Taxation of crypto to crypto exchange

The IRS, when equating crypto assets with assets, determines that disposal income should be reported as capital gains. Yet the very concept of alienation is widely debated by market experts.

From a legal point of view, it is alleged that there is no legal basis to consider the exchange as an assignment. However, such an interpretation is not supported by Law No. 7713/88, which advocates:

For the calculation of the capital gain, transactions which involve the transfer, for any reason whatsoever, of assets or rights or the transfer or promise of transfer of rights to their acquisition, such as those carried out by purchase- sale, swapadjudication, expropriation, payment in kind, donation, power of attorney, promise to purchase and sell, transfer of rights or promise to transfer rights and related contracts.

We can therefore conclude that the federal tax authorities’ understanding of crypto-assets as property and rights has a legal basis and, therefore, it is reasonable that exchanges should be considered a type of disposition, subject to taxation whenever that it exceeds the limit of 35,000 reais. .

This understanding was reinforced by the Federal Revenue Service of Brazil with the publications of the consultation solution Cosit nº 214, in December 2021, and Cosit nº 6008, of May 19, 2022, in which it reiterated that capital gains from trading with crypto should be taxed each time they exceed the exemption cap.

Normative Instruction No. 2058/2021, in turn, had a binding effect on this agreement within the framework of the activities of the RFB.

But what is the binding effect? It is when compliance with a certain rule of law becomes mandatory. Translate: the consultation produced a clear answer, and as such it should be applied.

First, we must understand that the federal IRS responded to the petition in accordance with applicable law, in a manner In the strict sense, or, if you prefer, “to the letter”. It was limited to the strict meaning of the text of the law, without modifying it, also because it would escape its powers. Understand that income simply follows in a straight line what is in the law.

On the basis of what arguments is the position of the RFB called into question?

Specialists understand that the exchange transaction does not produce a change in equity, and therefore infer that there is no income, income or gain of any kind. They are of the view that the levy of tax should only occur when the capital gain results from the conversion of crypto-assets into fiat currency.

The concrete fact is that the interpretation of Income is perfectly applicable, and will only lose its effect if a specific legal framework emerges, with innovative criteria, for the taxation of this asset class. Until then, taxpayers should be aware that the IRS, in exercising its oversight role, will effectively consider the crypto-to-crypto exchange a taxable event whether or not there has been a currency conversion. trustee.

About the Author

Text written by Ana Paula Rabello and originally published on the Declare Bitcoin blog. Rabello is an accountant, legal expert and income tax specialist.

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