Austrian Ministry of Finance: Cryptocurrency Taxation Guidelines

Author: Federal Ministry of Finance of the Republic of Austria

1 Income Tax

As part of the environmental responsibility tax reform (Ökosoziale Steuerreform), specific regulations regarding cryptocurrency taxation will come into effect on March 1, 2022. Under the new regime, income from holding cryptocurrencies will be considered capital asset income and taxed at a specific rate of 27.5%. Which cryptocurrencies are covered? According to Section 27b, Paragraph 4 of the Austrian Income Tax Act (Einkommensteuergesetz - EStG), cryptocurrencies are defined as "a digital representation of value that is not necessarily linked to legal tender and does not have legal tender status, but is accepted by natural persons or legal entities as a medium of exchange and can be electronically transferred, stored, or traded." This definition encompasses publicly offered cryptocurrencies that are accepted as a means of exchange. It also applies to "stablecoins," which are pegged to the value of legally recognized currencies or other assets. The definition excludes NFTs and "asset tokens" based on physical assets such as securities or property. These products are taxed according to general tax regulations, depending on the nature of the relevant tokens. Affected income and calculation method The definition of income from holding cryptocurrencies includes current income from holding cryptocurrencies and income from the appreciation of the value of cryptocurrencies, regardless of whether the minimum holding period has been observed. According to Section 27b, Paragraph 2, the definition of current income from holding cryptocurrencies includes the remuneration obtained from the transfer of cryptocurrencies. Income is recognized when cryptocurrencies are transferred to other market participants in exchange for fees. For tax purposes, the definition of these fees specifically includes interest earned from cryptocurrency loans and taxable considerations for providing cryptocurrencies for liquidity and/or credit pools as part of "decentralized finance processes" (also known as "liquidity mining"). Cryptocurrency holdings obtained through technical processes that provide transaction processing services also fall under the definition of current income. This provision aims to cover the acquisition of cryptocurrency assets during "mining" activities, regardless of whether the process results in the creation of new cryptocurrencies and regardless of whether the income is provided by other members of the network in the form of transaction fees. Operating master nodes can also generate current income for tax purposes. Notes Capital asset income is only considered generated when the nature and scope of the activities do not exceed simple asset management tasks. If these activities exceed the scope of such asset management, any income generated should be classified as business income. All current income must be taxed at the time of inflow. Such income is assessed at the time of inflow based on the value of the acquired cryptocurrency holdings and/or any other remuneration received at that time. This value will also be used to represent the tax cost of the purchased cryptocurrencies. In contrast, the following situations do not constitute current income:

• Services related to processing transactions primarily involve investing (staking) existing cryptocurrencies;
• Cryptocurrencies are transferred for free ("airdrops") or only for other trivial benefits ("bounties");
• Cryptocurrencies are generated due to changes in the original blockchain ("hard forks").

In these cases, income from holding cryptocurrencies is not taxed at the time of inflow. However, the relevant cryptocurrency assets are considered acquired at zero cost. This means that if they are disposed of later, the entire value of the held cryptocurrencies will be taxed. Warning The exception for cryptocurrency holdings obtained as part of traditional staking procedures only applies to services related to transaction processing (i.e., creating and/or verifying blocks). If the process described as "staking" effectively amounts to providing consideration in exchange for the transfer of cryptocurrency holdings, such a process is not exempt, meaning any income generated will be taxed at the time of inflow. According to Section 27b, Paragraph 3, "income obtained from the appreciation of the value of cryptocurrency holdings" specifically includes:

• Income generated from exchanging held cryptocurrencies for euros
• Income obtained from converting held cryptocurrencies into legally recognized foreign currencies (e.g., US dollars)
• Income obtained by trading held cryptocurrencies with other economic goods and services (e.g., purchasing economic goods and paying with cryptocurrency).

