The accounting of income from trading in cryptocurrencies continues to raise numerous questions among taxpayers, particularly in cross-border situations. A recent judgment by a Voivodship Administrative Court on this matter was interesting in that it concerned a taxpayer who had changed their tax residence from England to Poland and was now settling income in accordance with the Polish PIT Act.
Substance of the dispute and settlement
The judgment of the Voivodship Administrative Court in Warsaw on 29th August 2024 (ref. III SA/Wa 1290/24 (valid sentence), may be of significant importance to individuals who invested in cryptocurrencies prior to moving to Poland, where the sale of these assets took place after they had acquired Polish tax residency.
In the case in question, the taxpayer sold virtual currencies after moving from the UK to Poland and changing his tax residence to Poland. However, he had incurred the costs of acquiring these cryptocurrencies when he was still a non-resident, i.e. when he was living in the UK.
Both the tax authority and the subsequent court held that costs incurred in acquiring cryptocurrencies prior to obtaining residency in Poland could be included in the PIT-38 return, provided they had not been accounted for as tax expenses in another country.
However, importantly, the court only accepted the costs of acquiring cryptocurrencies in exchange for cash. It refused to allow expenses incurred when exchanging one cryptocurrency for another to be tax deductible, even if the transactions were taxed in the United Kingdom.
The reason? A lack of legal basis in the Polish PIT Act for recognising such operations as deductible costs. As the court emphasised, the PIT Act provisions allow for the settlement of costs incurred when acquiring virtual currencies, without making reference to their exchange with each other. Consequently, although such transactions involve an economic expense, they do not generate a tax cost under Polish regulations.
Furthermore, the court accepted in its judgment that income from the sale of cryptocurrencies after a change of residence is taxable in Poland, regardless of whether the cryptocurrency was acquired abroad or domestically and despite the fact that tax had already been paid on previous transactions in the United Kingdom.
The court did not consider the possibility of avoiding double taxation (based on the DTT agreement with the United Kingdom, for example), as it was not permitted to examine this issue more broadly within the framework of the tax ruling proceedings.
Conclusions
So, what are the conclusions of this judgment? The following is a brief summary:
- The right to account for historical costs is not overridden by a change of residency, provided these costs have not already been credited in another country.
- The PIT-38 return can be used to show the costs of acquiring cryptocurrencies incurred before acquiring tax residency in Poland.
- It is not possible to account for expenses related to the exchange of one cryptocurrency for another as an expense, even if tax was levied on them in another country.
- Regardless of where it was acquired, income from the sale of a cryptocurrency made by a Polish resident is taxable in Poland.
In summary, the judgment confirms that, even in cases involving complex circumstances such as a change of residence and investments in cryptocurrencies, it is possible to account for historical costs provided they are properly documented and comply with the conditions set out in the PIT Act. However, it also notes that the Polish tax system does not allow for so-called ‘crypto-to-crypto’ costs, which could result in significant discrepancies in effective taxation compared to other jurisdictions.
If you have any doubts about how to account for cryptocurrency income after a change of residence or in connection with any overseas transactions, it is important to ensure that all tax obligations are met in accordance with the relevant regulations. The Global Mobility Tax Services (GMTS) team at Nexia Advicero specialises in international personal taxation and complex cross-border settlements. We offer comprehensive support to guide you safely and efficiently through the process – please do not hesitate to contact us.
