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Back to Index of Taxation of Cryptocurrency Block Rewards

I. Introduction

This report by the foreign law specialists of the Law Library of Congress surveys the tax treatment of new tokens obtained by cryptocurrency mining or staking, often known as “block rewards,” in 31 countries around the globe. It also addresses the tax implications of cryptocurrency tokens acquired through airdrops and hard forks (also referred to as a “chain split”) in various jurisdictions. This report complements a broader comparative study on regulatory approaches to cryptoassets, including the application of tax laws to cryptocurrency activities, published by the Law Library in April 2019.[1] ¬†

The report shows that while tax authorities of a number of countries have published guidance on the taxation of mined tokens such as Bitcoin and other “proof-of-work” cryptocurrencies, only a few specifically address the taxation of tokens received through staking, a term used to describe the process of obtaining reward tokens in the newer “proof-of-stake” cryptocurrencies. For countries where no explicit taxation rules on block rewards are available, the report provides information such as general taxation rules, proposed legislation, official statements, and comments from legal scholars and tax experts, which may be helpful in understanding how block rewards may be treated for tax purposes.

Cryptocurrency is variously treated by the surveyed countries as investment property, a financial instrument, an intangible asset or property, a financial asset, a commodity, etc., as the table below shows. Italy treats exchanges of cryptoassets like exchanges of foreign fiat currencies for tax purposes. The taxation of cryptocurrency is dependent not only upon its nature, but also on other factors such as how it is acquired or used.

 

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II. Taxation of Tokens Received Through Mining

Specific rules or guidance on the application of major types of taxes, including income, capital gains, and value-added tax (VAT), to tokens received through mining have been located in Australia, Canada, Denmark, Finland, France, Germany, Israel, Italy, Japan, Jersey, New Zealand, Norway, Singapore, Sweden, Switzerland, and the United Kingdom (UK).

Most of these countries provide different tax treatment to small-scale cryptocurrency mining by individuals (often treated as a hobby) and large-scale or commercial mining activities. In Finland and Denmark, mined cryptocurrencies are taxed as income derived from a hobby unless the mining is done on a commercial scale. Norway taxes income from mining and staking cryptocurrencies when done on a commercial scale and taxes profits from their sale, while the tax authority typically treats mining as a hobby, the income from which is not taxed. In Sweden, mined cryptoassets on a personal scale are subject to income tax based on the current market value at the time they are mined as personal income from employment, while large-scale mining may be considered commercial activity and is taxed as such.

Some surveyed countries have clearly stated that reward tokens generated from mining by individuals on a small scale or as a hobby are not taxable until their disposal or are not taxable at all. In Australia and Canada, where a person mines cryptocurrency as a hobby, mined tokens are not taxable until their disposal, with tax then payable on the capital gains. The government of Jersey states that income generated from mining cryptoassets on a small or irregular scale is generally not to be considered as a trading activity, and that mining alone does not make a person liable for income tax. Singapore specifies that a miner’s profits from the rewarded payment tokens is taxed at the point of disposal of the tokens and not when the tokens are mined, because while the miner is entitled to a right to own a payment token at the point of successful mining, no income is derived by merely holding the payment token. Singapore presumes an individual engaging in mining activities to be undertaking the activity as a hobby and does not tax the gains from the individual’s sale of the mined payment tokens, unless the individual shows a habitual and systematic effort to make a profit from the activities.

In other countries, even where mining is not a business or a profit-making scheme, a person may need to pay income tax on the mining rewards upon receipt. In New Zealand, any profit made from subsequently selling or exchanging the mining rewards is also taxable, if this was the purpose for mining them. In the UK, if the mining activity does not amount to a taxable trade, the value at the time of receipt of any cryptoassets awarded as a result of mining will be taxed as miscellaneous income. The UK may also impose capital gains tax on individuals who mine cryptoassets when they are later sold.

The tax authority of Japan has stated that virtual currency acquired by mining is taxed on its market value at the time of acquisition. In France, while non-professional investors are taxed on the value added of their cryptocurrency when they sell it, professional miners are taxed on the value of the cryptocurrency when they receive it. They can also be taxed again on the value added when they sell the same cryptocurrency into fiat currency later on.

The income tax treatment of mining is currently under discussion in Germany, but the federal ministry of finance held that mining is a nontaxable transaction under VAT law. In Italy, while the exchange of virtual currencies is not subject to VAT, the receipt of new tokens via mining is subject to VAT. Similarly, in Israel, while individual investors in virtual currencies are not liable for VAT, those engaging in mining will be classified as dealers and could be subject to VAT. A number of the other surveyed countries, including Australia, Chile, Colombia, Malta, New Zealand, Norway, Singapore, Switzerland, and Spain, have addressed the treatment of cryptocurrencies under the VAT or goods and services tax through guidance or the introduction of specific rules.

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III. Taxation of Tokens Received Through Staking

Tax authorities of Australia, Finland, New Zealand, Norway, and Switzerland have addressed the tax treatment of tokens received through staking.

For tax purposes, staked tokens are treated differently from mined tokens in Australia and Finland. In Australia, tokens acquired through mining cryptocurrencies as a hobby do not need to be reported as income and taxes are only payable upon their disposal through the capital gains tax system. Tokens received by an individual as a payment or reward for forging or staking are treated as ordinary income on receipt, and the sale of such tokens in the future will also trigger a capital gains tax event. Finland treats mined cryptocurrencies as income from hobby, whereas staked cryptocurrencies are taxed as capital gains, as the tax authority considers the staked asset as value created on top of the cryptocurrencies already held.

New Zealand’s updated guidance on the tax treatment of cryptoassets published in September 2020 includes reference to cryptoassets received through mining, staking, airdrops, and forks, with consideration given to the purpose of the activity, including whether it was part of a business or profit-making scheme. Staking rewards may be taxable upon receipt, and income earned on their disposal may also be taxable, depending on the circumstances. Switzerland mentions staked tokens separately in the federal VAT guidance, which provides general remarks about block rewards and explains differences between pool mining and pool staking more in detail. The taxation is the same, however.

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IV. Taxation of Tokens Received Through Airdrops or Hard Forks

Countries that have provided guidance on the tax treatment of new cryptocurrency tokens received from airdrops or hard forks include Australia, Finland, Japan, New Zealand, Singapore, and the UK.

Airdropped tokens are treated in Australia the same as staking rewards, as ordinary income for tax purposes. In Singapore, on the contrary, they are not regarded as income of the recipient and therefore not taxable, as long as the tokens are not received in return for any goods or services performed.

According to the official guidance from Finland, cryptoassets created through hard forks are not taxed at the time of creation but at the time of transfer. Thus, a forked cryptocurrency asset is valued at zero until it is transferred (sold or exchanged). Japan’s tax authority has explained that when a person acquires a virtual currency from a fork, the person will not be deemed to receive taxable income at that time. The acquisition price of the new virtual currency is zero yen. Income will be generated at the time of selling or using the virtual currency. In Australia, new cryptocurrency received by an investor as a result of a chain split is only taxable on disposal, with the capital gains tax rules applicable to any resulting gain or loss.

The countries in this report that have issued rules or guidance on the tax treatment of mining, or on the tax treatment of staking, airdrops, or hard forks, are shown on the accompanying map.

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Prepared by Laney Zhang
Foreign Legal Specialist
January 2021


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Last Updated: 02/05/2021