The market uptake for cryptocurrencies, alternative currencies to traditional legal tender issued by a monetary Authority, is a global phenomenon that does not belong to a specific territory and puts strong demands on the resistance capacity not only of tax and compliance systems, but of the legal systems as a whole.

Some countries have taken steps to regulate ICOs, tokens and cryptocurrencies and this is likely representing just the beginning of an evolution that will lead to the definition of a regulatory framework that is desirably tailored to the needs of such a worldwide phenomenon.

In so far Italy does not have specific legislation governing ICOs. Therefore, tokens and cryptocurrencies are not governed by any specific provisions concerning assets, securities or financial instruments. Indeed, as of today, the national legislator has confined itself to providing a definition of the phenomenon exclusively for the purpose of anti-money laundering laws, qualifying virtual currencies as a "digital representation of value not issued by a central bank or a public authority, not necessarily linked to a legal tender currency, used as a medium of exchange for purchases of goods and services, electronically transferred, stored and traded".

This definition is in line with the approach previously expressed by the European Court of Justice in Judgment of 22 October 2015, case C-264/14. On such occasion, it was specified that transactions of traditional currency vs Bitcoin (and vice versa) can be classified, for VAT purposes, as supplies of services for consideration that fall within “transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest" according to Article 135, §1 letter (e) of Council Directive 2006/112/EC.

Although there is no specific legislation on the topic, the definition laid down for anti-money laundering purposes as well as the ECJ decision can be used to identify their placement under the current legal framework.

VAT and Income taxes

From a tax standpoint, recalling the interpretation of the Court of Justice, as early as 2016, the Italian Revenue Agency clarified that:

  • financial services that consist in the exchange of traditional currency vs. Bitcoin units and vice versa (typically the activity carried out by the Exchanger), are transactions exempted from VAT under Article 10 of Presidential Decree 633/1972;
  • the fee for the intermediation services of traditional currencies with Bitcoins, carried out directly and in a professional manner, is subject to VAT (even if exempt) and income taxes, after a deduction of the related expenses;
  • the cryptocurrency amount which at the end of the fiscal year is directly owned (by way of ownership) by the subjects carrying out brokerage activities (Exchanger) – which has to be converted at the exchange rate in force at the end of the fiscal year – should be valued by referring to the average official quotation of online platforms where virtual currency trades occur.

Finally, it should be noted that companies that perform this type of activities are not subject to compliance as withholding agent – without prejudice to the obligations of adequate verification of customers, registration and reporting – since, as further specified by the Italian Revenue Agency in 2018, cryptocurrency spot transactions carried out outside of business activities by individuals do not generate taxable income or deductible losses, in the absence of speculative purpose.

Nevertheless, even in the absence of speculative purposes, the following transactions generate “other income” of a financial nature subject to a substitute tax of 26%:

  • cryptocurrency spot transactions, provided that the transferred cryptos have been withdrawn from electronic portfolios (so-called Wallet) for which the average balance exceeds € 51,645.69, for at least seven continuous working days in the fiscal year;
  • cryptocurrency forward purchase and sale.

From a reporting standpoint, holders of cryptocurrencies should indicate cryptocurrency amount owned in Section RW of the income tax return (in this section foreign financial investments and assets should be indicated) for the purposes of fulfilling tax monitoring obligations. Although from a reporting standpoint, cryptocurrencies are treated as financial assets held abroad, IVAFE (tax on the value of financial assets held abroad) is not due.

Evolving landscape

Following a statement issued by the National Authority for Companies and Stock exchanges (CONSOB) that indicates that bitcoins, cryptocurrencies and financial instruments related to them hide several risks which should be subject to a preliminary analysis, the Bank of Italy recently launched an online communication channel called “Fintech” to allow interested users to interact, amongst others, with CONSOB in order to seek clarifications about the regime applicable to each single case.