PS In-Voice Podcast Series, taxation, crypto currencies, PS SME Team, Hungary
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This is In-Voice, the podcast series of Process Solutions. Discussions with PS experts on accounting and tax issues, topical issues, professional and technological challenges.
Podcast transcript (with time codes)
00:00:30 – 00:00:43
– Hi! This is the PS In-Voice Podcast, where today we are talking with Eszter Kálóczi, a PS tax expert about the taxation of crypto currencies, a very exciting subject. Hi, Eszter!
Hello, János, and greetings to the kind listeners and spectators.
00:00:44 – 00:02:26
The topicality of all this issue derives from the recent arrival of a regulation governing the taxation of crypto currencies in Hungary. Could you tell us a few words about this?
– Yes. As of 1 January 2022, the Act on the personal income tax was amended and, as a result of the amendment, a new article was introduced, which is contained in Article 67/C. In fact, for whom it is a matter of fact, but it is an expected provision, because in our daily lives it is a constant topic of talk to trade in, do transactions in, and draw income from crypto currencies, and, until the first of this January, in fact, it has not been regulated at all in the Act on the personal income tax. In this way, those who apply the law and taxpayers have in fact established the proceeds derived from such activity on the basis of guidelines and, as such, have determined them as other income belonging to the consolidated tax base. This was a rather abstract solution of applying the law, but it had to be applied in the absence of any better. However, the new legal provision has clearly regulated the taxation of transactions in crypto currencies and the proceeds and the income from those transactions, thus certain concepts have been clarified and they show similarities with certain legal institutions, but this legal provision independently regulates the taxation of the proceeds from the crypto payment instruments.
00:02:26 – 00:03:17
When is a ‘crypto profit’ considered as taxable when I draw it down, i.e. when it appears? How does this system work?
– The Act, the legal provision under discussion, introduces the concept of income from the use of crypto-instruments, and defines when we are actually talking about income. It introduces two new concepts, transaction gains and business losses. It says, of course, that the personal income tax law is by its very nature to tax income earned by a taxable person and to treat as income the difference between transaction gains and business losses.
00:03:18 – 00:04:09
Let us talk now about the amount of this tax! This is probably what interests everyone best.
I am interested.
– If we say I bought a bitcoin at a very good rate, and it has now gone up ten times, how much I have to pay for it as tax, how many per cent and how, and how much I have had to so far?
– I have some good news in this respect compared to recent times, because in the past, the income from the crypto assets has been subject to social contribution tax and, on the other hand, to personal income tax. With the entry into force of the new legal provisions, the income from the crypto assets is subject only to personal income tax, i.e. from the moment the taxpayer acquires income, it is subject to a personal income tax of 15 %.
00:04:10 – 00:05:17
– What exactly does it mean to acquire it? When I buy on a foreign platform, I am selling bitcoin, is it already considered an acquisition, or is it rather the case when it is already visible in a bank account in Hungary, for example?
When you trade only in crypto assets, you exchange a crypto asset for a crypto asset, it is not yet a taxable event, it will not generate taxable income for you. From the moment that you have acquired pecuniary asset in exchange for it or converted it into fiat currency, the law will at that moment consider it as income. The term ‘Fiat currency’ refers to a currency, a currency recognized by the States, a forint, a dollar, a euro, etc., and the term ‘pecuniary asset’ refers to an asset that may be the subject of marketable trading. For example, if a motor vehicle, or let alone, arable land, is bought in exchange for bitcoins, these acquired assets also constitute taxable income.
00:05:18 – 00:05:59
– I understand.
– I see the question in your eyes as to what value should be taken into account for such an acquired asset, and the regulation provides a clear answer, saying that the normal market value at the time of acquisition should be taken as a basis. So the taxpayer will then examine – let us stay with the vehicle – what price can be determined between independent parties in the case of the type of vehicle, the year of production, etc. It is worth supporting it by facts that he has established the normal market price on the basis of what evidence, and it is what should be taken as a basis.
00:06:00 – 00:07:29
– What happens with loss? Because not everyone wins on the crypto currencies, since there are ones who, say, buy at high prices and are forced to sell at low prices, say, what is happening in such a case?
