Denmark could consider taxing unrealized crypto gains: report

The Tax Law Council in Denmark has proposed introducing a bill to tax unrealized gains and losses on crypto assets under the inventory taxation model.

According to the announcement made on October 23, citing Danish Tax Minister Rasmus Stoklund, the proposed bill aims to address unfair taxation of crypto investors and simplify tax rules for crypto assets.

The bill proposes a uniform tax rate of up to 42% for gains from crypto assets that would be classified as capital income.

In the report, the council explored three potential taxation frameworks for cryptoassets: capital gains tax, warehouse taxation and inventory taxation.

The council recommended the inventory model as an approach of last resort, as it streamlines the process for frequent traders and aligns crypto taxation with other financial instruments such as stocks and bonds.

What stands out about this model is that it taxes both unrealized gains and losses at regular intervals, regardless of whether assets are sold or not.

This continued taxation can level the playing field by eliminating timing strategies that some investors can use to their advantage. However, it also brings with it potential problems that some investors may not like, such as taxation on assets that have not yet been liquidated.

Additionally, the proposed bill would require crypto companies to report user identities and detailed transaction data to tax authorities. It will also be compatible with European Union-wide regulations such as MiCA and DAC8 to ensure consistent oversight, facilitate cross-border cooperation and strengthen the ability of all member states to effectively monitor and tax crypto transactions.

However, according to Stoklund, the bill will not be presented to the parliament until early 2025 and the proposed earliest implementation date will be determined as January 1, 2026 and will be evaluated.

If the bill is passed, Denmark will be the first country to tax unrealized gains on cryptocurrencies.

The recommendation follows a decision by the Danish Supreme Court last year that found that profits from the sale of Bitcoin are taxable.

Worldwide crypto taxation

Taxation of cryptocurrency gains has become a global issue as several other jurisdictions have introduced or are considering regulations on how digital assets should be taxed.

On October 21, the Federal Reserve Bank of Minneapolis called on the government to impose a tax on Bitcoin. Meanwhile, Italy is in talks to increase capital gains tax on crypto from 26% to 42%.

South Korean authorities are also considering the idea of ​​imposing a 20% tax on crypto earnings; In India, a flat income tax rate of 30% is applied to earnings from crypto assets.