According to Israel Tax Authority (ITA), currencies must have some “physical manifestation” to be classified as coins. It considers that those who sold large quantities of bitcoins should pay taxes
The Israel Tax Authority determined that Bitcoin (BTC) is an asset and not a currency. According to this, transactions with bitcoins will be subject to taxes, as explained in a recent report by the specialized news agency Globes.
Noam Copel, who founded the blockchain startup DAV, bought BTC in 2011 and sold these cryptocurrencies two years later, earning USD 2.9 million to the current rates.
During the process, Noam Copel, Founder of the blockchain startup DAV, argued that Bitcoin should be considered as a foreign currency. Taking that concept into account, earnings in BTC should be considered as exchange rate differences received by an individual that is not in the course of a business, so they should not be taxed.
But, in response to these considerations, the Israel Tax Authority (ITA) clarified that, for that country, until now, Bitcoin is not a currency and for this reason, it cannot be considered as a foreign currency, but as an asset that generates taxes on capital gains. This ruling means that the profits obtained from the sale of the cryptocurrency in that country will be subject to tax and capital gains.
Why is BTC not considered a currency?
The Israel Tax Authority (ITA) proposed that currencies must have some “physical manifestation” to comply with the laws of the country and be classified as coins. In this way, the court proposes that, to be considered a currency, Bitcoin must have some physical-concrete manifestation, or represent a real alternative to coins and banknotes in any country.
Judge Shmuel Bornstein ruled that Copel had not proven that Bitcoin could be used as a viable alternative to fiat currencies when he sold the cryptocurrency. Bornstein said that in the current context it is difficult to consider Bitcoin as a currency for tax purposes, because, as he states, there is a possibility that this asset may cease to exist or be replaced by another digital currency.
However, the doors are not yet closed and the monetary authority indicated that, at the present, cryptocurrencies are not considered physical currency, demonstrating that this decision may change in the future.
Bornstein concluded that Copel, the one who appealed, should be subject to taxes of about 3 million NIS. The employer must now pay taxes on USD 830,000 of the profits he earned.
Gidi Bar Zakay, Former Deputy Head of the Israel Tax Authority (ITA) and cryptocurrency tax specialist, commented: “What ultimately determines whether Bitcoin is a currency is the proof of reality. As soon as its use becomes common, the legislature will have to redraft the law to take this into account, and we will all benefit from these technological and monetary developments and the ability of Bitcoin and other cryptocurrencies to serve as means of payment reliable, efficient and widely accepted”.
The ITA first described the plans to tax cryptocurrencies as property in February 2018. In early May 2019, the US Internal Revenue Service (IRS) announced that it was giving priority to the issuance of guides related to cryptocurrencies, after politicians in Congress warned that there is still much ambiguity about how assets should be taxed.
The General Director of the crypto-finance company Circle, Jeremy Allaire, stated that digital assets are financial instruments, but that they should not be considered values or currencies, whilst the US Securities and Exchange Commission (SEC) will consider cryptoactives as values.
Whilst these concepts and regulations are established in different countries, the debate remains and makes a way to new changes of opinion.
By María Rodríguez
