Denmark plans storage-based taxation for crypto assets, aiming for fairer taxation and alignment with existing tax rules.
A recent Danish Tax Law Council report suggests taxing crypto assets based on their storage. This aims to align crypto taxation with existing tax rules. Consequently, the council believes these rules will create a fairer taxation framework for investors. Soon, these recommendations will lead to a legislative proposal.
Today, a significant number of the Danes have some understanding of crypto assets. A user survey of spring 2024 reveals that approximately 300,000 Danes own cryptocurrencies, of which Bitcoin is part. However, the distributed structure of such assets in the form of tokens is a problem for both tax authorities and owners.
This report has been in the making since 2021 by the Tax Law Council. Both of their recommendations are for equal taxation of all crypto assets. Namely, the “non-backed cryptocurrencies” such as Bitcoin would be taxable similar to certain asset-attached crypto assets under the stock-tax rules. Therefore, this alignment seeks to extend the classification of crypto investments to other categories of investments.
New Recommendations Aim to Balance Taxation of Crypto Gains and Losses
Denmark’s Tax Minister Rasmus Stoklund described the council’s suggestions as satisfying. He also recalled that many people in Denmark have incurred huge losses on their taxes in relation to cryptocurrencies. He noted that the council’s recommendations could help make cryptocurrency taxation for investors’ gains and losses more reasonable.
Moreover, the changes proposed would also do away with the imbalance of the taxation of gains and losses. Some investors could offset losses incurred on one digital currency against gains made on other digital currencies. Further, the recommendations would permit losses and gains on transactions in crypto assets to be netted against each other with gains in financial contracts. This inventory taxation would categorize crypto income as capital income so that it can be taxed continually even if the inventory is still held.
The crypto sector has, in the recent past, experienced a surge in regulation. There are multilateral treaties to strengthen financial supervision rules and combat illicit income legalization. These agreements also contain provisions for the exchange of information relating to taxes. The above model could help Danish investors share information on the crypto trades from the year 2027 for the purpose of efficient tax computation.
In the future, the Tax Minister intends to submit a bill during the first half of 2025. This bill will compel crypto service providers to disclose details of their customers’ transactions. More importantly, the data will only be transferred between the EU countries. Moreover, the crypto asset taxation bill will include the Tax Council’s recommendations.
The Tax Law Council suggests these new rules take effect before January 1, 2026. This timeline allows for implementing international agreements and gives investors time to adjust. Finally, Tax Minister Stoklund emphasized the need for clearer rules, expressing eagerness to discuss the bill with parties in the Folketing.
