Denmark’s Tax Law Council proposes taxing unrealized crypto gains

Denmark’s Tax Law Council has recommended the introduction of a legislative bill aimed at taxing unrealized gains and losses on cryptocurrency assets, a move that could significantly reshape the landscape for Danish crypto investors.

The council’s proposal is part of a broader trend among global jurisdictions seeking to tighten regulations and ensure equitable tax treatment across various asset classes.

Denmark Tax Law Council’s report

In a detailed 93-page report, the council outlined its rationale for the new taxation framework, emphasizing the need to eliminate asymmetry in the current tax system, which has left many investors facing unfair taxation under traditional capital gains tax models.

The recommendations suggest that all crypto assets should be subjected to a consistent set of rules to simplify the taxation process and enhance transparency.

The council deliberated on three potential taxation models: capital gains tax, warehouse taxation, and inventory taxation.

Ultimately, it appears to favour the inventory taxation model, which would treat an investor’s entire crypto portfolio as a single “inventory” to be taxed annually, irrespective of whether the assets have been sold.

This model aims to impose continuous taxation, meaning investors would be liable for taxes based on annual fluctuations in the value of their holdings, rather than only upon the sale of assets.

Tax Minister Rasmus Stoklund acknowledged the complexities surrounding crypto asset taxation, particularly given their decentralized nature and lack of centralized regulatory oversight.

The proposed tax on unrealized gains could amount to around 42%, which would apply not just to newly acquired assets but potentially to those held since the inception of Bitcoin in January 2009.

This broad application has sparked concerns among crypto advocates, who view it as a significant deterrent to investment in digital currencies.

The council also highlighted the need for enhanced reporting requirements for crypto service providers, such as exchanges and payment firms.

These providers would be mandated to share transaction information with authorities in a manner accessible to all EU nations, facilitating greater oversight and compliance.

The proposed legislative bill expected in early 2025

The legislative proposal is expected to be introduced in early 2025, with the new tax regulations not anticipated to take effect before January 1, 2026.

However, it is crucial to note that these recommendations are not yet law; they require evaluation and approval from the Danish Parliament before implementation.

This proposed taxation framework reflects a growing global consensus on the need for clearer, more appropriate rules governing the treatment of cryptocurrencies.

As jurisdictions like Denmark move forward with regulatory measures, investors and crypto market participants must stay informed and adapt to the evolving tax landscape.

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