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24/10/24
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Denmark Proposes New Tax Framework for Cryptocurrency: Unrealized Gains to be Taxed by 2026
Denmark’s Tax Law Council has proposed a new framework for taxing cryptocurrency, suggesting that unrealized gains and losses on crypto assets could be subject to taxation starting in 2026. This recommendation is part of a comprehensive 93-page report addressing how crypto assets should be treated under Danish tax law.
In its analysis, the Council evaluated three potential taxation models: capital gains tax, warehouse taxation, and inventory taxation. The preferred approach appears to be inventory taxation, which would classify an investor’s total crypto portfolio as a single unit, subject to annual taxation, regardless of whether the assets have been sold within that timeframe.
The report highlights the challenges that Danish crypto investors have faced under the existing capital gains tax system, which has led to perceptions of unfair treatment. By shifting to inventory taxation, the goal is to create a more straightforward method for taxing crypto holdings. This would mean that individuals could face tax liabilities on both unrealized gains and losses, similar to other financial assets like stocks and bonds. However, the discussion surrounding how retroactively the new rules might apply to current holdings remains vague.
Moreover, the recommendations call for enhanced reporting requirements for crypto service providers, such as exchanges and payment companies. These entities would need to provide detailed transactional information that is easily accessible across the European Union.
While the Danish Tax Minister has expressed the need for clearer regulations, the proposed bill will not reach the Danish Parliament until early 2025, and if passed, it is expected to take effect no sooner than January 1, 2026. These developments in Denmark reflect a larger global trend, as various jurisdictions explore tighter tax regulations on both crypto and traditional financial assets.
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