The law also introduces a concept to this effect and recognizes the transaction loss as an existing possibility, just like it defines the business profit, it also defines the business loss, namely that in the current year, if the expenditure spent on crypto assets exceeds the transaction revenue obtained, it is considered a loss on the transaction. As I said, the law recognizes the existence of these and, in fact, as it applies to business income from controlled capital market transactions, tax equalization can be taken into account and applied in the case of this legal institution, too. This means that your transaction losses realized in relation to the income from the crypto assets in the two years preceding the current year may be taken into account in the following years. However, it establishes a strict criterion when it says that this transaction loss should be reported in your tax return in the same way as the income is otherwise reported in the return. Therefore, only transaction losses known to the tax authorities are recognized by the Act.
00:07:30 – 00:08:44
– I understand. What will happen to the profits or… to the transactions that arose before the law, the new law or the new legislation came into force? I had a transaction in 2018, say, and I would like to draw it now, that profit, what is the situation?
– In fact, your transaction profits will be examined this year, so you will have to look at them under the current rules. At the same time, in relation to the time jumps, I would like to draw attention to the fact that, with regard to the rules that have been put in place, the law allows taxpayers who did not include in their tax return the income from crypto assets in 2021, a so-called tax amnesty is allowed with respect to the income for 2021, because the rules can also be applied to the 2021 income. However, it defines as a criterion that this can only be done if the taxpayer has not made a declaration about it.
00:08:45 – 00:09:37
I understand, that is the tax amnesty, which means, after all, that we can also apply the lower tax rate now to previous transactions in 2021, if they were not included in the return.
– That’s right, so it should be pointed out that this only affects the year 2021, not earlier years. And here I would point out that, in relation to the income from the use of crypto instruments in previous years, taxpayers have also been subject to tax liability as we have said before, but they cannot use the new rules for those transactions. It should also be pointed out that, in relation to previous years, the limitation period has not yet expired, thus the tax authorities can also examine those income as income from other revenues taxed as other revenue.
00:09:38 – 00:11:01
Is there a minimum amount of this that we have to report in the tax return, or is any profits generated to be reported from zero HUF?
– There are no limits on income set by law. Therefore, if you look at the transaction profits and business losses and you can determine an income from them, there is no limit on it. However, what transaction proceeds are to be taken into account for calculating transaction gains is subject to some restrictions by the law, which may in fact be regarded as a restriction in favour of taxpayers, because it is not necessary to establish transaction proceeds when the amount of the proceeds is less than ten per cent of the minimum wage. However, there are two other important criteria here, which must be taken into account: If we were able to establish that the proceeds did not reach ten per cent of the minimum wage, then we must also examine whether the fact exists that we will have another similar income on the same day, on the same day, because then it will be taxed.
00:11:01 – 00:12:42
– What is the situation where, if we say, we want to draw profits from the crypto into the account of some FinTech company, which is not necessarily a Hungarian tax account or not necessarily a fiat currency, but a platform of some other kind, and we want to transfer profits there. How should this be managed?
– In fact, it is a corollary of the digital world that a great variety of money-handling processes and opportunities have opened up and I do not mention service providers, but many of them are covered by the Act on credit institutions . These entities are equally required to provide information on all income and data relating to Hungarian taxpayers if their services are realized in Hungary. In this way, it cannot be relied on that these providers and their records will remain unknown to the tax authorities, as the scope of the tax authorities’ instruments are extending, and they are increasingly investing efforts in order to gain an insight into the functioning of these fintech companies and the processing of their data concerning taxpayers, in this way, such accounts also function as income if the taxpayer keeps its proceeds obtained in connection with transactions in crypto assets on such an account in fiat currency .
00:12:43 – 00:13:33
– How can the costs associated with the crypto assets be calculated and what are the eligible costs? So if, let us say, I attend a training course on crypto assets and trading, can I account this as a company cost?
– The new provisions also cover expenditure that can be taken into account in relation to the income from the crypto assets. The training course you mentioned does not seem to me to be directly linked to the transaction, so I think that we cannot take it into account as a cost. However, all expenditure spent on the acquisition of crypto assets, all expenditure on the storage of, and the purchase of services related to the trading of crypto assets may be taken into account.
