 top exchange offices globally, between January 2009 and September 2018. The
analysis shows that 97% of Bitcoin cryptocurrencies laundered through exchanges reach countries with
relaxed regulations on preventing and combating money laundering and terrorist financing. In addition,
the data show that criminal entities laundered about 380.000 Bitcoin coins (the equivalent of $ 2.5 billion),
and 97% of transactions were made through exchange offices that are not subject to the law.
Anti-money laundering directives are generally valid for 27 countries of the EU, others adopted their
legislations. Two main layers[13] are a point of interest in the legal status of the EU:
– Directive nr. 4 – that includes a core principle to prohibit terrorist financing and money
laundering, which might be addressed to the cryptocurrencies as far as they favor illegal
activities. However, the scope of the directive was not so clear;
– Directive nr. 5 – appeared in 2018 to overcome these problems by giving the exact definition
of the digital currency. It also obliged the authorities to monitor actors and their transactions
and in case report and record any kind of suspicious activities. Regulation had to come into
effect earlier this year but the problem is a very short time came from the appearance of this
directive and the vast majority of the county is not ready to implement it to a full degree so
the wide acceptance can take a couple of years more.
The EU’s Fifth Anti-Money Laundering directive[14], known as 5 MLD came into effect in January in an
effort to further crackdown on money-laundering practices by increasing transparency[15] and know your
customer procedures across the EU and for the first-time cryptocurrencies are being factored into the
new regulations, pushing back against the anonymity associated with the use of cryptocurrency. This is
a directive, not a regulation, which means that every member state has the option to implement it in a
way that they feel. This is a positive aspect, because each country would have an adapted version to the
market but the negative thing would be that this might lead to a fragmented situation at European level.
Regulatory certainty helps growth of the sector and increase usage.
Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “The Panama Papers and
the recent terrorist attacks have shown that we urgently need better Anti-Money Laundering rules. Today’s
agreement will bring more transparency to improve the prevention of money laundering and to cut off
terrorist financing. Better cooperation to fight these crimes will make the difference. I will also make
sure that the existing and upcoming rules are enforced properly, otherwise they are just empty words”[16].
There is actually no unity between countries because they have different visions and different legislation
systems. But at least one point the countries are united is the idea that cryptocurrencies have to be
considered as risky instruments. Almost all EU countries have issued a note or an official document
stating that digital tokens bear serious risks and regulators are not responsible for any kind of financial
loss or digital fraud, or reputational risks.
Some cryptocurrencies are known to be the money of the future because they offer an almost instant
payment system for very low fees, but they are also the primary target for speculators and money laundering.

[12]
https://www2.deloitte.com/ro/ro/pages/finance/articles/romania-anunta-noi-obligatii-pentru-emitentii-de-
criptomonede-un-domeniu-cu-tranzactii-suspecte-de-miliarde-de-dolari-anual.html.
[13]
https://www.youtube.com/watch?v=ECz6W0jJ7K8.
[14]
https://www.youtube.com/watch?v=DbUYKgh5eGE&list=WL&index=2&t=153s.
[15]
European Commission, Strengthened EU rules to prevent money laundering and terrorism financing, 2018.
[16]
https://ec.europa.eu/newsroom/just/item-detail.cfm?item_id=610991.

cluj tax forum journal nr. 4/2021 291

 The authorities are also concerned about digital tokens backed by stable coins, because there could be a
danger behind it because there are no regulations.
All the scam tokens, the fraud cases will disappear, so in the long term it would be a positive thing because
they will clear the market, but in the short term there is going to be a panic because the people would
try to get rid of them[17].

7. How cryptocurrency is treated differs from one country to another

Crypto is not considered as a legal tender with exception of Belarus, Lichtenstein and Isle of Man. Belarus
is one of the first EU countries that adopted the crypto and allowed them to be used freely.

