Finland tax authorities matching Bitcoin transactions and bank transfers

https://metropolitan.fi/entry/tax-authorities-in-finland-matching-bitcoin-transactions-bank-transfers-to-collect-tax-on-crypto-trading-profits

by velmu • 8 years ago

140 113 8 years ago

metropolitan.fi

ForHackernews• 8 years ago

Having an immutable public ledger should make collecting taxes easier.

wereHamster• 8 years ago

…if you can match addresses to people.

grey-area• 8 years ago

Pretty trivial for a nation state, given sufficient motivation.

test65542• 8 years ago

...and if no assets are kept off the books

DoctorOetker• 8 years ago

I fully agree.

The whole idea of income tax is flawed.

Define richer (poorer) as having more (less) wealth: unit is say dollars.

Define net income as the time-derivative of wealth: unit is dollars per day.

Now conflate income and wealth in school. Justify taxing income as if it was redistribution from rich to poor, while it is in fact redistribution from high incomme to low income: i.e. a rich person with substantial capital, who has lost his job, can apply for income support, even though he still has money in the bank. In order to get out of poverty a poor person has to earn money at a faster rate than average, so will be heavier taxed.

Income taxation is not a redistribution from rich to poor, it is a means to slow down changes to the status quo. It is a brake on social mobility.

With decentralized ledgers, we can easily tax all wealth equally by printing money. The problem is not that money is being created out of thin air, but that this freshly minted money is not considered property of the group, instead it is property of the central banks, which act like unions for private banks.

Taxing by freshly minting is much cheaper to implement, and removes the whole legal loopholes with secret walkthroughs etc. i.e. people can focus on providing a service and earning money (roughly twice as fast since no income taxation) instead of puzzling through all the rules and exemptions in order to be able to do their job.

klez• 8 years ago

"The taxman"? The original title was "Tax authorities in Finland matching Bitcoin transactions & bank transfers to collect tax on crypto trading profits".

StavrosK4• 8 years ago

Yes, but "the taxman" makes you click so you can see if it's your taxman.

s73v3r_• 8 years ago

Or if you're a Beatles fan.

thisisit2• 8 years ago

HN has a character limit on titles. The original title is 34 characters longer than HN limit. So, people try and edit the title and submit the story. Sometimes these edits don't work very well. So let's cut OP some slack.

Maybe Mods can edit the title again.

hedgew5• 8 years ago

All they're doing is looking for bank transactions to crypto exchanges in citizens' accounts. What this article doesn't tell, is that the current cryptocurrency taxation in Finland is unreasonable. You pay 30-34% tax on any profit, but you can not deduct losses.

If you had bought 1 BTC at $1000, another at $14000, and sold both at $3000 you would owe $600 in taxes even though you lost $9000.

You can imagine how people feel about paying these taxes, when they are so obviously flawed and unjust. Some people may owe hundreds of thousands in taxes even if they made no actual profit.

AznHisoka2• 8 years ago

Jesus, you can’t deduct losses? If it is only for crypto, I gotta believe its a perverse way to dissuade citizens from investing in crypto.

These crypto tax articles become less and less relevant in the coming tax year as people are going to be filing losses, not gains. I expect headlines like “How to make sure you add up your crypto losses to the full amount”

AnssiH2• 8 years ago

If it is only for crypto

I'm no expert, but from what I understand, you can't deduct losses from regular currency deposits, either.

Here is a decision from the Supreme Administrative Court in a case where someone had converted 460 000 EUR to USD and later converted them back to EUR with a loss of 30 000 EUR and wanted to deduct the loss from their capital gains tax (Finnish): http://www.kho.fi/fi/index/paatoksia/vuosikirjapaatokset/vuo...

It was denied as there is no clause in the Income Tax Act allowing such a deduction.

Tax Administration guidance (Finnish): https://www.vero.fi/syventavat-vero-ohjeet/ohje-hakusivu/489...

Income Tax Act (Finnish): https://www.finlex.fi/fi/laki/ajantasa/1992/1992153

onion2k• 8 years ago

You pay 30-34% tax on any profit, but you can not deduct losses.

Whether you made a profit or not doesn't have to be a consideration as far as tax goes. You pay a percentage of the capital amount when you choose to liquidate your asset. It's effectively a wealth tax. There are lots of taxes around the world that work this way. It sucks if you've made a loss, but that's not really the government's problem.

AznHisoka2• 8 years ago

Wait... How is the inability to deduct losses OK in any government?

Yes, you have to pay taxes on the gains when you liquidate but you can offset that with any losses too

hedgew5• 8 years ago

That doesn't sound right. The authorities in Finland specifically tax gains made with cryptocurrencies. You only pay tax if you make profit on any individual trade. But you can not deduct trades that made a loss.