00:13:33 – 00:13:40
So, then, transaction fees, joining fees, yes, training courses, no.
– I think not.
00:13:42 – 00:15:31
– Does it have significance whether someone wants to draw the money earned in a crypto currency into a Hungarian or foreign bank account and in what currency, forint, dollar? What does the new legislation provide for in this respect?
– In fact, it would be important here, in response to your first question, to take into account that under Hungarian law, whether in Hungary … it is necessary to examine whether we are talking about income to be taxed in Hungary. For this, however, it should be examined in the context of double taxation conventions, conventions related to income taxation for the avoidance or double taxation, most of which include these income as other receipts and are usually taxed in the country of residence of the taxpayer receiving the income. Thus, if a Hungarian resident taxpayer acquires income in a foreign bank account, it will be taxable in the same way in Hungary. If he acquires that income, say in dollars and in euro, the exchange rate rules of the general provisions of the personal income tax Act shall apply, which clearly state that the applicable exchange rate shall then be taken into account for the determination of the sum in forint which was valid on the date on which the income was obtained, and similarly, that exchange rate shall be taken into account which was valid and applicable on the date of the expenditure. These can be found in the communications of the Hungarian National Bank.
00:15:32 – 00:16:10
– Let us briefly summarize the percentage that we had to pay for the profits obtained in crypto currency under the previous legislation, and now, from January 2022, what percentage.
– It was taxed under the previous legislation, as you mentioned, as we mentioned by the social contribution tax at a rate of 15.5% and it was also subject to personal income tax, at a rate of 15%. Under the new rules, it is now burdened only by personal income tax, the rate of which is 15%.
00:16:11 – 00:16:44
– So then we will have an overall tax burden of 15% on the basis of the new legislation at the moment.
– Yes, yes. I would perhaps like to draw attention to one thing more, and this is a very topical question of whether tax refunds can be taken into account by taxpayers. Unfortunately, I have to say here that taxpayers are not entitled to the tax rebate on the proceeds from transactions in crypto assets because they do not belong to the consolidated tax base.
00:16:45 – 00:17:48
– There are crypto-based cards in the market. What about these? When that …
– Which behave in fact like a bank card?
– That is right.
– In this regard, as we have already talked about, it has significance if you use it and gain asset value. Now, depending on how they work, we would need to know more about the true functioning of these and the functioning of the regulated system. It is worth reading the standard terms and conditions, if one keeps a crypto currency on these cards, and does not in itself create special pockets in order to convert it here into an instruction or currency, but when you pay, you pay it at once with a crypto asset, then, as we have said, the date of the acquisition of the asset value will be decisive, you will earn an income then. So, in fact, you must be careful when using them, yes.
00:17:49 – 00:19:04
– If I want to be perfectly correct, what documentation do I have to submit, will I have to prepare when …
– The question is legitimate whether there is a tax administration obligation for taxpayers in relation to it …
– That is right.
– …well, there does exist such an obligation, taxpayers also have an obligation to keep records of these transactions, in which transactions must be recorded in a way which makes it possible to determine the tax precisely. I would point out that it is typically possible to make entries here on the basis of supporting documents, and I would point out that a large number of service providers issue tax certificates, which Hungarian taxpayers might think is actually the right certification for the income, but I would encourage everyone to make the calculations themselves, too, because the certificates issued might not be in conformity with Hungarian legislation. If we do not see a difference based on our own calculations and on the certificate issued by the service provider, it can of course be used, but I would urge everyone to carefully check this by all means.
00:19:04 – 00:19:23
– Thank you, Eszter, for being here with us and being able to thoroughly discuss this very exciting topic. We trust that we have been able to help everyone involved in this, so that they can trade in crypto assets in compliance with the relevant rules and indeed without risks. Thank you for being here!
– Thank you, too, for this opportunity, bye.
Former PS In-Voice podcast episode:
PS In-Voice Part-1 – Accounting automation is constantly evolving, but human resources will be needed for a long time