Tax treatment of virtual currencies

On 26 July 2018, the Luxembourg direct tax authorities published Circular L.I.R. No. 14/5 – 99/3 – 99bis/3 (“Circular”) providing useful guidance on the tax treatment of income generated by Luxembourg taxpayers through virtual currencies (“VCs”), in particular in the framework of their disposal or creation (mining).

The Circular sets out the following main points:

• VCs do not constitute any currency. Thus, Luxembourg taxpayers can neither establish their accounts nor declare their taxable income in VCs.
• VCs are considered intangible assets for Luxembourg tax purposes.
• The use of VCs in a transaction does not influence the nature of any such transaction for Luxembourg tax purposes.
• Income generated by VCs is taxable to the extent it qualifies either as income from commercial activity (bénéfice commercial, Article 14 L.I.R.) or as miscellaneous net income (revenus nets divers, Article 99 L.I.R.).

The Circular provides the following practical guidelines:

• Income and gains as well as operating or other expenses expressed in VCs must be converted to euro or to another currency for which the European Central Bank establishes and publishes exchange rates. This conversion should be done based on the daily exchange rate published by an exchange platform approved by the CSSF.
• The taxpayer should maintain consistent and continuous documentation regarding VCs, notably as regards to their acquisition or creation date and the related expenses. The onus of proof regarding the acquisition date is resting with the taxpayer.
• In cases where it is difficult to determine the acquisition price of the VCs, such a price should be obtained based on the weighted average price method. The application of the “first-in, first-out” or “last-in, first-out” methods may not be applied.

By clicking on the following links, you may access to the original French document of the Circular and to our April 2018 Newsletter article on warnings of CSSF regarding VCs.