France[18]
Initiate a push to set up a common framework of regulation[19]. The French minister wants to bring the
subject in front of G20, which is an international forum for governments and central bank governors
from 19 countries and the European Union.
In 2018[20] only if you actively trade, the profits made on cryptocurrencies are regarded as a capital gain
realized on the sale of intangible assets and taxed at a flat rate of 19% plus 17.2% social contributions.
There is also a VAT treatment that regards the revenue received from mining the cryptocurrency, but
when it is exchanged to a fiat currency there is no VAT.
France’s leading financial regulator, the AMF (Autorité des marchés financiers), made new proposals
in December 2019[21] setting a licensing framework for companies that offer custody of digital assets.
The new rules are very specific and, apart from the fact that the participating crypto companies include
certain information such as their organizational structure, a list of the crypto assets they want to hold
and a two-year business plan, criteria such as multi-signature validation and responsibility for customers

[17]
https://www.youtube.com/watch?v=J73o_HrLPFM&list=WL&index=4&t=10s.
[18]
https://www.osborneclarke.com/insights/taxation-of-cryptocurrencies-in-europe/.
[19]
https://blog-eu.bitflyer.com/cryptocurrency-taxation-europe/.
[20]
https://www.osborneclarke.com/insights/taxation-of-cryptocurrencies-in-europe/.
[21]
A. Wanling Wang, Crypto Economy: How Blockchain, Cryptocurrency and Token Economy Are Disrupting the Financial
World, Ed. Racehorse Publishing, New York, 2018.

292 cluj tax forum journal nr. 4/2021

Compensate for loss or misuse of private keys. Although the license is not mandatory, France mandates
that all cryptocurrency firms operating in the country must be registered with the AMF to avoid money
laundering.

Romania[22]
Financial issues and money laundering prevention was an impulse to create a legal framework regulation
of cryptocurrency. And why is that? because Bitcoin is considered to be anonymous and easy to use as
an instrument for money laundering, however is not really like that and cannot offer the same level of
privacy as cash and the use of it leaves extensive public records. At the same time, their economic value
attracted the attention of tax authorities in order to collect taxes and fees for cryptocurrencies transactions.
The National Bank of Romania (NBR) has consistently stated in recent years that it has no responsibilities
in overseeing virtual currency schemes and virtual currencies, but to warn the population about the
potential risks associated with the use of such currencies, the NBR has issued, on 11 March 2015, a
statement stating that “virtual currency is neither a national currency nor a currency, and its acceptance
for payment is not legally binding”.
The Ministry of Public Finance (MFP) recently stated that, with regard to the specific case of operations
on the Bitcoin virtual currency, from the point of view of the VAT regime, the judgment of the Court
of Justice of the European Union (CJEU) in case C-264 must be taken into account. / 14, Hedqvist, in
which the CJEU ruled on the application of the VAT exemption provided in art. 135 parag. (1) lit. (e) of
Directive 2006/112/EC on the common system of VAT, transposed into national law by Art. 292 parag. (2)
lit. a) point 4 of Law no. 227/2015 on the Fiscal Code, with subsequent amendments and completions.
Thus, the provision of services consisting in the exchange of traditional currencies with units of the
virtual currency “Bitcoin” and vice versa, made against the payment of an amount corresponding to the
margin constituted by the difference between the purchase price of the coins and their selling price, are
exempt operations of VAT, within the meaning of this provision.
The revenues obtained from cryptocurrency transactions will be declared, for the first time, in Romania,
in 2020. The Romanian Tax Code has been amended to make the reporting of cryptocurrency earnings
mandatory. Earnings obtained from cryptocurrencies in 2019 by individuals will be entered in the single
declaration and will be subject to a tax and sometimes even a health contribution (CASS).
Individuals who have constant income from cryptocurrencies (in the amount of over 600 lei per year)
have the legal obligation to report their income annually and to pay the related taxes. Revenues from
virtual currencies for 2019 will be declared in 2020, to establish the taxes due.
The Tax Code of Romania[23] regulates that, if a taxpayer citizen obtains annually over 600 lei from
cryptocurrency transactions, he will have to pay income tax to the state – at a rate of 10%. In addition,
if the income from cryptocurrencies is at least equal, in a year, to the equivalent of 12 minimum gross
wages, taxpayers will have to pay CASS – in the amount of 10%. The 12 minimum salaries represent in
2020 the amount of 26,760 lei.
The declaration of the amounts earned from cryptocurrency transactions will be made by submitting
to National Agency for Fiscal Administration the well-known Single Declaration for individuals, the
annual submission deadline being March 15. Individuals will report the earnings they had last year, is
the difference between the sale price and the purchase price.
The only question in this case is: if you should pay the tax if you do not withdraw the money from the app.
Deloitte[24], considers that you should pay if you choose to transfer the money in your personal account,
more exactly if you convert the cryptocurrency intro fiat money.
[22]
https://tradesilvania.com/blog/plata-impozitului-pe-criptomonede-reglementarile-propuse-de-anaf-2020/.
[23]
https://tradesilvania.com/blog/in-2020-romanii-care-au-avut-venituri-din-tranzactiile-crypto-vor-plati-impozit-si-
chiar-cass/.
[24]
https://www2.deloitte.com/ro/ro.html.

