The tax authority of Denmark has reportedly sent out warning letters to 20,000 crypto owners asking them to amend their tax returns, pay taxes on crypto gains, or face penalties. The tax agency is demanding a full breakdown of their crypto transactions; it recently obtained information on these traders from three local crypto exchanges.
Warning Letters to Crypto Investors
Danish Skattestyrelsen, the tax authority of Denmark, has reportedly sent out warning letters to 20,000 cryptocurrency owners. Swedish crypto tax startup Koinly posted a copy of the letter on its website on Monday. The company detailed:
In the last 2 weeks, the agency began sending out warning letters to these investors urging them to amend their tax reports by the 15th of December or face penalties.
“Many of our Danish users have received these letters, Skat is asking for a full breakdown of all their transactions and asking them to fix all past reports as well,” said CEO Robin Singh who founded Koinly last year. “Filing tax on cryptocurrency trades is a difficult task as crypto traders usually hold several exchange accounts and wallets and freely transfer crypto between them, so there’s no easy way to figure out what the capital gains are for any particular trade.” The company claims to have helped thousands of crypto investors track and generate tax reports for funds worth over $250 million last year.
Tax Agency Has Info on 20,000 Crypto Traders
Earlier this year, Skattestyrelsen announced that it had been authorized by the country’s tax council, Skatterådet, to obtain information on crypto traders using local exchanges. The agency then announced on Aug. 29 that it had acquired information on 20,000 citizens trading cryptocurrency on these platforms. The tax agency declared:
For the first time, the tax authorities have received information on trading, for example, bitcoins, on Danish crypto exchanges. In total, information of approx. 20,000 citizens.
The exchanges were required to provide information on all crypto purchases and sales made between Jan. 1, 2016, and Dec. 31, 2018. The data obtained includes “identification information such as names, addresses, social security numbers and possibly CVR [business registration] information,” Skattestyrelsen revealed.
How Crypto Transactions Are Taxed in Denmark
The Danish tax authority explains on its website that trading bitcoin or other cryptocurrencies is considered speculation, meaning that the purpose of acquiring them is to make a profit. Therefore, as a general rule, profits or losses from their sales must be disclosed to the tax authority. Anyone unclear whether their trading activities are considered speculation can ask the tax agency for a specific “binding” answer, which costs DKK 400 ($60) and takes between 3-6 months. The answer is valid for a maximum of five years.
The letters sent to some 20,000 crypto traders request information about profits and losses from crypto transactions made during the fiscal year 2016 through 2018, calculated using the FIFO method. The tax agency’s website describes:
If you have several purchases, you must initially calculate profits and losses according to the FIFO principle (FIFO = First In First Out). This means that the bitcoins you bought first are the ones you sell first.
The Danish tax authority is not the only one that has sent letters to crypto investors. The U.S., Canada, and India are among the countries that have similarly sent letters to crypto owners seeking to tax their crypto gains.
Source: bitcoin.com
Picture: blossomstar/Freepik
