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Taxation of digital assets

On 29 April 2024
Taxation of digital assets
The taxation of digital assets is a complex subject. Lobe Law, a Paris-based tax and sports law firm, discusses the main issues raised by its clients.

What are digital assets?

The concept of digital assets covers :

- on the one hand, tokens issued when funds are raised and generally exchangeable for crypto-currencies; and

- secondly, crypto-currencies themselves, which are defined negatively as not fulfilling the traditional functions of money.


What are the tax implications of digital asset transactions?

To qualify for the capital gains tax on the sale of digital assets under articles 150 VH bis and 200 C of the French General Tax Code (FGTC), capital gains on the sale for consideration of digital assets must be realised by individuals resident in France for tax purposes as part of the management of their private assets. They are then subject to a flat tax (PFU) at an overall rate of 30%, including income tax at the flat rate of 12.8% (unless taxpayers opted for the progressive scale of income tax) and 17.2% social surtax.

However, there are two exceptions to this rule:

- no-cash exchanges of digital assets are tax deferred

- an exemption from taxation is granted when the sum of the sale prices, excluding tax deferred exchange transactions, does not exceed €305 during the tax year.

When digital asset transactions are carried out under conditions similar to those characterising a professional activity (without constituting the taxpayer's professional activity), the income is taxed in the non-commercial profits (BNC) category.

Capital gains on the sale of digital assets obtained in return for mining activity are also taxable as BNC.

Individuals whose profession consists of the purchase and resale of digital assets see their activity taxed in the category of industrial and commercial profits (BIC).


How is the capital gain on the sale of digital assets calculated?

The formula to be used to determine the gross capital gain or loss is as follows:

Gross capital gain or loss = Disposal price - [Total acquisition price x Disposal price / Total value of the portfolio].

The net taxable capital gain is determined after offsetting the capital gains and capital losses realised on the sale of digital assets by all members of the tax household during the tax year.


How is capital loss on the disposal of digital assets treated?

The capital loss may not be carried forward to subsequent years, nor may it be offset against a capital gain on the sale of an asset other than a digital asset.


What are the filing requirements?

The total amount of capital gains or losses realised on taxable disposals during the year is reported on the annual income tax return. A form n°2086 must also be completed and attached to the annual income tax return.

Transactions that do not fall within the scope of private asset management but are taxed under the BNC or BIC professional profits regime are subject to their own specific reporting obligations.

The references of digital assets accounts opened, held, used or closed with companies, legal entities, institutions or organisations established abroad must be declared separately on form n°3916-3916 bis. Failure to comply with this reporting obligation is punishable by a fine of €750 per undeclared account, or €125 per omission or inaccuracy, up to a maximum of €10,000 per declaration. These amounts of €750 and €125 are increased to €1,500 and €250 respectively if the value of the accounts exceeds €50,000 at any time during the year.

It is essential to carry out an often arduous assessment of the framework in which any digital asset transaction takes place in order to determine the appropriate tax regime. It is advisable to anticipate this study in order to optimise the taxation of your digital assets. Lobe Law, lawyers specialising in tax and sports law, is delighted to assist its clients in this respect. Please feel free to contact us!