Norway Rejects Bitcoin As Currency; Taxes As Asset, Instead

http://yro.slashdot.org/story/13/12/16/1012225/norway-rejects-bitcoin-as-currency-taxes-as-assets-instead

by rukshn • 13 years ago

70 72 13 years ago

yro.slashdot.org

sfrechtling• 13 years ago

I'm no economist, but isn't that congruent with how similar things like Gold are treated?

dualogy• 13 years ago

Absolutely, in most parts of the world, these days.

Essentially, it comes down to two things -- what are taxes paid in (they don't want a 10th of your apples or cattle these days) and what final settlement is enforced by law in contract disputes. Even if you have a contract stating I owe you 4 pork bellies or chunks of gold or bitcoins, if we end up in a court of law, they'll only enforce settlement in currency.

So yeah this comes as no surprise. People can (depending on jurisdiction and subject to details and scale and taxability etc) by and large "barter" in other media of exchange all they want, especially on a small peer-to-peer scale. Just don't expect too much legal protection / contract enforcement in anything other than legal tender. ;)

runarb6• 13 years ago

The issue here is that Norway adds vat (value added tax) on assets when sold to private citizens. Vat is added to most assets, including gold.

This makes bartering more expensive when bartering with foreigners. For example if a Norwegian where to trade 1000 USD worth of gold for a new pc with someone in the us, the Norwegian would have to pay 1250 USD for the same gold (1000 USD in gold, 250 USD in vat). Same for BitCoin. One will need to pay vat when buying them.

However one can buy 1000 USD in gold coins for 1000 USD because the coins are considered a currency, and thus not subject to vat.

marvin• 13 years ago

Norwegian here. Would you also have to pay VAT on the product itself? I.e. 250USD in VAT on the gold, 250 on the PC? Or is the latter part dropped? Because if this is the case, it doesn't really matter since you need to pay VAT on products you buy from abroad regardless.

walshemj2• 13 years ago

Ah interesting so Norway doesn't follow the same rules on VAT from the EU then as they are part of the European Economic Area.

What is to stop a Norwegian going to an EU state and buying gold there as the EU treats investments such as gold and stocks and shares as exempt from VAT (sales tax)

Cthulhu_• 13 years ago

I don't blame them; you can't buy much with bitcoins, everyone treats it as an asset whose value is entirely determined by the current exchange rate / buy/sell prices, and that exchange rate is so unstable, no sane bank would want to offer services for it.

VMG• 13 years ago

It's very unwise to categorize at this early stage of development.

Artificially restricting the use as a currency because it doesn't work as a currency at the moment makes it a self-fulfilling prophecy.

Just imagine how sensible strong internet regulations would have been in 1992

salient• 13 years ago

Exactly. If they don't really know what it is, then they should've left it alone for now.

Millennium• 13 years ago

Perhaps, but I don't see any way around it: you've got to call it something. At the moment, bitcoin is a lot more like bullion than currency: it's possible to store and exchange raw value with it, but except in a very few cases, you're not able to walk into a store and buy something.

Laws can be changed. If Bitcoin starts acting more like a currency, then the laws can be changed to suit. Right now, it is not very currency-like, and that is unlikely to change very much in the next five years or so, and so treating it as one doesn't make a lot of sense.

kaonashi2• 13 years ago

It's not a currency, currencies are creatures of debt and credit. Bitcoin is a virtualized commodity, it is neither owed nor lent.

sergiosgc• 13 years ago

Are we linking to Slashdot now? Why not submit a link to the original article? (http://bitcoinsalot.com/?p=8)

Anderkent• 13 years ago

Better title.

buro9• 13 years ago

The original author doesn't seem to know the difference between Norway and Nordic.

gizzlon• 13 years ago

That post a has an info-graphic to explain Norway's economy that does not include Norway =)

gaius• 13 years ago

Government in tax maximizing shocker, film at 11.

panacea• 13 years ago

Being sensible about asset valuation. Libertarian scorn at dawn.

GoldfishCRM• 13 years ago

As I understand it bitcoin will be treated like a stock. Which means that you can use the loses you made on bitcoin and balance then agains your wins=) Make sense since the bitcoin fluxiate so mush right now.

runarb6• 13 years ago

No. As I understand it, BitCoin will be treated like a physical asset. For example the same as a gold bar.

