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Last December, the government withdrew the “bet” amendment from the 2023 finance bill, leaving French taxpayers in great limbo.
© Waltio/Capital
– Pierre Morizot, CEO and co-founder of Waltio
The “staking” amendment originally planned in PLF 2023 aimed to confirm the taxation of passive income from cryptocurrencies under Non-Commercial Profits (BNC), as is already the case with income from mining of cryptoassets. It was eventually removed. Why this change of heart? While this amendment would allow for clarification in the law, it did not address all the issues raised by the choice of the French tax regime in 2018 linked to cryptocurrency profits.
The cryptocurrency taxation regime in France is based on a simple principle: the fiscal neutrality of the digital space, i.e. the absence of declaration and taxation of exchanges between digital assets, as well as taxation upon conversion against fiat currency (or a product or service), set at 30%: famous flat tax. If this choice in 2018 appeared innovative and rather favorable for the development of the cryptoecosystem in France, it is clear that France was not followed by other countries of the world. The constitutive principle of the regime seems to be under attack from all sides, making the current tax regime unsuitable for new services and innovations in cryptocurrencies.
The rapid development of services and new profiles of cryptocurrencies forces us to question what a digital asset is and what defines this term as a type of cryptocurrency. Take the example of NFTs: today there is uncertainty about the legal qualification of an NFT and whether or not it is included in the definition of a digital asset. Hence, there is a doubt whether its purchase and sale for digital assets is taxable or not under the digital asset capital gains tax regime.
The end of fiscal neutrality?
Apart from the NFT use case, the principle does not take into account decentralized finance and its possibilities of income from loans, nor income from tokenized real estate, which should be declared under BNC (Non-Commercial Profits). as they are collected, saving the income in cryptocurrency as they are collected.
Discussions about the introduction of staking will continue in 2024, but a trend is emerging: the questioning of the fiscal neutrality of the digital space. The Court of Auditors recently proposed increased oversight, increased regulation and taxation of transactions between stablecoins and cryptocurrencies. The JONUM bill, intended in particular to regulate digital tokens issued in connection with video games, also proposes to tax the underlying asset rather than the digital asset itself.
Tax reform in 2024 would be essential to remove regulatory uncertainty and encourage cryptocurrency investors to comply with their tax obligations. According to Chainalysis, the French generated 11 billion euros in earnings from cryptocurrencies in 2021, and 8 million French people now own digital assets. A significant share that cannot be hidden.
While France has established itself as a pioneer in creating a cryptocurrency-specific tax regime, it risks being constrained by European and international regulations if it does not consider revising the tax regime.
A few months before the next Bitcoin halving and potentially with another bullish cycle in digital asset prices looming, it becomes imperative to anticipate the gradual erosion of fiscal neutrality in the French digital space. The adjustment of this tax regime for natural persons and the introduction of incentive measures for saving in digital assets would make it possible to compensate for the loss of attractiveness of the original system.