On 30 March, a new draft law on the use of crypto was presented in the Senate on the initiative of Senator Elena Botto (M5S). It is entitled “Tax provisions on virtual currencies and regulation of anti-money laundering obligations”.
A new Italian draft law for the crypto world
The bill has significant similarities with the one presented to the House by Davide Zanichelli (party companion of Senator Botto), currently assigned to the Finance Committee of the House.
This bill proposes essentially all the qualifying aspects of the Zanichelli proposal:
- the introduction of a mathematical cryptographic unit (which would constitute the common denominator of any cryptographic asset);
- the use of a sworn expert’s report to crystallize the value of virtual currencies;
- the subjection of capital gains (in case of exceeding the fateful threshold of €51,645.69 of countervalue in virtual currencies held in wallets) to a substitute tax;
- a series of presumptive mechanisms, almost entirely identical to those present in the bill pending in the House.
Here too, like in the Zanichelli proposal, we finally find explicitly stated the principle that conversion operations from virtual currency to another virtual currency are irrelevant from a tax point of view and do not generate taxable capital gains.
On the subject of monitoring, i.e. the obligations to declare virtual currencies in the famous (or infamous) RW form of the income tax return, both texts provide for an exemption from the obligation of declaration if the counter-value of the virtual currencies held does not exceed the threshold of 15,000 euro.
However, there’s no mention of the age-old question of the conditions for the emergence of the obligation of tax declaration: as is known, the Italian tax authorities initially stated that cryptocurrencies should be considered as foreign assets only if the private keys are held abroad (in the case of custodial wallets).
More recently, it has changed this position (though in a completely unreasonable and unjustified manner), stating that cryptocurrencies should always be considered as foreign assets and therefore, always subject to the obligation to report, regardless of whether the private keys are held in Italy or abroad.
The definition of virtual currency and related services
Another passage of interest is a readjustment on the definition of virtual currencies and providers of services related to the use of virtual currencies. In the first case, the reference to investment purposes is removed, while in the second case, the perimeter of the identification of the entities that actually carry out intermediation and exchange activities is better defined. This would make the Italian regulatory framework more consistent with the provisions dictated at European level.
There are few and marginal differences scattered here and there, a different organization of the subjects, but with almost identical wording.
The most significant difference lies in the rates of the substitute tax. In the Zanichelli proposal, the rate is fixed at 4% of the capital gain accrued, regardless of its size. In the Botto bill, progressive rates are envisaged: 8% on capital gains up to 500,000 euros, 9% for capital gains in excess of 500,000 euros, up to one million euros and 10% for capital gains in excess of one million euros.
There is no doubt that the text of the Botto proposal, like that of the Zanichelli proposal, contains aspects that constitute a step forward, compared to the absolute nothingness that currently prevails on the fiscal side of the cryptocurrencies and crypto assets.
The idea of using expertise to define the countervalue basis of assets for which there are no official lists is valid and very practical. The fact that the issue of the irrelevance of crypto to crypto conversion for tax purposes has been disposed of once and for all is very positive.
However, there is still a lack of general principles for other crypto assets and new activities that are being created, first and foremost NFTs, which continue to float in a limbo of lack of definition, or the many activities that are spreading in the world of decentralized finance. Both proposals have much room for improvement.
The fate of the Botto bill
Yet this is not the real point. The Zanichelli bill, which has been assigned to the Finance Committee of the Chamber of Deputies, lies with little hope of being scheduled for the end of the legislature (now approaching). With local elections in the middle, the Ukraine crisis and various emergencies have resulted in a flood of decree-laws crowding the chambers for their approval. There is little or no hope that this bill will be taken out of the drawer, discussed and approved in time.
Why should the Botto bill, presented at the end of March (and therefore several months later) have a better fate? It is quite clear that even the proposal put forward in the Senate runs the risk of running out of steam and not seeing the light before the end of the legislature.
From a “tactical” point of view, so to speak, it might have made more sense to find a way to include the tax treatment of virtual currencies and crypto assets within the tax reform package delegated to the government, possibly as early as the approval of the enabling act.
The fact that this did not happen is a clear and worrying indication of the substantial problem underlying the glaring legislative shortcomings in this area, namely, a widespread lack of knowledge of the phenomenon. Its perception as a phenomenon associated with forms of illegal economy, of a purely speculative – financial nature and in any case devoid of economic and productive substance, and so on.
All this fuels a form of disinterest on the part of legislators, both at parliamentary and governmental level on the other hand, and says a lot about the superficiality and lack of foresight of the country’s ruling class.
The contingent media prominence and topicality of the role played by cryptocurrencies in the Russian-Ukrainian crisis, on the other hand, should also attract the interest of even the most inattentive observer, with respect to assets, instruments and technologies applied to disintermediated forms of finance. Another element that should make a responsible legislator reflect is that, in spite of a certain type of narrative, cryptocurrencies and crypto assets have, over time, built up a real productive ecosystem, made up of companies founded on high-value technological skills, for a turnover that last November was estimated at around $3 trillion.
From this perspective, perhaps the merit of an initiative such as the presentation of a bill that has little chance of being taken into consideration, is precisely that of giving an impetus to the political and legislative debate on cryptocurrencies and crypto assets in general.
However, what is really decisive, in order to start a process that leads to the adoption of balanced, proportionate and adequate rules to the specificity of the sector, which are not unnecessarily punitive, is that there is an awareness of the fact that what is being discussed is an opportunity that the Italian country cannot afford the luxury of losing, leaving others to position themselves first and better.
This is an opportunity for the creation of wealth, collective effects and highly qualified jobs, and for attracting investment from abroad.
Legislators and regulators obviously play a key role in this game. They have the power to build a system that is safe for users and not hostile to operators.
Will Italy manage not to lose this game?