Understanding how one should declare taxes for crypto trading is not an easy task. In recent years, several Swedes have been taxed by the Swedish Tax Agency with several million Swedish kronor (SEK), and the Tax Agency seems to continue to audit Swedish crypto traders.
One of all Swedes who has been reviewed by the Swedish Tax Agency is 34-year-old Linus Dunkers in Köping. He says that between 2014 and 2016 he sold bitcoin for a total of 19 million Swedish kronor, approximately $2.1 million. Of this money, he made a profit of at least 2 million Swedish kronor ($224 000) in 2015 and 2016.
Thought the rules were unclear
According to Linus Dunkers, he did not declare taxes for his crypto sales in 2014 and 2015 because he felt that these were under so-called “hobby activity” where profits up to 50,000 Swedish kronor per year are tax-free.
“In 2016, I received clear instructions from the Swedish Tax Agency that the purchase and sale of bitcoin should be taxed in the capital income category, but it was still unclear how my trades would be practically reported. Therefore, I submitted my declaration for 2016 along with a comment regarding me supplementing my bitcoin trades when it was clarified how it should be reported”, says Linus Dunkers to Trijo News.
In fact, Linus Dunkers was even okay with paying a possible penalty fee because he did not declare his capital gain in time.
“I postponed it, which maybe was wrong of me. But I had the intention to make any corrections at a later time because the Tax Agency’s calculation method there and then was not applicable to my trading on Localbitcoins”, says Linus Dunkers.
“I postponed it, which maybe was wrong of me”
So far nothing strange, Dunkers explains. However, the problems came when he was audited by the Swedish Tax Agency the other year.
According to Dunkers, he and a few other people have become subject to special taxations by the Swedish Tax Agency. He also believes that the Tax Agency has counted incorrectly, which resulted in him having to pay way too much tax.
“What I have been told is that a little over 20 individuals who traded bitcoin received a changed tax assessment for the period 2014, 2015 and 2016. Of these, a few cases are all handled by one and the same administrator, and it is in these cases that the Swedish Tax Agency has been moving forward with everything they got”, says Linus Dunkers who claims that one of these cases concerns himself.
Two major disagreements
Linus Dunkers describes the turns in his case as many and complicated, but that everything basically boils down to two major disagreements between him and the Tax Agency.
The first disagreement, according to Dunkers, is that the Tax Agency has not accepted the evidence that Dunkers has provided of how he got hold of his bitcoin. That is because he bought them cash.
The consequence is that his acquisition value, i.e. what he bought his bitcoin for, is counted as zero at the Tax Agency, and that he is therefore forced to pay tax on his sales, rather than on his profit.
“This is twisted. Not being able to deduct the costs of purchasing is completely wrong”, says Linus Dunkers.
“This is twisted”
The second disagreement is about the fact that the Swedish Tax Agency is of the opinion that Linus Dunkers bitcoin trades should be treated as a so-called “business activity” instead of as pure capital gains. According to Dunkers, however, he has only bought and sold cryptocurrencies for his own money and in private management, and such type of sales, the Tax Agency in other contexts has assessed to be taxed as capital income.
“I know what the requirements for running “business activities” within bitcoin trading are, and it is basically just Safello and Btcx that do so in Sweden. It is about KYC demands and AML policies, things that simply cannot be achieved at Localbitcoins”, says Linus Dunkers.
Since there are different taxes on capital gains and on income from a “business activity”, Linus Dunkers is forced to pay 60 percent tax instead of 30 percent, thus yet another hefty tax burden.
“The Swedish Tax Agency proceeds with unreasonable taxation to force a legal process”
Linus Dunkers argues that the purpose of the Swedish Tax Agency is to pursuuie his and the other cases forward because the Tax Agency wishes to have precedent verdicts regarding private trade with cryptocurrencies. The only way to do this is to get someone to appeal the Tax Agency’s decision so that the case can be tried in court.