In Norway assets are subjected to value added tax, but currencies are not. This makes bartering problematic. For example a 1 oz gold bar will cost about 10000 NOK in Norway (8000 NOK for the gold, and 2000 NOK in vat).

But a 1 oz gold coin will only cost 8000 NOK because the coins are considered a currency, and thus not subject to vat. If you are going to barter 1 oz of gold for something it is thus better to use a gold coin, then a gold bar.

tim333• 13 years ago

In the UK you pay capital gains tax on buying and selling anything pretty much including regular currencies, bitcoin or stocks. I imaging most countries are similar.

nemoniac• 13 years ago

Why would you imagine that?

Here in the Netherlands there is no tax on capital gains.

dschiptsov• 13 years ago

Why, it is an asset. Virtual asset. It is possible to use the technology to make payments, but you see, everyone longs it, and the price drifts downward slowly on almost no volume.

Edit: if something looks like an asset, being traded like an asset and has a bubble like an asset..

hmottestad2• 13 years ago

This is actually rather funny, a professor from the law department said to the media that bitcoins are treated as two different things. First as a physical product and given 25% VAT when bought, then as a financial instrument when you sell it because you have to pay taxes on anything you earn (you can also get a tax deduction if you loose money when you sell it).

PeterisP2• 13 years ago

How is that 'treating as a financial instrument' ? If you earn money on resale, then it's taxed, no matter if it's a piano, a house, a bar of gold or a virtual coin.

hmottestad2• 13 years ago

In Norway when i private person sells their jewellery and makes a profit they don't have to pay taxes on that profit. Same way that they can't reduce their taxes because they lost money when they sold their jewellery. Same for house (if owned for >1year), and car, and boat, and all other physical things.

Expez• 13 years ago

The title is pretty misleading. Even if they wanted to the tax authorities in Norway don't have the authority to determine what is and what isn't a currency. The only thing they've determined, once and for all, is that you have to pay taxes when you profit from trading in bitcoins (like everything else!).

user24• 13 years ago

like everything else!

Is the same true for currency conversions? If I convert my Krone to Dollars and then back again when the exchange rate is more favourable, will I have to pay taxes?

Genuine question, I don't know how forex trades typically work.

yebyen5• 13 years ago

I don't know about Norway, but this great article was posted on HN about US tax implications of Bitcoin once before:

http://www.bitcointax.info/

The main point I understood was that when you deal with bitcoin (and I am not an accountant, and this fellow is not your accountant) there's a "realization" event where your asset is realized into a gain, I think it's called a capital gain, and like selling your business after putting your own capital into it for many years, that is the moment where you owe taxes.

It's not any point of withdrawal, since you might argue "it's not realized, it's just numbers on my screen until it hits my bank account" but this accountant would argue more conservatively that even if you are a US customer of Mt.Gox (and therefore can't get access to your USD without paying a bribe or taking a trip to Japan? I think that was the last story I heard, not claiming firsthand knowledge)...

If you pay $100 for 1BTC and sell it for $1250, and buy 1BTC at $850, you have $1250 of income and $950 of expense to offset.

You will not be able to claim only $400 of income and you may not be able to defer that tax payment (on $1250 minus whatever percent of $950 expenses you can claim against your business' net income.)

This is not exactly how forex works and I believe the US situation wrt. Bitcoin is exactly like the Norway situation given this news, from my limited understanding. Hopefully someone with more background will be able to give a better explanation that actually answers your question, and point out if I'm wrong on something.

dagw• 13 years ago

If I convert my Krone to Dollars and then back again when the exchange rate is more favourable, will I have to pay taxes?

I imagine the answer is yes, I know you have to in Sweden. In Sweden the taxes rules are basically the same whether you trade in forex, stocks or derivatives.

ska• 13 years ago

Generally speaking, yes you do have to do this but there is a waiver for smaller amounts (such as typically would be encountered during a vacation).

cLeEOGPw• 13 years ago

I think this is good, because it will discourage speculation and encourage direct bitcoin trade, since they can't tax that.

exelius4• 13 years ago

I don't understand how Bitcoin is considered a currency in the slightest. Currencies are generally a mere representation of production, not the output of production itself. Let me explain:

If a worker on an assembly line in South Carolina makes a window motor for a car, he is paid in USD. But the USD he is paid is not the output of his labor; the output of his labor is a window motor that is eventually put into a car, that some software engineer may drive on his way to work creating other productive (albeit non-physical) things. It's the economic web.