cluj tax forum journal nr. 4/2021 293

 Romania is one of the few countries that has adapted its tax system to include cryptocurrency revenues.
It will be very difficult for the Romanian authorities to have a clear representation of these gains, since
cryptocurrency transactions are anonymized, and a Romanian citizen can choose an exchange outside
Romania, or even out of the European Area, where there are no taxes. In addition, it appears that the
state will no longer be able to confiscate the currency found on a citizen at customs if he cannot justify
his provenance.

Poland
Comprehensive legislation on blockchain technology and virtual currencies has not yet been adopted in
Poland.
On July 7, 2017, the National Bank of Poland and the Financial Supervision Commission issued a warning
regarding investments in virtual currencies, mentioning price volatility and the risk of fraud. Polish
regulators have stated that virtual currencies are not considered a means of payment in Poland. At the
same time, the relevant authorities noted that trading in virtual currencies does not constitute a violation
of Polish or European law.
On January 24, 2018, Polish Prime Minister Mateusz Morawiecki said that Poland would either ban the
“encryption” of virtual currencies or introduce specific regulations to ensure that these activities do not
turn into an unregulated pyramid scheme.
At the same time, on March 1, 2018, the Polish Parliament adopted a new law on combating money
laundering and terrorist financing. The purpose of the new law is to help monitor financial transactions
in terms of potential money laundering and includes regulations on virtual currencies. The law introduces
the obligation to report certain financial activities to the Inspector General of Financial Information. The
law lists 25 types of institutions that deal with the issuance and trading of money, such as commercial
banks, credit unions, insurance companies and others, including virtual currency markets.

Belgium
When it comes to individual investors, if the investment has a speculative character, the gains are taxed
33% plus the local surcharges. If the investment is not speculative, gains could be exempt from tax.
As for professional individual investor, gains could be taxed as professional income (ranging from 25 to
50%) plus local taxes and social security contributions.
For companies (for which ordinary taxes are 25% starting from 2020) the gains from cryptocurrencies
are included in the taxable profits. VAT – Bitcoin cryptocurrency is exempt from VAT (as confirmed by
the Belgian Minister of Finance). Transfer taxes are not payable on cryptocurrencies.
The Financial Services and Markets Authority of Belgium and the National Bank of Belgium have issued
several warnings to the Belgian public about the risks posed by cryptocurrencies (virtual money). The
public was informed in a joint statement in January 2014 (Attention à l’argent virtuel, comme Bitcoin)
about the risks inherent in buying cryptocurrencies, as “virtual currencies” are neither a legal means of
payment nor a form of digital currency. There is no financial control or supervision of virtual currencies.
The following examples of risks were cited:
– internet risks: the possibility of hacking the trading platform or the electronic wallet;
– the absence of a formal assessment by the supervisory authority of the operational reliability
(in particular of the risk of fraud) of such systems;
– unlike electronic money, exchange rate fluctuations for virtual currency can lead to significant
financial losses; lack of control over the exchange rate of the virtual currency;
– contrary to electronic money, the absence of a legal guarantee regarding the possibility of
direct change to its original value;