The fact that the Swedish Tax Agency wants to have this tried in court is in itself nothing that Linus Dunkers think is strange. What he is opposing is that individuals then risk getting into trouble.
“The Swedish Tax Agency proceeds with unreasonable taxation to force a legal process in which we must appeal because the alternative is completely absurd. I honestly do not think that those who made the audit themselves believe in this taxation. It’s not reasonable. None of them have been able to answer the simple question where my bitcoin would come from if not from Localbitcoins”, says Linus Dunkers.
Henrik Kisterud, control coordinator at the Swedish Tax Agency, cannot comment on ongoing tax cases but says that during 2018, the Tax Agency has experienced problems with the fact that many people who declared their bitcoin trading do not have sufficient documentation for purchases made back in time. However, he says that it is generally the declarant who is obliged to provide sufficient documentation to show what he or she wants deductions for.
“Now, I don’t know this particular case, but I understand that we have made some kind of assessment that this cost is not sufficiently substantiated. Then you simply have no deduction to make. That may sound harsh, but again: it is the declarant’s responsibility to show the cost they had for a deduction they make in a declaration”, says Henrik Kisterud to Trijo News.
“Business activity” or not
When it comes to whether something should be classified as a “business activity” or not, Henrik Kisterud notes that there is clearly higher taxation if it is about income from a “business activity”, but that the circumstances of the individual case determine how it should be assessed.
“The criteria for ‘business activity’ are independence, duration and profit. Now, perhaps one thinks or believes that capital trading, speculative transactions and stock trading are capital income, but here we must have made the assessment that it is not pure speculation, but something more. If it is about outward exchange activity, one has become an exchange person instead, that is that you buy and sell with a profit markup”, says Henrik Kisterud and adds:
“And I suspect that this is going to be tried in court, so we will likely get an answer to that question.”
The person in question believes that the purpose of you pursuing these cases is that the Swedish Tax Agency wants precedent verdicts concerning private trading with cryptocurrencies. He claims that the Tax Agency is proceeding with unreasonable taxation in order to force a legal process to test the regulations. Are there situations where the Tax Agency could act in this way?
“I don’t see it like that, rather we make an assessment in the individual case that we have in front of us. There is no connection to that we now want to push a case to the highest instance, no, I can’t imagine that.”
If you from the Swedish Tax Agency’s side are uncertain about how the regulations should be interpreted, and you feel that you want to try something in court, how would you go about it?
“Uncertain and uncertain. Of course, there may be cases involving new phenomena, but we always make an interpretation based on the legal rules that we have available at present. It’s not about us wanting to pursue a case to get a precedent. But of course, it may happen that it is so new that we also think so, but isn’t it a good thing then that it will be tried in the end, to see that we really made a right interpretation of the law.”
But for a case to be tried in court, an individual must appeal, right?
“Yes, that is naturally the case.”
If you were to force an appeal, isn’t there a risk then that individuals could get into trouble, that it will be they who personally have to pay the price because you want to test the regulations?
“I understand the question, but no, I do not feel that we are acting in that way. It would feel a bit harsh if we did, if you know what I mean”, says Henrik Kisterud.
A race against the clock
From the beginning, Linus Dunkers had expected a tax of approximately 1.5 million Swedish kronor (approximately $168,000) in regards to the data he submitted to the Swedish Tax Agency, but instead came a tax bill regarding the payment of 8.5 million Swedish kronor (approximately $950,000).
Although that amount was halved after a verdict in the Administrative court of appeal in Sweden, where he received a deferment of the payment for the difference between capital and “business activity”, he still had to pay 4.2 million Swedish kronor (approximately $470,000) to the Tax Agency until December 27, something he did not manage to do.
Now, he has until January 28 to correct the debt on his tax account before it goes to the Enforcement Authority.
“My hope is to settle these 4.2 million Swedish kronor with ordinary bank loans, loans from family members and the sale of shares in my companies. In 2019, I will seek help from the public and the crypto community to be able to pursue the legal processes”, says Linus Dunkers.