Exchanging one cryptocurrency for another does not constitute disposal, and such transactions are not subject to taxation. Furthermore, any costs associated with such transactions (e.g., transaction costs) are not considered significant expenses for tax purposes, so no tax is due at the time of the transaction. In this case, the acquisition cost of the transferred cryptocurrency will be transferred to the cryptocurrency obtained in the transaction. Any actions that result in the Austrian government losing the right to tax the profits from disposal are also considered disposal. The calculation of disposal profits is made by subtracting the acquisition cost from the income generated from the relevant sale. Such profits are taxable. For transactions, the disposal price of the relevant cryptocurrency holdings is assumed to be the fair market value of the relevant cryptocurrency holdings at the time of the transaction (Section 6, Paragraph 14). Note that any ancillary costs related to the purchase of cryptocurrencies (e.g., advisory or transaction fees) can offset taxes, thereby reducing tax liability. However, costs associated with financial assets (e.g., electricity costs or costs of purchasing hardware) are not exempt from tax unless the taxpayer opts for the standard tax option (Regelbesteuerungsoption). Tax Rate According to Section 27a, Paragraph 1, income generated from holding cryptocurrencies (including current income and sale profits) is subject to a special tax rate of 27.5% and is not included in the calculation of the progressive tax rate threshold for other income. This provision applies regardless of whether the tax liability is withheld at source (i.e., as capital gains tax) or determined based on the tax return and/or assessment procedure. However, exemptions do apply to income from private loans issued in cryptocurrency, provided that the transfer contract supporting the loan is publicly accessible. Income from such private loans is included in the progressive income tax threshold. Loss Offsetting According to Austria's general tax regulations, for tax purposes, profits and losses related to cryptocurrency income can be calculated together with profits and losses related to other capital income (e.g., dividends or capital gains from the disposal of stocks). Business Income In principle, the special tax rate for cryptocurrencies applies to business assets as well as traditional capital assets. However, if income generated through cryptocurrencies is part of the core activities of the relevant business, the special tax rate does not apply. Specifically, this means it does not apply to businesses that conduct commercial transactions in cryptocurrencies or mine currencies on a commercial basis. Income from such activities is taxed according to the progressive income tax threshold. Losses generated from cryptocurrency holdings that are part of business assets are treated in the same manner as losses generated from capital assets held for business purposes.

2 Capital Gains Tax

Austrian debtors and service providers will be required to withhold Austrian capital gains tax from capital gains accrued after December 31, 2023. This withholding can voluntarily be deducted from gains accrued before that date, in which case the capital gains tax is withheld and directly transferred to the tax office. Investors do not need to report capital gains that have been voluntarily withheld on their tax returns, as it is deemed that the applicable income tax has already been collected at the time of withholding capital gains tax (this principle is known as "final taxation"). Warning If income is obtained from cryptocurrencies before the obligation to withhold capital gains tax takes effect and tax is not withheld voluntarily, that income must be reported on the income tax return and taxed accordingly. Limited Tax Liability According to Section 27b, Paragraph 2, current income from cryptocurrencies, as well as capital gains from cryptocurrencies according to Section 27b, Paragraph 3, are not subject to limited tax liability. If a party obligated to withhold capital gains tax knows that it is not an investor with unlimited tax liability, it may be exempt from withholding capital gains tax in these cases. If the withholding agent still withholds capital gains tax, it can be refunded according to Section 240, Paragraph 3. For classification of cryptocurrency income under international tax law, see below.

3 New Regulations Come into Effect

The requirement to pay tax on income from holding cryptocurrencies came into effect on March 1, 2022, and will apply to cryptocurrencies purchased and held after February 28, 2021 (referred to as "new assets"). Generally, cryptocurrency holdings acquired before this date are considered "stock" and are therefore not affected by the new tax regulations. They will continue to be treated as economic goods and taxed as they were before the environmental responsibility tax reform. However, if current income is obtained based on cryptocurrency holdings acquired before March 1, 2021 ("old assets") according to Section 27b, Paragraph 2, or if cryptocurrencies are obtained as part of staking, airdrops, bounties, or hard fork arrangements (Section 27b, Paragraph 2, Item 2), the new tax law provisions will apply to such income. Any cryptocurrencies obtained during such activities will be considered new assets. If cryptocurrency holdings are liquidated after December 31, 2021, but before March 1, 2022 (especially due to disposal or trading), any positive or negative income generated from such liquidation can be voluntarily taxed according to the new regulations. In this case, the special tax rate for cryptocurrencies will apply, and that income can be combined with other income generated from capital assets in 2022 to offset losses.

