Inspection on Taxation of Cryptocurrency Transactions

Similarly to the centralized audits of airbnb providers, the tax authorities newly concentrate also on taxpayers who had income resulting from transactions with cryptocurrencies.

The tax authority issued several statements how the taxation of cryptocurrencies should be addressed over the past few years so at the moment it is hardly advisable that the related income was not declared within the annual tax returns.

Below I translated the official press release from the tax authority office:

The Tax Control and Analytics Section of the General Financial Directorate has analysed the available data for a group of selected taxpayers conducting transactions with cryptocurrencies for the tax years 2019 and 2020. In processing the data and information obtained in accordance with the applicable legislation, a set of taxpayers was detected that did not properly declare or remit tax on income arising from these transactions.

The difference between the detected income and the data claimed by the taxpayers in the personal or corporate income tax returns of these entities (including cases in which no tax returns were filed at all) amounted to hundreds of millions of CZK in aggregate.

The tax administration proceeded in a way that minimised the burden on tax subjects, allowing them to declare their tax liability additionally. Based on the tax administrator’s requests, some entities also filed tax returns for periods that were not examined at that stage.

In other cases, the findings made by the tax administrator have been the subject of a tax assessment, so far in 80% of the tax entities audited, and have also led to the identification of other entities suspected of not declaring income from cryptocurrency trading. For example, cases of collective investment of individuals in cryptocurrencies were also detected, where the funds were paid to the bank account of the representative of the investing persons, who then transferred them according to the contract to the accounts of individual investors, most of whom did not fulfil their obligation to declare and pay tax.

The area of cryptocurrency transactions will continue to be subject to the tax administrator’s control activities. On the basis of domestic and international cooperation in the field of taxation, information is exchanged, for example, with the authorities supervising the regulation in the field of anti-money laundering or with foreign tax administrations, which in the course of their activities detect entities that receive income in connection with cryptocurrencies and are residents of the Czech Republic. Cryptocurrency exchanges, crypto exchanges, entities operating cryptocurrency mining and providers of selected types of services specifically related to cryptocurrencies are also of interest.

At the same time, the tax administration provides relevant information to the tax public in order to familiarise taxpayers with the issue in the context of related tax obligations. “Our goal is to ensure that taxpayers are able to fulfil their obligations properly and voluntarily without the need for intervention by the control units of the tax authorities,” adds Jan Ronovský, Deputy Director General of the Tax Administration. In the matter of taxation of income from cryptocurrencies, the Financial Administration is also actively creating directly usable materials on its website.