Norway Rejects Bitcoin As Currency; Taxes As Asset, Instead

An anonymous reader writes "Norway is the latest country to consider the legal implications of cryptocurrencies like Bitcoin. Norway's director general of taxation has come out and said '[Bitcoin] doesn't fall under the usual definition of money,' which means that it will be considered as assets and charged under capital gains laws. This sentiment was echoed last week by the European banking authority as well, where citizens were warned of using the cyrptocurrency."

Comments

How is Norway going to know?

[FlyHelicopters]

If someone makes a bunch of profit on Bitcoins, how is Norway going to know if the person doesn't self report?

Also, how are capital gains taxed there? In the US, capital gains are taxed at a lower rate than most normal income, so if the choice is between normal income and capital gains, I'll take the latter every time (since I'm in the US).

Re: How is Norway going to know?

[therealkevinkretz]

In the US, To be taxed at the lower rate, it must be classified as "long-term" - I.e. the asset must be held for at least a year before it's sold. Other (short-term) gains are taxed at the same rate as income.

Re:How is Norway going to know?

[bentcd]

If someone makes a bunch of profit on Bitcoins, how is Norway going to know if the person doesn't self report?

They won't, but if they later find out they'll nail you to the wall.

As an immediate concern, if you're making lots of bitcoins then there's not really that much to spend them on directly and so you'll want to convert them into national currency. At this point the tax man may notice and start asking questions.

When the time comes that you can easily buy a Ferrari for bitcoins they will also have a chance of noticing, and will ask you how you could afford that Ferrari.

If you go to any length to avoid the tax man noticing any of those two scenarios, you're probably guilty of some shade of money laundering which will get you nailed that much harder if they do discover you.

Also, how are capital gains taxed there? In the US, capital gains are taxed at a lower rate than most normal income, so if the choice is between normal income and capital gains, I'll take the latter every time (since I'm in the US).

I think it's much the same thing here. Capital gains is 28% or thereabouts, whereas income tax is progressive from 28% up to 50%, -ish. There may be important nuances I am omitting, being a wage slave rather than a tycoon.

Re:How is Norway going to know?

[Anonymous Coward]

tax fraud is assumed to be low in Switzerland compared to its neighbor states

Of course it is. Everything that's considered "tax fraud" in the rest of the world is considered a "business opportunity" in Switzerland.

Re:How is Norway going to know?

[PolygamousRanchKid]

For example, tax fraud is assumed to be low in Switzerland compared to its neighbor states.

Tax fraud committed by Swiss citizens may be low . . . but tax fraud committed by citizens of its neighbor states in Switzerland is very high.

Re: How is Norway going to know?

[alexander_686]

To follow up, and make the point even more explicitly, the same logic holds for foreign currency. if I hold Euros for more than a year and the Euro gets strong, I have to pay cap gains on that profit.

Re:How is Norway going to know?

[oobayly]

Mod comment:
Interesting: For some that may not know about the Swiss banking system
Overrated: For those that do know about the Swiss banking system
Insightful: Well, it's true
Funny: Made fun of the Swiss - always good
Troll: Winding them up about their dodgy banking system

Re:How is Norway going to know?

[Captain Hook]

Look for people with a Rolls Royce registered who also claim to earn little money? Then what? Perhaps it was a gift from family, perhaps it was purchased with savings.

The point is, an automated database query is cheap and gives a shorter list of people to investigate compared to everyone in the tax durisdiction.

If you have a car whose purchase price is $40000 and you withdraw $30000-35000 from savings in the months before I think the database query could reasonably file you under the low priority investigation list. If you have a car whose purchase price is $40000 and no transactions which match up with it, then you get filed under the medium priority investigation list.

And if you have multiple houses and no income or savings to account for the purchase costs then you get filed under high priority and a human taxman will start an investigation.

You use the cheapest method available to create ever shorter lists of people with anomalies to pass to the next, slightly more expensive filter.

Re: How is Norway going to know?

[K. S. Kyosuke]

In case of bitcoins, does that mean that you have to track them individually to keep yourself informed for how long you had each one of them?

Re: How is Norway going to know?

[locofungus]

I don't know about Norway's rules but in the UK, yes.

In the UK capital gains are calculated on a last in first out basis where the asset is fungible - shares, gold things like that.

However, I'm not sure exactly how it would work for an asset like bitcoin that you had mined. In theory the electricity costs should be offsetable when you cash in. When you're just buying and selling it would work like any other share or gold.

Anyone doing serious bitcoin mining now (where electricity costs are going to be a substantial fraction of any notional gain) would be strongly advised to get professional advice - it might make sense to setup a company for the mining.

Re:How is Norway going to know?

[Anonymous Coward]

Everything that's considered "tax fraud" in the rest of the world *was* considered a "business opportunity" *by certain Swiss banks*.

FTFY

As a Swiss citizen I'd like to point out that many (if not most) Swiss people don't agree with those business practices and are fed up with the bad reputation it has earned all of us. Much like not all Americans agree with US foreign policy (i.e. dropping bombs on innocent people)

Re: How is Norway going to know?

[alexander_686]

o.k. – but what is your point? What are you trying to say? You can hedge away most of that risk in real life.

Inflation steals value from past hard work. Deflation steals value from future work. And you can’t have zero inflation.

As you point out, the higher the inflation rate the higher the effective capital gains tax is. Right now in the US, the cap gain rate is lower than the ordinary income rate, so it takes 5 to 10 years for the 2 tax rates to become equivalent.

What would you suggest? And why would you favor one group and income type over another? Index Capital Gains to CPI? That is a idea I might favor – it would treat all income types on a more equal basis but it would make bookkeeping more complex.

The article is a bit flawed

[TyFoN]

What really happened was that the norwegian IRS said that the bitcoin does currently not have any status as a currency in Norway and will be taxed as an asset.

They very clearly state that bitcoins have not been banned as a currency, only that it's status still has to be decided by Finanstilsynet (almost like SEC, but with a broader mandate).

The Norwegian IRS does not have the authority to claim it is a currency or not, only Finanstilsynet. All they do is tax what they see as an asset until Finanstilsynet gives other directions.

Nettvalutaen Bitcoins beskattes
Translated
Quite different heading than the /. heading.
Translated it just means "Bitcoins are to be taxed".

Re:What is the cost basis?

[Chrisq]

So if I am mining bit coin, and it costs me more in electricity than I am getting in return from the bit coin I make, does that mean I get to write off my electric bill?

Or lets say I am making money, is my electric bill the cost basis for the bit coin? But I also needed a computer to mine, can I factor that into the basis?

I don't think they realize there are other legal ways to get bit coin besides buying it. Or perhaps then they just figure the basis is $0 and tax you 100% on the actual value.

If they are treating it as an asset then you would be a manufacturer and presumably would benefit from all the usual tax breaks. Whether this would include making your electric costs tax deductible in Norway I don't know, but it should be the same as if you were manufacturing shoes, ships, or anything else.