Bitcoin is an economic dead-end. It takes CPU cycles to make a Bitcoin, and those cycles aren't used for anything else. It is an output of production that has no intrinsic value. Well, that's not ENTIRELY true: Bitcoin has had some fleeting value as a loophole that allows the economy to reclaim some dead weight loss from government regulation, but as those loopholes close, the economic value of Bitcoin diminishes.

Bitcoin is different from other stores of value that behave like currencies (such as gold) because it has no use other than as a store of value. Gold has industrial uses due to its physical and chemical properties, and it is desired in the consumer space as a material to make jewelry out of. But Bitcoin is not an input to production: its sole purpose and use is as a store of value. The price of Bitcoin will never stabilize for this reason: even if people decide to stop using gold as a store of value, it will continue to have a price floor based on its industrial and consumer use.

Thus my position that Bitcoin is not truly a currency, and the way it's being traded today is much more akin to something like a junk bond. It is an asset because it is limited by the factors of production: it is the exclusive output of production. Currency is different than an asset specifically because there is a central authority that can issue new currency without increasing production. This is necessary because they issue new currency as a reaction to increased production; not the other way around. Currencies like the USD and EUR are stable because the central banks control the conversion rate of those currencies by manipulating the supply of currency.

nc• 13 years ago

Surely paper money has 'production' as well by that logic. Printing, distributing it and preventing counterfeiting all count as 'production' for paper money.

I think you're essentially comparing fiat currencies guaranteed by governments with the fixed supply of Bitcoin that isn't guaranteed to be stable.

That doesn't mean it's not a currency, just an unstable one with fixed supply.

bvk• 13 years ago

Your analogy is inapt. What does the federal reserve produce when it prints a dollar? All that ink and paper, not to mention the increasingly-sophisticated antic-counterfeiting measures, are going into these useless bills. But that's the cost that we pay to sustain our currency. Likewise with the computing power devoted to bitcoin.

You're right that bitcoin completely lacks the properties of gold that give it use outside of being a currency. But is gold's use in electronics really why it became used as a store of value? It has other properties, too: it doesn't corrode, it's quite rare, it can be easily tested for purity. Bitcoin adds to those the ability to be stored on a piece of paper, the ability to be transferred in minutes anywhere, and a difficult-to-obfuscate ledger.

Of course bitcoin loses the price floor granted by its real-world applications, but that doesn't necessarily mean it's as doomed as dogecoin (the world's first internet-meme based cryptocurrency).

nhaehnle• 13 years ago

How you think about the cost of Bitcoin mining strongly depends on what you think the point of Bitcoin is. If you believe that Bitcoin will "take over the world" (metaphorically speaking) purely based on its merit as an electronic payment system, then consider the following:

The difference between the cost of printing paper money and the cost of Bitcoin mining is that, to the best of our knowledge, paper money cannot be made significantly cheaper. However, electronic payment systems can be made significantly cheaper than the cost of Bitcoin mining. We already know how to do that from a technical point of view. The hurdles tend to be of a regulatory nature.

Those regulations have good reasons to exist, but if Bitcoin becomes sufficiently successful and practical simply as an electronic payment system, one of two things will happen: either, regulation will expand to cover Bitcoin to such an extent that Bitcoin loses advantage, or regulation will be reduced. In any case, there will be a market opportunity for non-Bitcoin systems to provide the same functionality, but cheaper.

This would then lead to Bitcoin's decline.

So if you want to argue that such a decline based on market forces will not happen, you have to have an argument that is not based on Bitcoin simply being an electronic payment system.

It seems very popular to argue that the decentralized nature of Bitcoin is what gives it a sufficient edge, and that the properties arising from its decentralized nature are impossible to replicate at a lower cost.

I'm not sure that I buy the line of argument that the decentralized nature causes a sufficient appeal. The public at large doesn't seem to care too much about that kind of thing.