4 Value Added Tax (VAT)

According to the case law of the Court of Justice of the European Union (CJEU) regarding Bitcoin cryptocurrency assets, the following VAT treatment applies to Bitcoin:

• Exchanging legal tender for Bitcoin and vice versa
• According to CJEU case law, the exchange of legal tender (e.g., euros) for Bitcoin is exempt from VAT.

Bitcoin as Consideration Supplies or services provided for consideration in Bitcoin should be treated in the same way as other supplies or services provided for consideration in legal tender (e.g., euros). The tax base for such supplies or services should be determined based on the value of Bitcoin. Mining Due to the lack of identifiable service recipients, and according to CJEU case law, Bitcoin mining is exempt from VAT.

5 International Tax Law

For clarity, this legal assessment is based on the OECD Model Tax Convention. In practice, reference must always be made to the applicable double taxation conventions (DTCs). Whether taxable income should be accrued, the type of income, the attribution of income to the taxpayer, and the timing of accrual are all governed by Austrian domestic tax law principles. This domestic treatment is then considered to qualify for DTC-level treatment. If income from cryptocurrencies qualifies as business (commercial) activity income under domestic law, it needs to be classified as business profits in the sense of Article 7 of the OECD Model Tax Convention at the applicable DTC level. In this case, the country of registration of the company has primary taxing rights over these business profits unless its activities are conducted through a permanent establishment located in another contracting state, as defined in Article 5 of the applicable DTC. Mining and staking require specialized, sometimes very expensive equipment that must be installed and operated and connected to a specific location. Therefore, the requirements for establishing a permanent establishment under Article 5 of the convention can generally be met. Whether this is the case must be assessed on a case-by-case basis and cannot be generalized. If the generated cryptocurrency or income derived from cryptocurrencies can be attributed to a permanent establishment, the country where the permanent establishment is located obtains primary taxing rights. The country of registration of the company typically exempts such income, but progressive taxation still applies. An exception to this principle is those DTCs that provide a credit method to alleviate double taxation. It should be noted that Article 7 of the OECD Model Tax Convention only applies to ancillary situations where other provisions of the applicable DTC do not apply. If income is obtained through the transfer of cryptocurrencies as a means of payment (Section 27, Paragraph 2, Item Z1), such income can generally be regarded as interest in the sense of Article 11 of the convention, as the payment of that income is in exchange for available capital. This means that the income can generally be taxed in the contracting state of the recipient as their resident. Additionally, the source country (typically the contracting state where the payer resides in the sense of Article 11, Paragraph 5) has the right to levy a withholding tax of 10% on the total income. This income is taxed at the time of inflow. This also applies to transfers of cryptocurrency payments made as part of commercial activities, as Article 7 is a subsidiary provision to Article 11. Recommendation: The 10% withholding tax rate corresponds to the rate specified in the convention and must always be checked against the rates in the applicable DTC. From a domestic perspective, "mining" income conducted by the taxpayer should be regarded as current income (obtained through technical means). In this case, Article 11 does not apply, as the provision of capital does not generate income. Article 7 also does not apply, as there is no commercial activity. Therefore, income from cryptocurrency mining outside of commercial enterprises is generally classified as "other income" under Article 21, and the contracting state where the taxpayer resides typically has primary taxing rights over such income. Recommendation: Some DTCs concluded by Austria contain provisions based on Article 21, Paragraph 3, which also stipulate the taxing rights of the source country. If a business realizes capital gains through cryptocurrencies, including capital gains obtained from the sale of cryptocurrencies through "staking," "airdrops," "bounties," and so-called "hard forks," Article 13 applies. If the cryptocurrencies belong to a permanent establishment in another contracting state, the taxing rights are transferred to that country according to Article 13, Paragraph 2. For other realized capital gains from cryptocurrencies (i.e., capital gains held outside of the business), the provisions of Article 13, Paragraph 5 apply, assigning exclusive taxing rights to the country of the seller. This legal assessment also applies to situations that result in Austria losing the right to tax capital gains, leading to domestic export taxes and the sale of cryptocurrencies falling within the business activities of the enterprise, as Article 7 is a subsidiary to Article 13. Recommendation: Asset tokens and NFTs do not fall under the definition of cryptocurrencies. Therefore, the previous explanations may not necessarily apply to the income from such assets. Other provisions of the DTC, such as Articles 10 or 12, may apply.