It's not exactly a wealth tax, but it's also hard to consider a capital gains tax because you can't deduct losses. Treating other investment products this way would probably have horrific results, because it heavily disincentivizes taking on any risk.

tuukkah• 8 years ago

It's effectively a wealth tax.

No, it's a 30-34% wealth tax! (Or better, transaction tax.)

yunesj4• 8 years ago

It sucks if you've made a loss, but that's not really the government's problem.

Perhaps the government shouldn't incentivize their residents to make suboptimal investments.

"It's not really the government's problem if they impoverish their citizens and hurt their economy."

Jhsto3• 8 years ago

This is even worse if you are a student who receives government aids: transactions are regarded as income (whether loss or profit) by the social insurance institution.

So in other words, if you buy Bitcoin for 1000 euros and sell it at 500, you have made efficiently 500 euros in "income." With the notion of the parent post, this makes trading unviable, because if you exceed 12K€ in income a year (in any form, be that employment etc.), you have to start paying back your living aids.

Symbiote• 8 years ago

If a student has money to gamble on Bitcoin, perhaps they don't deserve the grants.

notahacker2• 8 years ago

Whilst the apparent double counting doesn't seem fair, it also doesn't seem like a good idea for students who rely on government aid for their living costs to be speculating in risky exotic financial assets...

craigsmansion• 8 years ago

If one is a student who receives government aid, maybe one shouldn't be speculating in crypto-currencies.

Hamuko2• 8 years ago

I believe that any student buying Bitcoin for 1000 euros while receiving student benefits from the Finnish social security system should have all of their benefits immediately revoked. Same if they decided to invest 1000 euros of social security benefit money on ivory.

thisisit2• 8 years ago

So, Finland doesn't have tax loss harvesting at all or is it specific only to cryptocurrency trading?

hedgew5• 8 years ago

It only applies to cryptocurrencies.

AnssiH2• 8 years ago

There are deductions to capital gains tax, but they do not apply here as cryptocurrencies are not considered property but instead an agreement between the users, if I understood correctly.

But regular currency trading losses are not deductible either (per KHO:2015:178), so I guess crypto is not really unfairly discriminated against in this case.

VMG2• 8 years ago

The hodl subsidy

mvindahl2• 8 years ago

Is this really the case? My expectation would be that you would be taxed on the net profits at the end of the year but would have no deductions on net losses at the end of the year. It's a bit skewed but I'm pretty sure that's how profits from overseas online gambling is taxed here in Denmark.

Either way, it would make sense to tax cryptocurrency trading by using the same tax code as other kinds of overseas online gambling.

hedgew5• 8 years ago

It is. Net profits are not taxed, but the profits of any profitable trade are. Trades resulting in loss are ignored.

The tax authorities interpreted cryptocurrencies not as a currency or as a financial asset, but as "trade agreements", which allowed them to take this stance. I'm not sure why they would skew the taxation so far against taxpayers' favor.

dancek2• 8 years ago

Well, all taxation can be considered unreasonable. It's true that the system doesn't work similarly for cryptocurrencies and stock, but that's no reason not to pay your taxes. It's not like the system came as a surprise to the people who sold crypto in 2017.

My personal experience is that most Finns whine about taxes, yet they also complain if healthcare and infrastructure and education isn't perfect and completely free. I feel that as a smart responsible adult it's better to be happy that I have income to pay taxes for, and be grateful of everything the taxes pay for. If I didn't like the way things are done in Finland, I'm free to move elsewhere (or take up politics, get elected and change everything the way I like it).

Moru• 8 years ago

That is the same in all countries, everyone wants to pay less taxes and get everything for free.

pfortuny• 8 years ago

Well, yes but the parent is complaining about taxes on a net financial loss. This is really unjust and something difficult to support.

darawk3• 8 years ago

There's a big difference between complaining about the tax level, or even the tax distribution, and what's going on here, which is completely insane. Paying taxes on a net loss is an absolutely crazy structure that no sane government should be imposing. It's so insane i'm skeptical it's even true, but if it is, he's absolutely right to be upset about it.

pjc50• 8 years ago

I'm skeptical of this, and went looking for primary sources. The Finnish tax authority website seems to have a different example:

https://translate.google.com/translate?sl=fi&tl=en&js=y&prev... (from https://www.vero.fi/syventavat-vero-ohjeet/ohje-hakusivu/484... )

"Example 1: One person has in the past bought 1,000 bitcoins for 500 euros, ie one Bitcoin cost EUR 0.5. He later bought more 500 bitcoins for 500 euros, which means that one euro received one bitcoin at that time. After purchasing, he holds 1 500 bitcoins.