Obviously, it was sufficient to spark the initial uptake of Bitcoin, which seems to have been driven by a mixture of cypherpunks, Libertarian and Austrian ideologues, and drug traders -- all three are groups that care much more about the properties that come with decentralization than the general public. And that initial spark was enough to attract broader interest, which may even be sufficient to carry Bitcoin over into long-term viability in a number of niches (similar to what happened to gold). So, if you personally have skin in the game, your investment may be safe.

kaonashi2• 13 years ago

Most reserves are electronically accounted for and are never printed as cash.

eatitraw• 13 years ago

Bitcoin is an economic dead-end. It takes CPU cycles to make a Bitcoin, and those cycles aren't used for anything else. It is an output of production that has no intrinsic value.

You simply don't understand bitcoin. It is not like Satoshi couldn't come up with "useful" computations with "intrinsic value". He deliberately chose "useless" computations. Why? Because these computations serve very important role in the network: they make fraud(like double-spending) very costly(you have to control 20-30% of network computing power to have even smallest change to execute your attack, and 50%+ to have 100% chance of doing it). Computations having "intrinsic value" == extra incentive to attack.

Also, you miss all the work done by armed guards to protect large piles of cash( https://en.wikipedia.org/wiki/Cash-in-transit ). Do you think they do their work for free? And this is only obvious work. How much does current banking costs to us in total?

Gold has industrial uses due to its physical and chemical properties, and it is desired in the consumer space as a material to make jewelry out of.

Gold was used for thousands of years long before it had some uses in the industry. It has no really special chemical properties: it doesn't react much with other chemical elements (which is actually awesome for a currency: it means it can preserve its value for many many years). Jewelry - maybe, but isn't it so desired for jewelry because it is scarce? You could make jewelry out of less noble metals.

ars_technician• 13 years ago

Jewelry - maybe, but isn't it so desired for jewelry because it is scarce? You could make jewelry out of less noble metals.

You're right, people want it because it's shiny and rare. That makes demand for it. People can and do make jewelry out of other metals, but it's not as "prestigious". You highly underestimate how materialistic the majority of the world is.

exelius4• 13 years ago

I'm speaking in pure economic terms. The production inputs to mining Bitcoin have real market value and thus there is an opportunity cost to mining Bitcoin. I'm not arguing that Bitcoin has no value (because obviously it does if people are willing to trade them for USD) -- just that it has no intrinsic value.

As a physical good, the desirability of gold is simply to own it and stare at it. We can get into a philosophical debate about how you define utility, but for some people the fact that they find the appearance of gold aesthetically pleasing is enough. It's hard to find much aesthetic value in a Bitcoin. If people decided to stop using gold to store value tomorrow, it would still have industrial and asthetic uses. If people decided to stop using Bitcoin to store value tomorrow, the Bitcoins just lose all value.

Current banking is most certainly a product with associated value -- it's just not a currency. Bank checks are issued in USD, wire transfers are denominated in EUR, etc. I'm saying that Bitcoin, as it exists currently, is a digital asset with a high market value but no intrinsic value. It's not really a currency though, because modern currency is almost by definition controlled by a central bank to make it more useful as a transactional tool. If you have regular spikes and drops in the value of the currency, you don't know whether to buy bread on Tuesday or Friday. Everyone starts trying to time the market and you fall into a boom-bust cycle that is excruciatingly painful for individuals who get the timing wrong (see the US economy of the mid-to-late 1800s).

gamblor9563• 13 years ago

Gold was used for thousands of years long before it had some uses in the industry. It has no really special chemical properties: it doesn't react much with other chemical elements

Actually, gold's lack of chemical interaction is one of its prized properties, which is part of why it is so desirable in jewelry, electronics, and medicine/biology--it doesn't corrode or rust or otherwise diminish over time. Few other elements even come close, and most of them are gases.

drcode• 13 years ago

Armored Trucks are a waste of resources- They don't do anything useful, they just need to exist because of a flaw in the dollar bill (it can be physically stolen)

/sarcasm

lectrick5• 13 years ago

Only 5% of the currency in circulation is in cash. The rest is stored as numbers in a database somewhere. There is no "gold backed" currency anymore, which is why we call it Fiat. It is simply a number at this point. So how does your criticism apply only to Bitcoin?

