Taxation of cryptocurrencies: towards the end of the French tax exception?

Taxation of cryptocurrencies: towards the end of the French tax exception?

The ‘strike’ amendment initially planned in the PLF 2023 was intended to confirm the taxation of passive income from cryptocurrencies under non-commercial gains (BNC), as is already the case for income from crypto asset mining activities. It was eventually removed. Why this change of heart? Although this amendment provided clarification in the law, it did not address all the issues raised by the choice made in 2018 for the French tax regime related to profits in cryptocurrencies.

The tax regime for cryptocurrencies in France is based on a simple principle: tax neutrality of the digital space, that is, the absence of declaration and taxation on the exchange between digital assets, and then taxation upon conversion against a fiat currency (or product, or service ), imposed on 30%: the famous one flat tax. If in 2018 this choice turned out to be innovative and quite beneficial for the development of the crypto ecosystem in France, it is clear that France was not followed by other countries in the world. The constitutive principle of the regime seems to be under attack from all sides, making the current tax regime unsuitable for new services and innovations in the field of cryptocurrencies.

The rapid evolution of services and new cryptocurrency profiles forces us to wonder what a digital asset is and what defines this term as a type of cryptocurrency. Take the example of NFTs: today there is uncertainty about the legal qualification of the NFT, and whether or not it is included in the definition of a digital asset. Thus, there is a question as to whether or not its purchase and sale against digital assets is taxable under the capital gains tax regime on digital assets.

The end of budget neutrality?

In addition to the use of NFTs, the principle does not take into account decentralized finance and its potential for income from loans, as well as income from tokenized real estate, which must be declared under BNC (non-commercial profits). as they are collected, imposing cryptocurrency earnings as they are collected.

Discussions on imposing a strike will continue in 2024, but a trend is emerging: questioning the fiscal neutrality of the digital space. For its part, the Court of Audit recently proposed strengthened supervision, regulation and taxation of transactions between stablecoins and cryptocurrencies. At the same time, the JONUM bill, which aims in particular to regulate digital tokens issued in the context of video games, proposes to tax the underlying assets rather than the digital assets themselves.

Tax reforms in 2024 would be crucial to remove regulatory uncertainties and encourage cryptocurrency investors to meet their tax obligations. According to Chainalysis, the French generated 11 billion euros in revenue in 2021 thanks to cryptocurrencies, and 8 million French people now own digital assets. A significant part that cannot be hidden.

Although France has established itself as a pioneer in creating a tax regime specific to cryptocurrencies, it risks being restricted by European and international regulations if it does not anticipate an overhaul of the tax regime.

A few months before the next Bitcoin halving, and possibly as the next upward cycle of digital asset prices approaches, it becomes imperative to anticipate the gradual erosion of budget neutrality in the French digital space. The change of this tax regime for individuals and the implementation of incentives for savings in digital assets would make it possible to compensate for the loss of attractiveness of the original system.

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