Crypto-assets and virtual currencies have faced a development in the past years, that has not been followed by States policies, from a regulatory perspective, and less even has the tax legislation been adapted to this new reality.

Virtual currency can be considered a specific type of electronic money, basically used for online transactions. However, there is a difference, because while in electronic money schemes, the link between the electronic money and the traditional money format is preserved and has a legal foundation, in virtual currency schemes the unit of account is changed into a virtual one (e.g. Bitcoin, Ethereum).

In Portugal, as within most of the EU Member States, cryptocurrencies do not have legal offer and thus do not qualify as authorized currency, nor are they treated as “money” (whether physical or scriptural).

Currently there are no specific laws or regulations applicable to cryptocurrency in Portugal, including in relation to their issuance and transfer (1). Hence, cryptocurrencies are not prohibited, and investors are allowed to purchase, hold and sell cryptocurrencies.

The designation “crypto” has origin in the Greek and expresses the notion of hidden and it seems that for the Portuguese government, the taxation of the income obtained by individuals from cryptocurrency transactions must be kept somehow encrypted as well. Effectively, just like the 2020 State Budget, the 2021 State Budget did not address the subject and so the theme remains specifically ignored within the income tax legislation.

So far, the Portuguese Tax Authorities have released at least four binding rulings concerning cryptocurrencies – one of them in the context of Personal Income Tax (December of 2016).

In the absence of other laws and regulations that may clarify the taxation regime of cryptocurrencies, these rulings are important precedents in relation to the opinion the Portuguese Tax Authorities will adopt concerning cryptocurrency and crypto assets related activities when interpreting a specific situation and deciding whether or not a specific fact or action should be subject to Portuguese Personal Income Tax.

With the market of cryptocurrency and virtual currencies evolving so rapidly and assuming the relevance it has assumed in the last years, it becomes urgent to address the tax challenges these investments represent.

According to the conclusions of the OECD report Taxing Virtual Currencies: An overview of Tax Treatments and Emerging Tax Policy, policymakers should consider providing guidance not only on how virtual currencies fit within the existing tax framework but also a guidance that is comprehensive and addresses the major taxable events and income forms associated with virtual currencies, specifically:

• Creation of virtual currencies (via mining/forging, ITO’s and airdrops) and related expenses;

• Exchange with other virtual currencies, fiat currency, and for goods and services including valuation;

• Disposal via gift or inheritance;

• Loss or theft;

• Emerging developments (hard forks, stablecoins, CBDCs (2) , interest-bearing tokens);

• Related services (e.g. exchange services and wallets).

The report also remarks that there is a particular point of difficulty in complying with tax rules for virtual currencies due to their fast moving values, differing exchange rates and lack of translation into fiat currency and the need to keep complex records of monetary flows and transaction dates transforming this in a challenge for tax administrations to obtain reliable information on transactions and eventually the need to grant intermediaries a prominent role in disclosing the required information.

(1) For further information concerning the activity registration procedures, please refer to our Newsletter of January 2021 “In the use of its recent authority, the Bank of Portugal has drafted a notice with the regulation project that aims to regulate the registration procedures for all entities that provide services related to cryptocurrency, subject to public consultation until the December 10th, 2020 (commonly known as “Bank of Portugal’s Public Consultation nr. º 5/2020”

(2) Central Bank Digital Currencies

Departamento Derecho Fiscal y Tributario | Lisboa (Portugal)

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