Relevant Period:This article discusses the National Tax Agency's material dated November 21, 2018 and its subsequent revision history. Please consult the latest edition for current treatment.

Where This Edition Fits

On November 21, 2018, the National Tax Agency published “Tax Treatment of Cryptocurrencies (Information).” The historical index on the NTA website links to the PDF under this title. It contains 21 questions numbered consecutively from 1 to 21.

The first edition, released a year earlier on December 1, 2017, was titled “Methods of Calculating Income from Cryptocurrencies and Related Matters (Information)” and contained nine questions. The first edition is covered in our article on the December 2017 edition. Both the title and the number of questions changed in this second edition.

Overview

Why Did “Methods of Calculating Income” Become “Tax Treatment”?

The first edition's nine questions covered sales, payments, exchanges, acquisition cost when making additional purchases, forks, mining, income classification, offsetting losses, and margin transactions. Each asked how income should be calculated. The title “Methods of Calculating Income and Related Matters” directly described its contents.

The 12 questions added in this edition differ in character. They cover acquisition by inheritance or gift (Question 15) and valuation (Question 16), payment of wages and other amounts in cryptocurrency (Question 17), consumption tax on transfers (Question 18), whether to include cryptocurrency in a statement of assets and liabilities (Question 19) and how to report its value (Question 20), and whether to include it in a statement of foreign assets (Question 21). These concern taxes other than income tax and procedures other than tax returns.

Consumption tax was an issue already settled in legislation. The consumption taxation section of the Outline of the FY2017 Tax Reform (Cabinet decision of December 22, 2016) stated that transfers of cryptocurrencies defined in the Payment Services Act would be exempt from consumption tax. This was to apply to transfers of assets and other transactions and taxable purchases made domestically by businesses on or after July 1, 2017. It was already in force when the first edition was published in December 2017. Nevertheless, this was the first FAQ edition to include a question on it. The exemption itself is explained in Selling crypto assets does not incur consumption tax We are dealing with that.

The income tax section also added questions on necessary expenses (Question 8) and cases where purchase or sale prices are unknown (Question 12). Its scope had expanded enough to require the broader title “Tax Treatment.”

What Did Annual Transaction Reports Change?

Question 9, “Calculating Cryptocurrency Income Using Annual Transaction Reports,” and Question 10, “Contents of Annual Transaction Reports,” first appeared in this edition. None of the first edition's nine questions assumed the use of documents issued to taxpayers by exchanges.

The first edition calculated acquisition costs for additional purchases using specific transaction examples. The heading of Question 4, “Acquisition Cost of Cryptocurrency,” remained unchanged in this edition. A separate Question 9 was added to explain how to calculate income using annual transaction reports.

Another feature of this edition is that Question 10, “Contents of Annual Transaction Reports,” stands alone. The need for a question explaining what the document contains indicates a shift toward a calculation process beginning with reading that document.

It is also worth considering the simultaneous addition of Question 12, “Where the Purchase or Sale Price of Cryptocurrency Is Unknown.” Once a calculation process based on a report is provided, the question inevitably arises of what to do when that report is unavailable.

Question 11, “Changing the Acquisition Cost Calculation Method,” Did Not Yet Concern a Notification

The heading of Question 11 in this edition is “Changing the Method of Calculating Cryptocurrency Acquisition Cost.” In the next edition, dated December 20, 2019, this position is occupied by two questions: Question 11, “Notification of the Cryptocurrency Valuation Method,” and Question 12, “Procedure for Changing the Cryptocurrency Valuation Method.” “Calculation method” becomes “valuation method,” and the procedural term “notification” appears in the heading.

This difference corresponds to legislative developments. The Outline of the FY2019 Tax Reform was approved by the Cabinet on December 21, 2018. Its individual income taxation section provides that, for cryptocurrencies held by individuals, the year-end value forming the basis for calculating necessary expenses is to be the acquisition cost calculated under the moving-average or total-average method, together with other necessary measures.

This edition was published on November 21, 2018, one month before the Cabinet approved that outline. Its Question 11 therefore predates the incorporation of the moving-average and total-average valuation methods into legislation, and is not written on the basis of a notification procedure. The difference between the two methods is explained in The Total-Average and Moving-Average Methods We are dealing with that.

Why Was There Still No Corporation Tax Chapter?

None of this edition's six chapters is dedicated to corporation tax. Questions concerning corporations appear only in Questions 1 through 6 under matters common to income tax and corporation tax. They concern sales, purchases of goods, cryptocurrency exchanges, acquisition cost, acquisition through forks, and acquisition through mining.

A dedicated corporation tax chapter first appears in the next edition, dated December 20, 2019. It contains six questions, numbered 20 through 25, covering the timing of recognition of disposal gains and losses, disposal cost, year-end market value valuation, and three questions concerning cryptocurrency credit transactions.

These topics correspond to the corporate taxation section of the Outline of the FY2019 Tax Reform. The outline provides for introducing market value valuation and other measures for cryptocurrencies for corporation tax purposes. It lists market value valuation of cryptocurrencies with active markets, recognition of disposal gains and losses in the fiscal year in which the disposal contract is concluded, cost valuation using the moving-average or total-average method, and recognition of deemed settlement gains and losses on outstanding credit transactions and similar transactions at fiscal year-end. These measures were to apply to corporation tax for fiscal years ending on or after April 1, 2019.

When this edition was released, the Cabinet had not yet approved that outline. It predates the FY2019 reform that expressly introduced cryptocurrency-specific year-end market value valuation and related rules. This does not mean that general corporation tax provisions did not exist. The word “cryptocurrency” does not appear even once in the Outline of the FY2018 Tax Reform. There was a gap in the reform coverage. For the overall history, see our overview of the FAQ revision history, and for the contents of the next edition, see our article on the December 2019 edition summarizing in

Points that require care in practice

• This edition was prepared with 2018 tax returns in mind. Before applying it to your current transactions, check for amendments introduced after its publication.
• Question 11's “Changing the Acquisition Cost Calculation Method” differs in both terminology and procedure from “Notification of the Valuation Method” and “Procedure for Changing the Valuation Method” in the December 2019 and later editions. Do not determine whether a notification is required solely from an older edition.
• Annual transaction reports are documents issued by exchanges. Reports may be unavailable for transactions outside domestic exchanges or for periods before this edition's publication. Question 12, “Where the Purchase or Sale Price Is Unknown,” addresses such circumstances.
• Acquisition by inheritance or gift (Questions 15 and 16) concerns inheritance and gift taxes, rather than income tax. It must be considered separately from income calculation. For treatment after receipt, see When Cryptoassets Are Received by Inheritance or Gift summarizing in
• The obligation to submit statements of assets and liabilities and statements of foreign assets varies by individual. Questions 19 through 21 explain whether and how to report cryptocurrency for those required to submit them.
• This edition uses the term “virtual currency.” It is replaced by “cryptoasset” from the December 18, 2020 edition, so the search term varies by edition even where it refers to the same asset.

Sources

• National Tax Agency, “Tax Treatment of Cryptocurrencies (Information)” (November 21, 2018)PDF
• National Tax Agency: Archived Information on Crypto-Assets List