Because this is just like Bitcoin. Except Bitcoin's data is decentralized, not centralized, and the rules for its slow release into circulation are fair (IMHO) and unchangeable (at least without 51+% agreement of the entire node network).

The work miners do has 2 utilities:

1) A computer can reliably estimate how much work was done by the output. This is "proof of work." You unfortunately can't use something like folding@home for this purpose, because the latter requires a human agent deeming what good "work" in that area is, and Bitcoin can't have any centralization and most certainly can't have any human agents involved making decisions about what "worthy work" is or not.

2) The "work" is nearly the same "work" that a brute-force attacker would do if such an attacker were trying to attack the network itself. Rewarding mining therefore incentivizes mining OVER brute-force hacking because the likelihood of a mining reward (given the same computing work) is much higher than the likelihood of a brute-force "reward."

exelius4• 13 years ago

I never implied that currencies should be gold-backed (quite the opposite, in fact!) My point in this area is that one of the big features of a modern fiat currency is the ability of the central authority to react to market changes. This leads to price stability, which IMO is a defining feature of a modern, global currency.

I'm not saying that that Bitcoin was poorly designed or anything; just that there are some big challenges with issuing currency if you don't have a nation-state backing it up. Nation-states have the ability to issue currency by policy, to remove currency from circulation through taxes, and resolve international disputes (with military force, if necessary.) Bitcoin, through its decentralized nature, has none of this.

And before anyone checks in saying that it's impossible to get 51+% of the Bitcoin node network... you don't understand the level of resources that banks can bring to bear if they have the right motivation. I wouldn't be surprised if we see one or more of them collude to take over the Bitcoin cloud and print money for their own purposes. If they could do it with LIBOR, they can do it with Bitcoin. Goldman Sachs has been driving up the price of Aluminum by controlling a significant portion of the global stock and keeping it out of circulation. It's naive to think that these companies couldn't/wouldn't exploit the fact that Bitcoin is almost entirely unregulated: if they can get control of the node network and print money, it's not clear there's anything illegal about it.

crimsonalucard• 13 years ago

Currency in itself can never "produce" anything or generate GDP. It is a tool to facilitate transactions. Mining is just a way to generate and at the same time limit the supply of money. When miners mine, they inflate the money supply by taking value away from others who own bitcoins.

Instead the activity of Mining should be thought of as minting new coins and miners are people trying to get lucky; similar to how someone mining for gold. Remember even the worthless paper dollar needed to start somewhere.

exelius4• 13 years ago

Currency doesn't produce anything. Currency represents production without actually consuming an equal amount of resources to create. In a system like the US, you want your monetary supply to grow at roughly the same rate as economic production. The fed continually adjusts the currency supply through a number of levers to ensure that the value of the currency in circulation tracks inflation (or long-term economic growth.)

Without this ability to adjust on-the-fly, the exchange rate of Bitcoin will continue to be very volatile. There's a reason we don't use gold as the basis of our currency anymore: every time the value of gold rose, waves of people went out looking to dig it out of the ground. They were successful, and suddenly there's a lot more money floating around. But not any more bread, oil or cloth, so a loaf of bread that used to cost $1 now costs $2.

With a fiat currency, you have a store of value that is created by decree, not by the efforts of any individual in the system. So now, if there's an gold rush, the value of gold (denominated in dollars) will rise. People will probably go mine more gold and the value of gold will decrease again, but the value of wheat (as denominated in dollars) will stay more of less stable. If you can take $1 million worth of servers, electricity, etc. and are able to mine $5 million worth of Bitcoin, you get the same effect.

ww520• 13 years ago

Cash, aka currency, is part of the asset class.

lectrick5• 13 years ago

This is a nonevent. In the US, on the advice of my accountant, I have been treating Bitcoin gains (for "sold" BTC) as capital gains for tax reasons for over a year now. I don't think the IRS would have a problem with this.

crb002• 13 years ago

Would you also write off mining servers as a business expense?

sliverstorm• 13 years ago

That's only if he spends more than 2% of his income on mining hardware, right?

alixaxel• 13 years ago

Gold is mined. It's limited. It's an asset.

Bitcoin is mined. It's limited. It's an asset.

Currency is not mined. It's unlimited. It's currency.

Norway Rejects Bitcoin As Currency; Taxes As Asset, Instead

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