IRPF and cryptocurrencies: what to do with cryptocurrencies during IRPF season?

These are the incomes obtained when cryptocurrencies are related to the development of professional activity (carrying out trading or buying and selling cryptocurrencies for third parties, for example). In these cases, the entrepreneur or professional, who will be the taxpayer, will be obliged to keep certain accounting and records of income and expenses.

In this category, we should highlight the activity of “cryptocurrency mining”. For the purposes of the IRPF, the income obtained from cryptocurrency mining must be classified as income from economic activities. In this regard, the binding consultation V2843-21 from the Directorate General of Taxes classifies mining as an economic activity, thus “the provision of services to third parties, whether buying and selling or mining cryptocurrencies, constitutes an economic activity within the terms of article 78.1 of the TRLRHL”.

In this category would be all income, positive or negative, obtained through the transfer of cryptocurrencies. These transfers include buying and selling, which involves the exchange of cryptocurrencies for fiat currency, and swaps, since according to the Directorate General of Taxes V1149-18, cryptocurrencies are intangible assets and, therefore, their exchange must be treated as a swap.

In these cases, the gain or loss in each transfer or exchange of cryptocurrencies must be determined, whether the consideration is in euros, another currency, or any digital currency, taking into account the acquisition value and the transfer value of each operation (binding consultation V1948-21). Furthermore, according to the binding consultation V1604-18 and article 35.1 LIRPF, commissions charged by exchange houses or “exchanges” can be included in the calculation of the gain or loss.

These are the returns derived, directly or indirectly, from cryptocurrencies owned by the taxpayer and not related to their economic activities. This category would include gains obtained from the deposit of cryptocurrencies or through the process of “staking”. As stated in the binding consultation V2679-21 in “staking requires validators who lock their coins in deposits so that they can be randomly selected by the protocol, at specific intervals, to create a block, which generates profitability for them. In this investment modality, cryptocurrency holders use their own digital coins to update the blockchain and in return, receive remuneration.” Therefore, in this case, the gain obtained by the taxpayer during the fiscal year must be accounted for purposes of the IRPF, not from the transfer of cryptocurrencies, but from the income obtained from them.

This category includes special cases of cryptocurrency acquisition. Some of these cases are:

1. Hard Fork. It involves a protocol modification that forces holders of certain cryptocurrencies to use new software, due to a code error or because of the duplication of the ledger caused by the lack of consensus among nodes, for example. This can result in two types of blockchains (the original and the new one), which leads to different coins. In such cases, the holder of a certain cryptocurrency receives or is allocated a certain number of the new ones.
   This change should not generate tax consequences, since it is a mere allocation, without capital gain or loss, but the value of the coin at this moment will be taken into account to calculate a future gain or loss. However, its subsequent transfer will produce tax consequences, as we have seen previously.
2. Airdrops. These are mainly promotional campaigns that grant interested parties some cryptocurrencies or tokens, with a clear economic and commercial objective. Logically, this implies a capital gain that must be declared and taxed.

Operations with cryptocurrencies, just like the stock market, can generate significant profits, but also losses. This negative balance can be offset with the positive balance obtained from other operations. Just as we have to pay taxes on the profits made, losses can be offset to reduce the taxable base and pay less. You can offset these losses over a period of four years.

We live in a world full of keys, and cryptocurrency keys are no exception, both the public and private keys of the ledger record, as well as the keys to our wallet. But as with our credit cards or our email, these keys can be lost or stolen, with the problem that, in the case of crypto, this will mean a monetary loss and, consequently, a patrimonial loss.

In this regard, the loss or theft must be proven, as well as the amount of the loss, in order to declare the corresponding loss to the Tax Authorities. This could be proven with any kind of evidence accepted by law, although a police report is not enough in the case of theft or robbery; the criminal act must be proven.

Income tax (IRPF) varies according to the scale of gains and, furthermore, will depend on the origin of said capital gain, according to the four categories mentioned above.

1. Gains and losses obtained from transfer and capital income are taxed (categories 2 and 3) according to the following scale:

• From 0 to 6,000 euros, at 19%.
• From 6,000 to 50,000 euros, at 21%.
• From 50,000 to 200,000 euros at 23%.
• More than 200,000 euros, at 26%.

2. Income derived from economic activity and those obtained without transfer (categories 1 and 4) are taxed in the general part of the Income Tax: taxed between 18% and 47% depending on the total amount to be declared.