How income tax on cryptocurrency earnings is paid

The transfer of cryptocurrencies by natural persons generates taxable income, and the rules concerning the taxation of such income are found in Chapter X of the Fiscal Code, under Title 4, entitled "Income tax on income from other sources".

Consequently, those who obtain profits through transactions with virtual currencies are required to declare such income in the Single Declaration on Income Tax and Social Contributions Due by Natural Persons. This declaration must be filed by 25 May of the year following the one in which the taxable income was realised. Moreover, the same deadline applies to the payment of tax.

We recall that taxation is applied at a rate of 10% of the income realised, that is, of the gain obtained THROUGH the trading of cryptocurrencies.

There are, of course, two scenarios for calculating the tax, depending on the complexity of the transactions carried out.

A SINGLE BUY-SELL TRANSACTION

In such situations, the calculation method is quite straightforward. If a single ETH token is purchased at a value of, say, 100 EUR, and sold at a value of 300 EUR, a simple difference between the two amounts is calculated.

A tax of 10% is then applied to this difference. Out of the 200 EUR gained, the amount owed comes to 20 EUR.

MULTIPLE TRANSACTIONS

Persons who earn income from crypto-asset transactions will often not be in the previous scenario, where there is a single purchase and a single sale of the entire amount. In such situations, several methods may be considered for calculating the tax, each of which is correct.

There are three fundamental methods for calculating tax on income derived from cryptocurrencies, which apply both where the number of buy and sell transactions is matched, and where only part of the cryptocurrencies acquired are sold.

A. By applying the FIFO (first in, first out) method, the goods acquired or produced earliest are treated as the first to be sold.

Thus, regardless of the complexity of the transactions, the corresponding purchases and sales are considered in order. If the first purchase was worth 300 EUR, and the first sale of crypto-assets was worth 500 EUR, the taxable income for these transactions will be 200 EUR.

The same method is then applied to the second purchase and second sale. Finally, once all the transaction pairs have been taken into account, the sum of the profits is calculated and a 10% tax is applied to that resulting sum.

B. By using the LIFO (last in, first out) method, the goods most recently produced or acquired are assumed to be the first to leave stock.

Applying a similar transaction-pairing method to the one described above, in this scenario the purchases are considered in reverse order, while the sales are considered in chronological order.

For example, where a trader has made purchases of 100 EUR in BTC, 200 EUR in BTC and 300 EUR in BTC, and then sells the coins acquired for 400 EUR, 500 EUR and 600 EUR, the matching will be made, in the first instance, between the 300 EUR BTC purchase and the 400 EUR sale. Thus, it is assumed that the last coins purchased are also the first to be sold.

C. By applying the HIFO (highest in, first out) method, the products with the highest cost are treated as the first to leave stock.

A similar method is applied here too, except that the purchases are considered in descending order of value rather than of date.

D. In addition, Bolboceanu Maria and Cîrnu Camil-Ciprian, under the guidance of Lect. univ. dr. Matei Marius Ștefan of the Bucharest University of Economic Studies, carried out an exhaustive analysis in the field of cryptocurrencies.

This analysis proposed the use of the weighted average cost (WAC) method as the correct way of determining the tax base for cryptocurrency transactions. This approach would ensure a fair and accurate assessment of taxes on cryptocurrency transactions, taking into account acquisition prices and weighting them accordingly.

The weighted average cost is a balanced approach, calculated as follows: the sum of all purchases is divided by the number of purchase transactions. This gives the average value of all the purchase transactions taken into account.

Subsequently, regardless of the number of sale transactions, only the average value of the purchase transactions is taken into account, without any need to rank them.

EUR-RON CONVERSION

Another relevant issue concerns the currency in which the tax on income from cryptocurrency trading is to be paid. Given that payments to the state are made exclusively in Lei, it is not possible to pay the tax in euros. The question therefore arises as to how to convert euros into Lei (or any other currency in which payments were made for the cryptocurrencies sold).

The exchange rate applied will always be that from the moment of the transaction, and not from the moment the tax is paid. Consequently, the exchange rate applicable on each day on which cryptocurrency sales were made must be taken into account.

In conclusion, we draw attention to the fact that no calculation method has been expressly approved by ANAF, all of the variants presented above being viable. Thus, as long as a calculation report is attached when the return is filed with ANAF, and the calculation method remains the same each year, there should be no impediment until the ideal variant is officially established.