The Israel Tax Authority has published a revised draft of its policy on taxing transactions in virtual currencies such as the bitcoin.
The new policy draft, published Monday, says digital currencies are an asset, not a currency, and that what determines whether the user is obligated to pay the value-added tax is the type of transaction conducted using virtual coinage.
Attorney Boaz Feinberg, head of the Tax and Anti-Money-Laundering Department at the international law firm Zysman, Aharoni, Gayer and Co., told Israel Hayom on Tuesday that "the income tax authorities have come to their senses on everything having to do with virtual currency since the first draft issued a year ago, and applies VAT only to people who buy and sell virtual currencies as a business.
"By doing so, Israel has adopted U.S. policies on crypto-currency, which also sees it as a financial asset, similar to stocks."
In response to the revised regulations, Israeli Bitcoin Association Chairman Meni Rosenfeld said Tuesday, "The digital currency revolution is here to stay. This past year, we have worked diligently with the Israel Tax Authority to adjust the draft regulations to bring them into line with reality and allow digital currency – a major growth engine for Israeli high-tech – to flourish."
Tax expert attorney Elad Brauner said, "The way the revised regulations propose treating this [virtual currency] raise major practical difficulties, especially in everything pertaining to the purchase of services using virtual currency. For example, according to the regulations, every private individual who has a wallet of virtual coinage and regularly uses it to pay for goods and services will have to calculate capital gains on the transaction and capital gains taxes, without seeing any money."
Attorney Gilad Ben-Ami said, "Some of the problems with how the ITA saw it [virtual currency] were fixed in the final draft, even if some of the statements in the draft are generalized and fail to take into account individual characteristics. From the perspective of income tax, the ITA's stance was that virtual currency 'mining' would be evaluated and a decision would be made about whether it was earnings or capital, in accordance with the characteristics of the assets and legal standards. The revised draft declares that mining will be considered business revenue."