He sells 1 200 bitcoin at a time when one Bitcoin costs 1.5 euros. The sale of virtual currency realizes the taxation of the change in value, giving him a taxable income of EUR 1 800 - (EUR 500 + EUR 200) = 1,100 EUR. After the transaction, a person still has 300 bitcoins purchased for 300 euros. "

"Example 2: One person has in the past bought 1000 bitcoins, with one euro receiving two bitcoins. One Bitcoin cost EUR 0.5. After acquiring, he has owned 2,000 bitcoins.

He buys goods at a total of 1,000 bitcoins at a time when bitcoins cost ten euros per piece. He therefore purchases goods worth a total of EUR 10,000.

The acquisition of goods realizes the taxation of the change in the value of a virtual currency, giving him taxable income in this case as a capital income of EUR 10,000 - EUR 500 = EUR 9,500.

After purchasing the shop, there were still 1,000 bitcoins remaining for the purchase price of 500 euros. "

etc. There's another example which shows making a loss is not a taxable event.

ptaipale2• 8 years ago

The third example lays out a situation where the loss is not deductable even though it is a real loss.

What worries me more is that this is an "instruction", but the tax authorities are not bound by instructions. And they are known to do as they want, even flouting European law (particularly when it is to do with car taxes, although not so much related to bitcoins.).

hedgew5• 8 years ago

Here's the key sentence which roughly translates into "Losses are not deductible" > "Sopimussuhteeseen liittyvät menetykset eivät ole tuloverolain mukaisessa verotuksessa vähennyskelpoisia."

Additionally, Example 3 is given to show how an actual loss of 500€ is not considered a loss in taxation and is not deductible.

The Finnish tax authorities use a First In First Out principle in crypto taxation. So if you buy 1 BTC for 10€, and later 1 BTC for 1000€, and later sell the 2 BTC for 20€, you have to pay taxes on the 10€ "profit". Even though you lost 990€ on the second BTC.

aphextron• 8 years ago

You can imagine how people feel about paying these taxes, when they are so obviously flawed and unjust.

Yep, sounds like taxes. You can either pay them, or see how a judge responds when you refuse and call them flawed and unjust.

charlesdm3• 8 years ago

Just because you think a law is unreasonable, doesn't mean it does not apply. It might be unreasonable, but you still have to pay (or relocate, or find a loophole around it)

aje403• 8 years ago

I think it's good because it encourages crypto speculators and miners to emigrate somewhere else where they are more welcome

neffy• 8 years ago

This is a similar complaint to that which people like Goldman Sachs have with taxation on shares...

Here comes the new financial system, same as the old one, with added bugs.

mamon• 8 years ago

Wait until you hear how BTC transactions are taxed in Poland: they are subject to a 1% tax on civil law transactions (TCTL).

The worst part isn't that you pay 1% on transactions where you lost money. The worst part is that you are supposed to fill and send the tax form for each individual transaction. Now imagine automated trading, making hundreds of transactions per day - I suppose the cost of paper for printing those tax forms would outweigh any potential gains.

RantyDave• 8 years ago

I believe this is called "competent". I know we don't see much of it but ... there it is.

tallanvor2• 8 years ago

It sort of sounds like they're treating Bitcoin transactions like a non-EEA lottery. If you win, you pay your taxes, and if you lose you don't get to deduct the cost of your ticket.

Honestly, this doesn't bother me.

jabgrabdthrow• 8 years ago

Do you also get taxed if paid in bitcoin

Why not just do a 10% wealth tax on all of a person's assets on top of their income tax

Hamuko2• 8 years ago

Income is always taxed, so yes, you would get taxed.

tallanvor2• 8 years ago

I'm not in Finland or an expert on their taxation rules - my statement was based on a quick read of some of the information I found, but I would assume that if you chose to get paid in bitcoin than yes, you would have to determine the value of the bitcoin when you received it and pay taxes on it. When you cashed it out you would either have to pay taxes on the gains or eat the losses.

test65542• 8 years ago

Wealth taxes ignore property rights. When something is yours, it should stay yours unless you agree to part with it.

kazinator• 8 years ago

The old truth seems to stand: You can't avoid death or taxes.

Even if there were nothing but cryptocurrency, tax authorities have ways of estimating someone's income from investigating their lifestyle. That is to say, find people who are leading lavish lifestyles (living in upscale neighborhood, driving expensive cars, taking expensive vacations, ...), yet claim low income. That's just very inefficient to do if you have to actually put gumshoes onto individual people because you have no electronic access to any transactions.

Finland tax authorities matching Bitcoin transactions and bank transfers

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