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 – virtual currency is not a legal means of payment, there is no obligation to accept payment
in virtual currency;
– the existence of a deposit protection of up to EUR 100.000 for the financial institution and
the depositor, as opposed to the virtual currency, for which there is no such protection.

Luxembourg
At present, there is no legislative framework in Luxembourg that specifically applies to virtual currencies.
The 2004 Law on Combating Money Laundering and Terrorist Financing was amended by the Ducal
Regulation of 5 August 2015 to specify an exception to the rules of supervision for payment service
providers, in the sense that, if they meet certain conditions, professionals can reduce the identification
measures and may not verify the identity of the customer and, where applicable, of the beneficial owner
of the business relationship, if he performs online payment services. The conditions set out in the ducal
regulation are: payment is made through accounts opened with payment service providers in a Member
State or in an EU third country which imposes equivalent requirements in the fight against money
laundering and terrorist financing; the payment does not exceed 250 euros; the total of payments made
to the customer during the 12 months preceding the operation in question shall not exceed EUR 2500.
The text also specifies the possibility for professionals not to verify their identity with regard to electronic
money
Any provision of financial sector services by a natural or legal person requires an authorization from the
Ministry of Finance.
On 14 March 2018, the Commission for the Supervision of the Financial Sector (“CSSF”) issued two
warnings, one on virtual currencies and the other on initial coin offers and electronic authentication
devices.
In the first warning, the public was informed that virtual currencies are not coins, are not regulated and
do not have the support of any central bank and that their deposits are not guaranteed either; they are
very volatile and speculative investments, including risks even the total loss of investment.
The second warning states that obtaining public funds in the form of initial coin offerings (“ICOs”)
is not subject to specific regulation and has no guarantee or other form of regulatory protection,
as they constitute investments highly volatile and speculative, involving risks, including total loss
of investment.

Sweden
In March 2018, the Swedish central bank announced that “Bitcoin coins are not money”. It is explained
that virtual currencies are not considered as officially recognized currencies or fiat currencies.
With regard to blockchain technology, the current debate in Sweden focuses on the interpretation of the
applicable regulations on the different uses of this technology.
Riksbank is currently considering launching an electronic currency, but the project is still in the evaluation
phase. But this electronic currency will be developed on the basis of the official Swedish currency – the
Swedish krona (krona) – and will be called “e-krona”.
From a fiscal point of view, the Swedish tax authority (Skatterättsnämnden) has decided that the way
in which trade in virtual currencies takes place should be regulated as comprehensively as possible. For
now, virtual currencies of the “bitcoin” type are not subject to VAT or another category of taxation.

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 Germany[25]
It may come as a bit of a surprise, but one of the lowest tax areas for crypto in the European Union is right
at the heart of it.
German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, ‘BaFin’)[26] classifies
virtual currencies as units of account and are therefore considered financial instruments.
Businesses and individuals who arrange for the purchase of tokens (tokens) or who perform brokerage
services with these tokens through online trading platforms are generally required to obtain prior
authorization from BaFin.
At the same time, in February 2018, the Federal Ministry of Finance published a set of guidelines on the
value added tax (VAT) regime applicable to transactions with “Bitcoin” and other virtual currencies. The
Ministry of Finance has established that transactions between virtual and official currencies constitute
taxable activity of services for consideration, but are subject to VAT exemption.
Payments[27] in cryptocurrency are not considered a service for VAT purposes and are therefore outside
the scope of VAT. For payment in cryptocurrency as consideration for goods or services, cryptocurrency
is translated to currency of the country in which the transaction takes place at the exchange rate at the
time of transaction.
Regarding blockchain technology, there is no specific legislative instrument in Germany to regulate the
use of such platforms. The current legal framework aims rather at adapting existing legislation in such
a way as to create a framework for the use of “blockchain” technology, which encourages innovation and
investment.

