The legislators’ desks are full of drafts and bills that will never see the light of day. Some of them might make a difference, others will hardly be missed. This also applies to the cryptocurrency sector.
The European proposal
The European legislator, for example, seems to have closed on the proposal put forward in Parliament to introduce into the MiCA (Market in Crypto Asset Regulation) limitations on the use of blockchains based on the so-called Proof of Work.
This is the latest frontier in the war on cryptocurrencies: the pseudo-environmentalist one. A restrictive measure is justified by arguments of excessive energy consumption.
It is pointless to repeat here the many reasons that demonstrate the weakness of the argument and the obvious disproportion of such restrictions compared to the impact that would be generated on what is now a large economic sector, and one that is impossible to ignore.
By now, that proposal has been shelved and it is unlikely to be revived.
The proposed Italian law on cryptocurrencies
As far as the Italian legislator is concerned, however, there is a bill signed by the Honourable Zanichelli (M5S), which would make a lot of sense to bring to light and get it out from the depths of the parliamentary process.
The bill is entitled “Provisions in matters of tax treatment of the operations in virtual currencies as well as discipline of the anti-money laundering obligations”.
It is certainly a bill that can be perfected and improved, but there are several positive points, which meet the need to fill the current regulatory vacuum by creating a system of taxation dedicated to cryptocurrencies, able to take into account the technological peculiarities of this type of asset.
One must start somewhere.
We shall briefly review this bill.
The first positive aspect lies in the fact that the tax levy is configured as a substitute tax, with a rate of 4%, on the accrued capital gains: a reasonable tax burden, which takes into account the particular nature of cryptocurrencies (or at least, of the majority of them) and in some way recognizes them for tax purposes.
Another positive element is the introduction of a mechanism for determining the conversion value, for tax purposes, through an expert opinion: It contributes to give objectivity and facilitates the taxpayer, in a field in which it is difficult to reconstruct even historically the countervalue of a virtual currency, due to the total deregulation of the exchange platforms, and the consequent questionability of the data that can be obtained, lacking an official price list (which is one of the many reasons why it is not feasible to equate virtual currencies to foreign currencies, on which instead the position of our tax authorities is clear and firm).
This provision also has the undoubted advantage of protecting the taxpayer from the more or less arbitrary application of punitive presumptive mechanisms, which the Italian tax authorities often like to use.
The provision stating that only payment or conversion transactions in euros or foreign currencies are taken into account for the purposes of determining capital gains also makes a great deal of sense.
This kind of provision would finally clear the field of the doubt that transactions involving the conversion from virtual currency to another virtual currency can be considered among those generating taxable capital gains.
What are the elements that could beneficially be implemented?
One of these could be the framework of definitions: in the draft law, there is an effort to create a homogeneous category embracing all crypto-assets, through the introduction of what is defined as “mathematical unit”, i.e. ‘”the smallest mathematical cryptographic unit, static or dynamic, capable of representing rights, with autonomous circulation”.
This category would be general in scope, and would constitute the genus of which virtual currencies would only be a species.
However, this is not enough to provide a clear framework for those crypto-assets whose use is already widespread (such as tokens issued in the context of ICOs or NFTs) and those which, with the rapid evolution of the market and services, are becoming established or will become established in the future.
Currently, the Italian tax authorities tend to include this type of asset indiscriminately in the sphere of application of the tax provisions that they claim should apply to virtual currencies (on the basis of the well-known and questionable theorem of equating foreign currencies), even when they are instruments that respond to functions that are objectively different and very distant from those typical of virtual currencies.
Think of NFTs or of the distinction between utility tokens and security tokens: a law lacking any reference to the tax regime applicable to the various categories of assets, at least in the form of a distinguishing criterion, would be a missed opportunity and above all would leave the sector at the mercy of arbitrary interpretations that it is time to clearly overcome.
In this perspective, the existence of a general category, such as the mathematical unit drawn in the bill, serves little or no purpose.
And again, there is the issue of fiscal monitoring: the bill establishes rules that are, for the most part, a ratification of the current interpretations of the Italian tax authorities (hence, the famous €15,000 thresholds) but does not spend a word on clarifying in which cases a virtual currency can be considered to be held abroad and when not.
This contributes to the issue that has never really been explained, whereby the tax authorities assume that the holding of cryptocurrencies (and therefore of any other crypto asset) is in itself a foreign financial asset that must be declared.
With respect to this issue, it would have been useful if the legislator had taken a position on the issue of the location of private keys (in Italy or abroad), which seems to be the only reasonable criterion to establish where such assets can be regarded as held.
In conclusion, this proposed law constitutes a basis on which a constructive debate could begin in order to put together a set of effective and satisfactory provisions.
The real problem is that there is no such debate at present.
The debate that does not exist
The bill was presented on 24 May 2021, assigned to the VI Commission of Finance, in referendum, on 16 November 2021, but since then, no further parliamentary activity has been scheduled.
Consequently, for the time being, the topic remains unaddressed, despite the activism of Mr Zanichelli.
This is a worrying sign that there is no sensitivity or awareness within the Italian legislative assembly of the fact that crypto assets are a sector in which economic activities are growing exponentially on a global scale, not only in the purely financial sphere, but also in the production sphere: from hardware production, to communication and marketing, to consulting and IT development services, and so on, for millions of jobs.
And it seems that no one in parliament notices the role that cryptocurrencies also play in crucial geopolitical events.
As in the case of the war in Ukraine, in which the use of cryptocurrencies, at a time when conventional banking and financial circuits are being interfered with, can be a game changer.
In short, does anyone in the political arena want to begin to understand that crypto assets are no longer a game just for a few nerds, as they might have been a decade ago?