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France’s economy minister Bruno Le Maire declared that France will exempt tax on crypto-to-crypto trade but will impose tax when cryptocurrency is converted to traditional money. Le Maire stated that when the capital gain of cryptocurrency is converted into traditional fiat currency, it is the ideal time to implement taxation.
The United States has previously set a precedence for taxation on cryptocurrency by taxing the profits of crypto trades at short-term and long-term capital rate. The person or business involved in crypto trade will be paying taxes based on the monetary gain depending on their tax bracket and basic income. The IRS has argued that since cryptocurrency is a profitable business, it will be taxed as such.
Breaking from the tradition, France has decided to introduce these new taxation laws that strengthen the prospect of investors and traders being involved in crypto-to-crypto trading in the country, while the government can obtain taxes from the conversion.
Le Maire further addressed the value-added tax (VAT) that will be placed. Le Maire explains that VAT will be applied to cryptocurrency when it is used to acquire an asset or a service. The VAT cost will depend on the relative cost of the asset or service in question of purchase.
Great Difficulty in Monitoring and Tracking Crypto Trading
France claims that one of the biggest challenges of crypto-to-crypto trading is the lack of supervision over the trade: digital transactions make it difficult to locate the sender and receiver involved in the trade. Le Maire stated that by taxing cryptocurrency trading, the tracking of digital transactions will become more feasible.
This corresponds as to why Facebook’s cryptocurrency Libra was opposed by France as Le Maire is confident that France’s new taxation proposition will monitor the tracking of cryptocurrency transaction that is usually not possible due to the very nature of digital currency. The finance minister argues that France’s monetary sovereignty could be affected otherwise.
Traders in the past have questioned the need for taxation of cryptocurrency, arguing crypto-to-crypto trade would not increase the capital gains. Despite this, in May 2014, the US IRS issued a notice calming that cryptocurrency trade would be treated as profitable property and will be taxed accordingly.
To avoid the tax impact, many traders have turned to social media promotion and lobbying for a minimum tax on crypto trade, and making small transactions under a set limit excluded from the capital gains taxation.