Malta
In 2018, the Maltese Parliament adopted three laws regulating initial currency offerings (“ICOs”),
cryptocurrency exchanges, blockchain companies 81 and service providers of this type:
1. Law no. XXXI of 2018 regarding the establishment of the Authority for Digital Innovation from
Malta, the mission of that authority is to support the development of innovative technology
devices and services in Malta, exercising supervisory and regulatory functions in this area;
the authority shall establish and update a public register containing the list of all innovative
technology authorization holders;
2. Law no. XXXIII of 2018 on innovative technology devices and services, which provides methods
by which the Digital Innovation Authority can recognize such devices and services;
3. Law no. XXX of 2018 on virtual financial assets83, law establishing the framework for initial
currency offerings (ICOs), cryptocurrency exchanges and the regulatory regime for the provision
of certain services related to virtual currencies – services provided by intermediaries. The
law defines “distributed register technology” as a database system in which consensually
exchanged and synchronized information is recorded.
Just like with taxes on long-held bonds in Malta, long-held cryptocurrencies are not taxed. However, if
you make cryptocurrency trades within a day, it’s considered similar to day trading in stocks or currency
pairs, and taxed as business income.

[25]
http://www.cdep.ro/afaceri_europene/afeur/2019/st_2643.pdf.
[26]
R. Lewis, The Cryptocurrency Revolution: Finance in the Age of Bitcoin, Blockchains and Tokens, Ed. Kogan Page, Paris, 2021.
[27]
https://www.winheller.com/en/banking-finance-and-insurance-law/bitcoin-trading/bitcoin-and-tax.html.

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Seven countries where cryptocurrency investments are not taxed [28]: Germany (1)
Singapore (2), Portugal (3), Malta (4), Malaysia (5), Belarus (6) Switzerland (7).
Here’s a list of jurisdictions, along with travel and residency conditions for them, and a bit of a proxy of
how livable they are through Nomad Score. Gaining tax residency in one jurisdiction often means you are
not subjected to taxes in another residency, except for countries like the United States where you are taxed
by citizenship and your worldwide income is liable. None of this should be taken as legal or accounting
advice – merely information on where the most tax-favorable treatment of individual cryptocurrency
investment might lie.

European country that will accept the payment of local taxes using cryptocurrencies
A region in Switzerland[29], already recognized for its openness to high-tech finance technologies, has
announced an initiative to accept cryptocurrencies as a means of paying local taxes, starting next year.
Officials in the region known as a “Crypto Valley” of Europe said that the pilot program launched in
February will allow local companies and individuals to pay their taxes to the local budget using their
preferred cryptocurrency, up to the equivalent of 100,000 Swiss francs.
However, the authorities come to shatter the dream of those who would like to take advantage of the
volatility of quotations, paying in cryptocurrencies a lower value than they would pay in the national
currency: “We do not take any risks with the new payment method, because we always receive the amount
in Swiss francs, even when we pay in Bitcoin or Ether”, Cantonal Finance Director Heinz Taennler said
in a statement.
What is notable about Switzerland’s approach is that legislators are as open to Bitcoin as they are to
cryptoassets issued by banks, or to smart-contract platforms.
Switzerland is not the first country to experiment with the use of cryptocurrencies as a means of payment
for taxes, a former treasurer from Ohio conducting a similar experiment in 2018. The initiative was a
failure; however, a local court declared the program illegal.

[28]
https://www.forbes.com/sites/rogerhuang/2019/06/24/seven-countries-where-cryptocurrency-investments-are-
not-taxed/?sh=be1346c73038.
[29]
A. Wanling Wang, op. cit.

