How to declare bitcoin in Switzerland

The concept of Bitcoin denotes an electronic currency whose units of account are minted and managed at a decentralized level on a computer network. Users of this system, interconnected with each other via the internet, can mutually exchange bitcoin electronically (the so-called blockchain). Bitcoin only exists virtually within a computer network and has no physical value. Bitcoin trading is then decentralized on the internet, without going through intermediate bodies such as nation states, central banks or business banks. The exchange rate of Bitcoin in other traditional payment means (so-called Fiat money) is determined by the limited supply and the corresponding demand.

Qualification from a point of view of civil law
The framework conditions raise great debate in our civil law of the ownership of digital data, qualifying in principle as property rights and as such potentially the subject of contracts of purchase, exchange, donation or license. The most widespread opinion is to consider the properties of Bitcoin the same as the properties of a digital, transferable, unique, reliable and transparent unit of information. Bitcoin is therefore not an instrument of credit, a supply or credit balance, the existence of which depends on a counterparty. This right in rem is based on a system and a technology created and managed in a decentralized way via the internet, through algorithms. As such it does not have a value usage, and cannot be consumed.
In this way, bitcoin could be described as a sort of limited digital gold, which is governed by a public register that can track individual transactions in a decentralized and safe manner.

Qualification from a fiscal standpoint
Starting from the legal definition of being right in rem on a digital information unit, the Bitcoin from a fiscal standpoint may be qualified as a monetary right on an asset, which belongs to the taxable assets of a taxpayer resident in Switzerland. Just as for the treatment of small quantities of cash which are not normally reported in the tax return as wealth, also small quantities of this digital information would not ordinarily appear in the declaration of the taxpayer (who, for example, has ever declared Air Miles awards or Migros Cumulus points?). Instead, where Bitcoin is used to make payments of a certain value, it falls within the taxable substance. However, the question arises to know where to state Bitcoin in the current tax forms. As the securities list is presumably the only place to state third party bank accounts, securities and credits, it could be assumed to disclose the bitcoin among the “other elements of the moveable assets”, together with jewels, works of art and other assets. Having fulfilled the declarative obligations, there doesn’t appear to be any further obligations on the part of the taxpayer, unless to eventually provide all the necessary information to the competent authority. However, since it is the crypto-currency used in a decentralised system ungoverned by a clearly-identified third party, from a practical point of view there is no counterparty that can issue a certificate confirming that on a given date the taxpayer owns a certain number of Bitcoin. The tax authority must therefore rely solely on what is reported by the taxpayer.

Regarding the tax assessment of Bitcoin the taxpayer can enjoy a certain margin of manoeuvre. However, the methodology chosen should be continuously maintained. To facilitate the work of the taxpayer, from 2015 the Federal Tax Administration decided to set up a fiscal value for the purposes of the capital tax based on a defined average value no different to that reported by some exchange web pages. The result of this assessment quantifies at the end of 2015 the tax value for Bitcoin as CHF 420.88. At the end of 2016 this value amounted to CHF 977.53.
The Swiss tax system provides that the profit in capital from a private substance represents, in principle, a non-taxable event. The eventual qualification of bitcoin as a corporate substance assumes against the wishes of the taxpayer, carrying out a business with the purpose of generating profits, using assets that in a predominant way serve the achievement of an independent business activity. Mere management of private assets does not normally constitute a commercial activity. The federal case-law in the field of professional trading in securities could also be taken as reference with regards to any commercial use of Bitcoin. However, it is worth mentioning that Bitcoin is neither a currency nor an instrument of credit, so the use of such case-law should not be automatic, but only in the case where the specific context is considered. The Federal Tax Administration finally considers trading in crypto-currencies in the same way as Swiss francs or foreign currencies. Therefore, for VAT purposes, Bitcoin trading is neither a supply of goods nor a provision of services, thereby making it exempt for VAT purposes. By contrast, the use of Bitcoin as a means of payment in a taxable service, for example for the purchase of an asset, represents a consideration. As such, the two counterparties must not consider an additional VAT burden due to the use of this means of payment.
In addition to the Bitcoin, which currently capitalises more than 120million USD, there are several hundred different crypto-currencies or tokens. For a statutory framework of such units, information is always necessary to analyse in detail which rights are assigned to the owners. From the statutory analysis of these rights, the tax consequences can then be assumed.

Christian Ballabio

 

Christian Ballabio
CEO Fidinam & Partners SA (Lugano)
Certified tax expert
For further information, please contact:
christian.ballabio@fidinam.ch

 

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