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 8. European challenges
The main reasons why the governments want to regulate the flow of money within their country are: to
ensure that the money comes from legal sources not from illegal activities, to verify if financial transactions
are transparent so the tax cannot be evaded and especially to provide protection for customers. The
hardest part is keeping a balance between allowing people to make their own financial decisions and
protecting naïve investors who provide easy prey for scammers[30].
Most large countries have been forced, albeit reluctantly in some circumstances, into releasing a statement
defining how cryptocurrency is categorized not only to protect investors, but also to ensure that the
correct rates of tax are applied. Whether cryptocurrency is classified as money, an asset or a commodity
can have major impacts in terms of taxation, and crypto investors eye opportunities for this kind of tax
arbitrage as carefully as regulatory arbitrage when deciding where to locate their companies.
Since its introduction as bitcoin’s underlying platform, blockchain has proved to have applications for the
maintenance of digital records well beyond the cryptocurrency space for the broader financial services
industry, for technology companies, and for companies seeking to increase competitiveness through
implementing more efficient supply chains.
Key to the application of the arm’s-length principle[31] in determining the valuation of transfers of physical
and intangible goods and the provision of services between related parties is the determination of the
transfer prices of the transactions. Transfer prices are significant because they determine the taxable
income of related parties in different tax jurisdictions.
To determine transfer prices for a transaction, a transfer-pricing method appropriate to the transaction
is used. To decide which method is appropriate, a functional analysis should be performed that includes
studies of the functions performed, assets used, and risks borne by each party in the related-party
transaction.
Transactional-profit methods seek to determine an arm’s-length price by evaluating the net operating
profits that uncontrolled parties have obtained from entering into comparable transactions. These include
the comparable-profits method (CPM) from the Sec. 482 regulations, the transactional net margin method
(TNMM) from the OECD Guidelines, and the profit-split method[32].

9. Conclusion
Bitcoin is not a fiat currency with a legal status in any jurisdiction, but the financial responsibility for
taxes and fees will increase regardless of the medium used. There is a wide range of laws in different
jurisdictions that can increase revenue sales, payroll, capital gains or any other tax liability with Bitcoin.
Cryptocurrencies still remain highly disputable with respect to their legal status. While some countries
are in the forefront of token legislation and do not impede their circulation and mining, the vast majority
remains rather conservative. And actually, even though implementation of the 5 AMLD exists, it takes
some time, and meanwhile countries are not united neither in the question how digital currencies have
to be treated nor in the taxation policy[33].
Cryptocurrency[34] is also a value stone because people buy them to save, collect and exchange assets and
they will retain their value over time and even though it is a volatile coin and may not have an intrinsic
value there are many investors and normal people in the world who are ready to spend a lot of money
on them. Nowadays Bitcoin surpassed its last all time high of $19.783 and has pushed to over $23.000
as of the 17th December 2020.

[30]
R. Lewis, The cryptocurrency revolution, Kogan Page, 2021.
[31]
A.P. Dourado, Tax avoidance revisited in the EU BEPS context, Ed. IBFD, Amsterdam, 2016.
[32]
A. Wanling Wang, op. cit.
[33]
https://www.youtube.com/watch?v=ECz6W0jJ7K8.
[34]
https://ec.europa.eu/newsroom/fisma/item-detail.cfm?item_id=624021.

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There are currently over 18.5 million Bitcoin in the circulation and do not forget that there are around
15.000 different crypto tokens.
The intention of EU regulatory action will be to improve the functioning of the internal market by creating
a regulatory structure that lays down the ground rules for the creation of a wider cross-border market
for crypto-assets, thus reaping maximum benefits from the single market.
The overall objective of the initiative is to provide clarity on the applicability of EU financial regulations
to cryptocurrencies (and related activities). The initiative should support innovation and fair competition
by creating a framework for the issuance of cryptocurrencies and the provision of cryptocurrency-related
services. The initiative should ensure a high level of consumer and investor protection and market integrity
in cryptocurrency markets.

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